What is the Cost of Acquiring vs. Retaining a Customer?

Businesses need to recognize that content and social strategies often provide more value in the way of retention than they do with acquisition.

Let’s just dive straight into the math… But if numbers aren’t your thing, check out the infographic below that will really break it down the technicalities of the cost of acquiring new customers versus the cost of keeping a customer.

  • Customer Attrition Rate = ( Number of Customers that Leave Each Year ) / ( Total Number of Customers )
  • Customer Retention Rate = ( Total Number of Customers – Number of Customers that Leave Each Year ) / ( Total Number of Customers )
  • Customer Lifetime Value (CLV) = (Total Profits) / ( Customer Attrition Rate )
  • Customer Acquisition Cost (CAC) = ( Total Marketing and Sales Budget Including Salaries ) / (Number of Customers Acquired)
  • Cost of Attrition = (Customer Lifetime Value) * (Number of Annual Customers Lost)

So let’s give an example, thanks to Market Tech Blog

  • Customer Attrition Rate = 500 / 5000 = 10%
  • Customer Retention Rate = (5000 – 500) / 5000 = 90%
  • Customer Lifetime Value = ($99 * 12 * 15% ) / 10% = $1,782.00

If your CAC is $20 per client, that’s a solid return on marketing investment, spending $10k to replace the 500 customers that left. But what if you could increase retention 1% by spending another $5 per customer? That would be $25,000 spent on a retention program. That would increase your CLV from $1,782 to $1,980. Over the lifetime of your 5,000 customers, you’ve just increased your bottom line by almost a million dollars.

It’s time to get serious about how businesses are using their media leverage in order to maintain customer relationships.

customer-acquistion-versus-retention

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