Retention vs Acquisition: What’s more important?

by Charlie Thompson

We hear this question a lot, and it’s no surprise. With budgets depending on maximising results and minimising expense, finding the right balance between acquisition and retention is vital for membership-based businesses. We delve into the discussion and detail the reasons for emphasising one over the other.


The leaky bucket

It’s a clichéd analogy, but one that still holds water (sorry). The “leaky bucket” describes the relationship between organisations and their members. You can imagine that acquired members continually pour into your bucket, potentially adding to your member numbers and therefore your organisation’s success. But if you have a hole in that bucket, you’ll also be losing members through a constant drip – meaning your acquisition efforts are being wasted.

In the scenario that you are adding members at the same or a lesser rate than you are losing them, there’s trouble on the horizon. Although you could try to boost your acquisition efforts to compensate for the loss, a cheaper and more efficient approach would be to plug the hole in your bucket. And that’s a job for your retention strategy

 

The figures

It’s a commonly quoted (albeit likely somewhat inaccurate) statistic that acquiring new members costs five times more than keeping an existing one. Accurate or not, the idea behind it is valid: retention is significantly cheaper than acquisition. Interestingly, the natural bias towards retention suggested by that figure doesn’t fit the market’s behaviour.

In a 2009 survey, King Fish Media found that companies spend 56 percent of their marketing budget on acquisition, while only designating 35 percent to retention. Likewise, a larger proportion – 91 percent – measured marketing success by acquisition figures, with only 63 percent accounting for retention in their metrics.

 

It’s not one or the other

As is often the case, there’s no single answer. Neither retention nor acquisition will deliver results on its own, and the debate is punctuated by cases where unique circumstances gave rise to unique solutions. That being said, as a general rule, we find that retention usually becomes the focus of mature organisations.

There are times when you will drive for acquisition, particularly when there are changes in infrastructure or a need for immediate revenue. It’s an essential part of any functioning membership-based organisation. But retention keeps your organisation ticking over without the big marketing push and heavy capital expense that requires. 

Both bring benefits to your organisation and need to be considered as crucial elements of your day-to-day business.

 

The transition

As alluded to earlier, there are clues as to whether you should be focusing on acquisition or retention. The age or stage of the company will have an impact on what’s more important at the time. In the early stages it makes perfect sense to focus on acquisition. The aim is to reach a critical mass, at which point acquisition numbers will drop off naturally. 

Even before you can gauge retention you’ll want to devote an appropriate amount of resources to it. Eventually there will be a transition as your retention figures contribute more to organisational success than acquisition. At this point you need to be poised to respond with a shift towards retention in your budget. This way, despite falling acquisition figures as the organisation matures, good retention means your membership numbers will continue to grow.

 

One solution

Your retention strategy will be key to ensuring ongoing success. But keeping members is often less about marketing than benefits. Members want to quantify the usefulness of their membership, and often they will demand that the benefits extend further than your core offering. It means you need to provide something that sits outside of your expertise which constantly delivers for members.

Rewards programs are one such solution, crossing the divide into your members’ everyday lives by providing offers on lifestyle expenses. As a gift that keeps on giving, and one that your members will never tire of, rewards programs can be a great platform for building organisational success. A welcome side effect is they also help with acquisition… it’s like killing two birds with one stone.

 

To find out about our rewards program and what it can do to boost acquisition and retention for your membership-based organisation, contact us here.