The Fine Balancing Act of Customer Retention and Acquisition

If there were ever time to provide a balancing act between customer acquisition and retention, it’s now.

Acquiring and keeping customers is the yin and yang of any business. We need customers to win new ones. Yet, most businesses treat customer acquisition and retention as if they were contraries — like summer and winter.

Customer acquisition is seen like summer. Long glorious days that are relished and celebrated. Customer retention like winter, which must be dealt with in anticipation of sunnier days. That is because the focus, from Wall Street to Main Street, is predominantly on customer acquisition growth. 

Yet acquisition and retention are two sides of the same coin. Acquisition is the expansion side — new net, add-on sales and renewal. Retention is the loss mitigation side — churn, abandonment and downgrades.

In times of economic volatility, companies turn their attention to bolstering retention. The organization pivots — more accurately, it scrambles — to understand the underlying reasons for churn, declining CSAT, NPS and engagement scores. Across 2020 and 2021, 30% of SaaS companies reported their churn rates increased year over year, according to 99Firms. “Companies recover less than one out of three lost customers,” according to ProfitWell.

It’s time we revisit how we manage and measure revenue flows. And that starts with breaking the boundaries between customer acquisition and retention. Here are four steps to get started.

Balanced Portfolio Approach

The Pareto Principle, considered best practice, states that 80% of revenue should come from new customers and 20% from existing ones. Yet, according to the Customer Research Institute, 65% of a company’s business actually comes from existing customers. An increase in customer retention by a few percentage points can have a dramatic and positive impact on profit. 

A best practice is to manage customer acquisition and retention like balanced portfolios. Understanding how customer segments will change and impact product/market fit enables better-informed decisions about where to invest, how to set target returns for the coming 24-48 months and how much to invest in establishing (repeatable) paths to customer success.

Related Article: Customer Acquisition Really Stinks Sometimes. Here’s Why

Actionable Customer Lifecycle Journeys

Managing a balanced customer portfolio and paths to success is only possible by knowing your target customers at a level of detail well beyond personas. It means seeing the world through their eyes and contextually understanding how customers see vendors fitting into the journey.

The pre-and post-purchase view of the customer journey is a paradigm unique to vendors. It’s not how customers see it. For them, a purchase is a point along the way to achieving a desired outcome. 

A sizable legal firm shared a story we’ve heard all too often. The customer and vendor sales executive developed a close working relationship during an in-depth product evaluation. After contract signing, those daily calls turned into silence. Hounding the salesperson was unproductive. Eventually, the customer was onboarded and found the support/service team’s product knowledge left much to be desired. The customer began to panic; they had staked their careers championing this project and vendor. Talk began about how to get out of the contract. 

When companies deliver the lifecycle journey customers value and expect, they enjoy greater stability of current revenue streams. The key is to understand each customer segment’s lifecycle journey and expectations which become the blueprints for:

  • Aligning organizational functions and data to customer micro-moments.
  • Defining systems and process flows to mirror journeys.
  • Identifying where automation can delight or detract.
  • Measuring revenue influence and productivity by journey stages.
  • Determining investment areas that support the balanced portfolio.

Related Article: Connected Customer, Connected Data, Connected Journeys

Humanistic Culture

As with most transformations, company culture is the determinant of success. Peter Drucker infamously said, “culture eats strategy for breakfast.”

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