{"id":116509,"date":"2023-07-31T04:02:41","date_gmt":"2023-07-31T04:02:41","guid":{"rendered":"https:\/\/userpilot.com\/blog\/customer-retention-vs-acquisition-cost\/"},"modified":"2026-04-10T09:56:30","modified_gmt":"2026-04-10T09:56:30","slug":"customer-retention-vs-acquisition-cost","status":"publish","type":"post","link":"https:\/\/userpilot.com\/blog\/customer-retention-vs-acquisition-cost\/","title":{"rendered":"Customer Retention vs Acquisition Cost: Which One Should You Focus?"},"content":{"rendered":"

Customer retention vs acquisition cost: Which metric matters more?<\/p>\n

While it\u2019s important to acquire new customers for growth, retaining existing customers is imperative to ensure long-term success. Thus, striking the right balance between acquisition and retention costs significantly improves profitability and sustainability.<\/p>\n

So let’s see when you should prioritize one metric over the other and how you can boost your customer retention<\/a> rates.<\/p>\n

What is customer acquisition?<\/h2>\n

Customer acquisition is the process of attracting and converting potential customers into paying customers. It generally involves creating brand awareness and driving prospects down the marketing funnel until they convert to paying customers<\/a>.<\/p>\n

What is customer retention?<\/h2>\n

Customer retention is the process of using activities and strategies to nurture and build strong relationships with customers, which in turn, encourage repeat purchases.<\/p>\n

The higher the customer retention rates, the more customers are satisfied with your product, and vice versa.<\/p>\n

How to calculate customer acquisition cost?<\/h2>\n

Customer acquisition cost<\/a> (CAC) is the amount spent by a business on acquiring new customers. In other words, the metric measures the average cost incurred in acquiring one customer.<\/p>\n

To calculate the CAC, you need to divide the total cost of acquisition by the number of new customers acquired. The cost of acquisition typically includes the expenses associated with marketing and sales, such as promotional campaigns, sales commissions, and advertising.<\/p>\n

Suppose you gained 1,000 new customers in 2022 and your total cost of acquiring them was $90,000. This would make your CAC = $90,000\/1,000 = $90.<\/p>\n

\"customer-acquisition-cost.png\"<\/picture>
Customer acquisition cost formula.<\/figcaption><\/figure>\n

How to calculate customer retention cost?<\/h2>\n

Customer retention cost<\/a> is the total expenses incurred in retaining a specific number of existing customers over a given period. Put simply, it\u2019s the cost of retaining an existing customer.<\/p>\n

To measure the customer retention cost, you have to divide the total cost of retention by the number of customers retained. The total cost of retention includes expenses like loyalty programs, personalized offers\/discounts, customer retention campaigns and other retention initiatives.<\/p>\n

Suppose you spent $100,000 on customer retention and retained 2,500 existing customers by the end of the year 2022. Your customer retention cost for the year would be = $100,000\/2,500 = $40.<\/p>\n

\"customer-retention-cost.png\"<\/picture>
Customer retention cost formula.<\/figcaption><\/figure>\n

The metric directly affects the customer lifetime value<\/a> (LTV), which is the expected revenue you can earn from one customer over the course of their business with you. The higher the retention costs, the lower the average revenue per account, thus the lower the LTV.<\/p>\n

What are the differences between customer acquisition and retention costs?<\/h2>\n

Both acquisition and retention costs are key SaaS metrics and equally important aspects of your customer acquisition and retention efforts. Both metrics help drive business growth<\/a>, making it crucial for you to understand how they differ.<\/p>\n

Customer acquisition vs retention costs:<\/p>\n