GS#2: Should you focus on Acquisition or Retention?
Spoiler: Retention, and sometimes Acquisition.
Hi everyone! I hope you’re doing fine.
Last Sunday I ran my very first (and last) half-marathon. That was difficult, I’m a little disappointed in my performance, but proud of myself for achieving it.
I won’t do it again.
Today, you’ll get the final answer to a question I received many times after I made some posts about growth frameworks.
This question is: “Should I focus on Acquisition or Retention first?”
Obviously, the best is to work on both.
But in a world where you really have to choose one, go for Retention.
We’ll see why, and in which cases you should focus on Acquisition instead.
Let’s dive in!
Before we start, I wanted to let you know I write this newsletter as a hobby. If you aren’t subscribed, you can do it here:
My everyday job is doing growth marketing consulting and operations for our clients at Spaag, a growth marketing cabinet based in Paris and Lille (France), and working for clients from all over the world.
And as a second job I do part-time, I help B2B business leaders construct their growth strategy and system. If you’re interested, write me an email or DM me on LinkedIn.
That’s all for me, let’s go back to Acquisition vs Retention.
Definitions
The framework we use the most in growth marketing is the (A)AARRR.
I’m thinking of writing a one-page glossary, to not repeat such definitions in each newsletter. Would it be a good idea?
Anyway, the AARRR framework is helpful to visualize the customer journey.
Your customer starts by discovering you (Awareness), then becomes a subscriber, a community member, whatever it is in your case but the thing is: he remembers you (Acquisition).
Then, he hires you or starts paying your offer (Activation).
You try to keep him as a client as long as possible (Retention), and after a while, he starts recommending you to others (Referrals).
All of that leads to an increase in your total income (Revenue).
So, focusing on Acquisition means focusing on increasing how many clients you got, whereas focusing on Retention means focusing on how long your clients stay.
Why focus on Retention first?
Acquiring a client always costs you something: time, money, or energy.
You can reduce this cost by different means (improving your performance marketing, having an ROI approach, doing inbound marketing…), but it will always cost you something, EXCEPT through Referrals (from your actual or previous clients, or just someone who knows you).
If two clients cost you the same amount to get, which one is worth more? Answer: the one who will pay you more.
So, as the amount you initially charge in B2B is often more or less the same per client, sometimes it’s more if the mission is bigger, you can’t control this parameter.
This means the client who will spend the most is the one who stays longer.
By working on Retention, you increase the overall lifetime value (LTV) of your clients.
Plus, a client who works with you for a longer time trusts you more, so you can do more upsells.
Also, it allows you to take more risks, so to potentially get better results to promote yourself.
Finally, it also helps you understand more and more your customer’s behavior, which means better targeting and technics to sell.
If you want a mathematic description of this, I made a post describing it.
The very last factor that comes in: as I just said, a client who works with you for a longer period trusts you more. That means he has way more chances of recommending you!
So working on Retention improves Acquisition AND Referrals.
Wombo combo.
Final slash: Retention costs 5x less than Acquisition. (I lost the link to the scientific study, that’s why I don’t use this stat so much, but it’s true).
That’s why, in my humble opinion, if you had to choose between the two, I would go for Retention.
Now, let’s see in which cases I would not make this choice.
When should you choose Acquisition instead?
Sometimes, you can’t make clients stay longer.
Let’s say you work in the wedding industry. You don’t hope all your clients will get a divorce, right?
In this case, working on retention is kinda useless.
What you need, is to work on your acquisition. Creating a shortcut toward referrals is the best option, as it will lower your acquisition costs.
With the same example of weddings, you can work on improving word-of-mouth by offering free photos your clients will share.
Or a referral program, giving away promotion codes.
And sometimes, you can work on retention, but should not focus on it first.
Startups, for instance, need to grow fast.
They need data, and customer feedback as they burn cash to get more customers fast (profitability comes later).
In that case, you should focus on Acquisition.
It’ll help you lower your costs, and get more clients so more learnings, to achieve product(/offer)-market fit ASAP.
Retention is still important, but not a priority.
Conclusion
In most cases, Retention is the part you should focus on, to be more profitable and to build your growth for the long term.
But sometimes you can’t work on it, so Acquisition becomes your main focus.
According to your business model, and at which stage your business is, you should also focus on Acquisition until you attain a product-market fit, and the balance to break even (/be profitable).
But anyway, work on both your Acquisition and Retention.
And your overall framework.
After all, you want to build a growth system, right?
If you enjoyed this newsletter, like and share it. That would be amazing.
See you in two weeks, take care.
Gaspard