It’s a classic marketing debate: should you focus on winning new customers (acquisition) or keeping the ones you have (retention)? For most Australian SMEs, the answer isn’t ‘either/or’, but a carefully considered ‘both’, leaning heavily towards retention. We’ve seen time and again that a strong retention strategy delivers a far greater return on investment, particularly in the current economic climate.

Here’s why. Acquiring a new customer is significantly more expensive – often five to twenty-five times more – than retaining an existing one. Think about it: acquisition involves advertising costs, sales team time, potential discounts to win the deal, and the initial onboarding process. Retention, while requiring investment, focuses on nurturing relationships and delivering ongoing value.

Let’s look at some key insights:

• Customer Lifetime Value (CLTV): This is the total revenue a customer is expected to generate throughout their relationship with your business. Increasing CLTV through retention is a powerful growth lever. Focusing on repeat purchases and upselling to existing customers directly impacts this metric.
• Retention drives advocacy: Loyal customers become your best marketers. They provide referrals, positive reviews, and social proof – all incredibly valuable and cost-effective forms of acquisition.
• Acquisition gets harder: Competition is fierce. Advertising costs are rising. Organic reach on social media is declining. Relying solely on acquisition means constantly battling for attention and paying a premium to do so.
• Retention builds resilience: A solid base of loyal customers provides stability during economic downturns or when facing new competitors. They’re less likely to switch based on price alone.

That’s not to say acquisition is unimportant. You always need a healthy influx of new customers. However, we recommend a shift in focus. Prioritise building a robust retention engine first – loyalty programs, personalised communication, exceptional customer service, and proactive engagement. Then, allocate a smaller, more targeted budget to acquisition, focusing on channels that deliver high-quality leads.

To determine the right balance for your business, we suggest conducting a CLTV analysis. Understand how much each customer is worth, and then calculate the cost of acquiring and retaining them. This will provide a clear picture of where your marketing dollars will generate the greatest return. Don’t just chase new customers; nurture the ones you already have.