Customer Acquisition Retention vs. Retention:
As an Ecommerce store proprietor, the growth of your revenue relies heavily on two main drivers: acquiring customers and retaining them. Effective customer acquisition and retention strategies are essential to fuel your business's growth engine. Customer retention refers to the company's ability to generate continued sales from existing customers, turning first-time buyers into loyal customers. The goal is to increase customer lifetime value (LTV) while minimizing the churn rate, which is the rate at which customers stop returning to your business.
On the other hand, customer acquisition is the process of attracting new customers to purchase from your store, and it is a vital element of nearly every marketing strategy. The customer acquisition funnel involves building awareness and interest, supporting potential customers as they consider making a purchase and converting them into paying customers.
To measure customer acquisition, divide your total marketing spend by the number of new customers generated to calculate the customer acquisition cost (CAC). Comparing your CAC to LTV gives you an idea of the average ROI for your marketing spend. You can calculate LTV by multiplying the average gross margin of an order by the average number of times a customer orders. If your CAC is less than your LTV, you likely have a profitable customer acquisition strategy, with an ideal LTV that is three times your CAC.
For customer retention, ROI is usually measured by looking at the incremental success of a new initiative on LTV. Suppose you launch a loyalty program, and after a year, you find that your LTV has grown from $200 to $250 per customer with 2,000 sales. In that case, your return on investment from the loyalty program would be $100,000 ($50 x 2,000). The cost element of ROI may differ depending on your brand, but it typically includes administrative costs, associated costs for advertising the program, and the margin cost of the program's discounts.
Determining whether to focus on acquisition or retention depends on your business model and LTV. Subscription-based or regularly ordered businesses may benefit from retention, while those selling infrequently purchased products may need to focus on acquisition. Start by building a customer acquisition channel, then develop strategies to encourage repeat purchases. Over time, diversify both acquisition and retention strategies to build a powerful financial growth engine.
As an Ecommerce business owner, achieving sustainable growth requires balancing customer acquisition and retention strategies. Customer acquisition focuses on reaching and converting new customers, while customer retention focuses on maximizing revenue from existing customers. Calculating customer acquisition cost (CAC) and lifetime value (LTV) can help you determine the effectiveness of your acquisition strategy while measuring the incremental success of retention initiatives on LTV can determine ROI. Finding the right balance between acquisition and retention strategies depends on your business model and LTV. By building effective acquisition and retention strategies on top of each other over time, you can build a powerful growth engine for your Ecommerce business.