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The Value of Customer Retention vs Customer Acquisition

By Peter Smith

Do you work with a small business mentor whose opinion you value? If so, what are the kinds of questions you ask your mentor? You may want to bring up the topic of retaining customers versus acquiring new ones at your next meeting. You might be surprised to learn how valuable a solid customer retention strategy actually is.

As someone who has been involved in small business coaching for some time, I can tell you that nearly every small business in the UK works hard at acquiring new customers. It goes without saying that a business cannot thrive if it is unable to reach new customers on a consistent basis. But it turns out that customer retention is more valuable.

Costs of Customer Retention vs Acquisition

When small business owners are first presented with the idea of retention versus acquisition, the tendency is to immediately think about cost. In other words, how much does it cost to actually retain versus acquire? There’s no black and white answer here, but one of the most commonly cited statistics from Bain & Co. suggests that it is 6-7 times more costly to acquire a new customer than to retain existing ones.

Think about that for just one minute. If your company is spending £100 per year to retain just one customer, it is likely spending upwards of £700 to acquire a single new customer. But that is only half the story. As any business mentor can tell you, the other half is value.

The Value of Retention vs Acquisition

A basic principle of small business coaching is that there is a difference between cost and value. Cost is what you put into something; the value is what you get out of it in relation to that cost. The differences between the two are rather stark when applied to customer retention versus acquisition.

According to Invesp CEO, best-selling author, and industry speaker Khalid Saleh, the likelihood of selling to an existing customer is between 60-70% as compared to just 5-20% for a new customer. Furthermore, existing customers are 50% more likely to try new products and 31% more likely to spend more than new customers. Finally, Saleh’s data suggests that improving customer retention rates by just 5% can boost profits anywhere from 25-95%.

The value of customer retention should be absolutely clear from the statistics. To further break it down for you, consider this: it could take anywhere from 6-12 months to break even on a new customer if he or she does not purchase from you regularly. During that same time, loyal customers continue to spend.

There is no guarantee that a new customer will stick with your business after the initial purchase, so you could actually lose money if you don’t work to retain that customer. So it’s a double-edged sword. In the end, while customer acquisition is certainly important, customer retention is even more important. Retention is less costly and more valuable.


Evolve PG –
Invesp –

By Peter Smith.

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