Customer acquisition or customer retention?

05 December 2021- 12 min read

One of the questions I often receive is this:

“Should we focus our efforts on acquisition or retention?”

Let me stress that one does not necessarily exclude the other. However, most people do not understand the implications of a high churn rate. Let me try to illustrate this with an example.

Company A has a churn rate on 10% (Every month 10% of the customers are “churning” a.k.a. cancelling their subscription). 90% stays as subscribers.

Company B has a churn rate on 20% (Every month 20% of the customers are “churning” a.k.a. cancelling their subscription. 80% stays as subscribers.

In this example let’s say that both companies are able to attract 100 new subscribers each month.

Now let’s have a look at the numbers after 12 months:

10%

 

100

190

271

344

410

469

522

570

613

651

686

718

20%

 

100

180

244

295

336

369

395

416

433

446

457

466

   

154

277

376

455

518

568

609

641

667

687

704

717

 

Company A will have 718 active subscribers. (Blue)

Company B will have 466 active subscribers. (Green)

The difference is remarkable.

So that rises another question: How many new customers should Company B be able to acquire each month to end at the same result as Company A after 12 months? (Red)

I needed to play a little with the numbers in my spreadsheet (you can download it here – for your own amusement – and to adjust the numbers for your business!).

If company B should end with the same result as Company A after 12 months they should acquire 154 new subscribers each month. More than 50% more than company A.

I am not going to give you a finite answer to the question I initiated this post with – however I encourage you to reflect what you think is easier and requires less resources. A socalled “low hanging fruit”

Acquistion of 50% more subscribers every month OR retaining 10% (in full numbers) more subscribers every month.

My recommendation is usually that if you focus on keeping your new acquired customers happy you will end up with a more profitable business than if you focus solely on acquiring new customers every month and thus tend to neglect existing customers.

Even small variations will give you a big difference after 12 months.

Use this spreadsheet to make your own test and help you decide where you should focus your efforts.  

Download calculator in excel here

 

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Jakob Soderberg

Jakob Soderberg

Jakob knows a lot about a lot of things. Including (not excluding) fundraising, subscription based business models, IPA's and IPO's plantbased foods and barefoot running.