For Australian SMEs, deciding where to invest marketing effort – attracting new customers (acquisition) or keeping existing ones (retention) – is a constant balancing act. There’s no single ‘right’ answer, as the optimal mix changes depending on your business stage and the broader economic climate. We see too many businesses chasing shiny new customer numbers while neglecting the goldmine already in their database.

Generally, early-stage businesses, or those entering a new market, should lean heavily into acquisition. Building initial brand awareness and establishing a customer base is paramount. However, as you mature, the economics shift. Acquisition costs almost always increase over time, while retaining an existing customer is demonstrably cheaper – often five to twenty-five times cheaper, depending on the industry. This isn’t just about cost though; it’s about lifetime value.

Here are a few key indicators to help you decide where to focus:

• Customer Acquisition Cost (CAC): If your CAC is rising significantly, and you’re struggling to maintain profitability on new customers, it’s a strong signal to prioritise retention. Analyse why acquisition is becoming more expensive – is competition increasing, or are your channels becoming saturated?
• Churn Rate: A high churn rate (the percentage of customers leaving) indicates problems with customer satisfaction or value delivery. Addressing these issues through retention-focused initiatives should be your immediate priority.
• Market Maturity: In a rapidly growing market, acquisition can remain effective for longer. However, as the market matures and competition intensifies, retention becomes increasingly crucial.
• Lifetime Value (LTV): If your LTV is significantly higher than your CAC, you can afford to invest more in acquisition. But if LTV is close to or below CAC, retention is vital to improve overall profitability.

Looking ahead, with continued economic uncertainty anticipated, focusing on your existing customer base offers a more predictable revenue stream. It’s easier to upsell or cross-sell to someone who already knows and trusts your brand. Don’t abandon acquisition entirely, but ensure your retention strategies are robust. A good rule of thumb is to dedicate at least 20-30% of your marketing budget to retention activities, even during growth phases.

To determine the right balance for your business, we recommend conducting a thorough LTV:CAC analysis. This will provide a clear picture of where your marketing dollars are delivering the greatest return and inform your strategic decisions moving forward.