Why is Customer Retention better than Customer Acquisition

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| Last Updated: May 26, 2017 |

Reading time: 3 minutes

Customer Retention is better than customer acquisition.

With limited financing and resources, SaaS startups have to find ways to reduce their customer acquisition cost (CAC). After acquisition, companies need to find ways to retain the customers or else they risk losing them. Are you focusing your efforts on customer acquisition or retention?

One of the SaaS metrics that matter is recurring revenue. Granted, all businesses can expect a percentage of churn. However, if your churn percentage is high or constantly increasing, there is a problem with your brand or service. Your costs of acquiring customers must be justified by the lifetime value (LTV) of your customer. However, if customers do not consume your service within their anticipated LTV, then this means your CAC is larger than LTV, which means you will not realize optimal revenues from the customers.

Finding new customers is great. However, SaaS companies should focus more on retaining their existing customers. With a great retention rate, companies are likely to generate revenues from customers over their optimal LTV and at the same time, get new customers organically and at lower costs.

Why Focus on Retention rather than Acquisition?

It is easier to sell to subscribers that have already signed up for your service than new leads that are yet to sign up. While versatility, flexibility and agility are some of the elements of a great SaaS application, they do not contribute to long term revenues like customer satisfaction does. Users can forgive you for failing to launch a feature on time or falling short on various specifications. However, poor customer service is rarely forgiven.

Check the following statistics from SalesForce Desk

*Companies can use up to 5x more to get new customers than keep existing ones. *68% of customers abandon companies because of poor customer services. *48% of companies think that customers leave because of high prices, while in fact, only 25% leave because of pricing. *Depending on the industry, businesses can experience increased profits ranging from 5% to 125% when they improve their customer retention rates by 5%.

Check more stats on the infographic below:

The Power of Customer Retention Infographic

Not only do users broadcast their bad experiences across the social networks, they also cancel subscriptions, which in turn augments your churn levels. Customers who bad mouth your application on social media can affect your customer acquisition efforts, making prospects more resistant to buy your service. Regardless of how good your service is, a negative brand will affect conversions, thus increasing your budgeting spend.

Role of Brand Advocates for SaaS Businesses

Today’s consumers have more control on the marketing information that they get. Customers are no longer listening to direct selling messages from companies, but are scouring the Internet on forums, blogs and social media sites to find out what other people are saying about a service. This being the case, SaaS businesses need to invest their time in improving customer satisfaction and engaging with brand ambassadors. Successful SaaS companies like ZOHO have brand ambassadors (commonly referred to as evangelists).

Brand ambassadors can help you in your customer acquisition strategy, by advocating and educating their followers about your products and thus reducing the friction of new leads converting. For existing customers, you need to make it all about them. Show them that you care and know who they are, and connect with them on their preferred channels, be it via social media, email marketing or through your blog.

Provide your customers with an experience that they will want to share. Whether you are offering fast support response, quicker shipping, great products or services, make it easy for customers to share these experiences.

Author of the post

John Solomon

Marketing Leader / Sales Enabler. Head of India Operations for @Infrascale / @sosonlinebackup.

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