Last updated on August 21st, 2025 at 06:54 pm
Confused about the difference between customer acquisition and customer retention?
Today we are going to provide definitions for both, discuss their most important metrics, and share the best customer acquisition and retention strategies!
Customer Acquisition
Let’s start with customer acquisition…
What Is Customer Acquisition?
Customer acquisition is the process of converting people in your target audience into paying customers.
What Is the Most Important Customer Acquisition Metric?
The most important customer acquisition metric is customer acquisition cost (CAC).
It’s calculated using this formula:
Customer Acquisition Cost = Cost of Marketing + Cost of Sales / The Number of New Customers Acquired
For example, if you spent $1,000 on marketing and sales and acquired 100 new customers, your CAC is $10:
$1,000/100 = $10
What Is the Most Common Customer Acquisition Mistake?
We would argue that the most common customer acquisition mistake is driving traffic directly to your website or your sales page.
The problem with this is that it’s the online equivalent of walking up to a stranger and saying “Yo, here’s my product, now buy it!”.
They don’t know you, they don’t trust you, and they haven’t had the time to do their research. So why would you expect them to hand you their hard-earned money?
Think about it: when was the last time you saw some random ad while scrolling on social media, clicked on it, and bought that product there and then?
We have all made impulse purchases in the past but if you are like most people, you probably primarily buy from brands that you trust.
So the question is how can you build that trust?
This is where the Value Ladder sales funnel comes in…
What Is the Best Way to Acquire Customers?
We believe that the most effective way to sell anything online is the Value Ladder sales funnel.
It was created by our co-founder Russell Brunson who then used it to take ClickFunnels from zero to $10M+ in annual revenue in just one year (it’s at $100M+ now!).
This sales funnel has four stages:
- Bait. You offer the potential customer your lead magnet in exchange for their email address.
- Frontend. You offer the potential customer your least expensive and least valuable product or service.
- Middle. You offer the customer a more expensive and more valuable product or service.
- Backend. You offer the customer your most expensive and most valuable product or service.
Ideally, you also offer a continuity program of some sort, meaning, a subscription product that generates recurring revenue.
We also recommend adding downsells, upsells, and cross-sells to these core offers in order to maximize your revenue.
So the main idea here is this:
Instead of driving traffic directly to your website or sales page, you drive it to your lead magnet landing page and convert those visitors into email subscribers.
Then, once you have their email addresses, you pitch your products and services to them via email.
The reason why this sales funnel works so well is that it allows you to:
- Start the relationship with that person by offering free value.
- Nurture that relationship by continuing to provide free value via email.
- Build trust by providing progressively more paid value at each stage.
Here’s how Russell explains it:
“Whoever Can Spend the Most to Acquire a Customer Wins“
Entrepreneurs often look for ways to decrease their customer acquisition cost (CAC).
That makes sense. It’s important to keep your CAC under control. And the Value Ladder sales funnel can help you with that!
But here’s something that you need to understand:
“Whoever can spend the most to acquire a customer wins.”
Our co-founder Russell has learned this principle from Dan Kennedy and recently had an opportunity to discuss it with Kennedy himself.
Kennedy explained that math is the gravity of the direct marketing business. Nothing overcomes bad economics.
“You can have the best funnel in the world but if you got bad math and you don’t do anything about that math you’re going to get bit.”
Meanwhile, whoever figures out how to spend the most to acquire a customer wins because they can buy speed, scale, and sustainability..
Moreover, this aggressive approach to customer acquisition is likely to discourage the competition because your rivals simply won’t be able to keep up with it.
But how can you outspend your competitors on customer acquisition without going broke?
We’ll discuss that later in this article.
Customer Retention
Now let’s talk about customer retention.
What Is Customer Retention?
Customer retention is the process of retaining your customers.
What Are the Most Important Customer Retention Metrics?
There are several important customer retention metrics:
New Customer to Repeat Customer Conversion Rate
New customer to repeat customer conversion rate shows what percentage of first-time buyers make a second purchase.
Churn Rate
Churn rate is a metric that shows what percentage of subscribers have canceled their subscriptions during a specific period of time.
You can use this formula to calculate your churn rate:
Churn Rate = (The Number of Subscribers Lost During That Time Period / The Total Number of Subscribers at the Beginning of That Time Period) x 100
Say, if you had 387 subscribers at the beginning of the month and lost 28 of them by the end of the month, your churn rate is 7.23%.
(28/387) x 100 = 7.23%
Customer Lifetime Value (CLV)
Customer lifetime value (CLV) is a business metric that shows how much revenue on average a single customer brings in over their entire lifetime as a customer.
There are several ways to calculate it depending on your business model.
Here’s a formula that you can use to calculate your CLV if your business revolves around one-time purchases:
Customer Lifetime Value = Average Order Value x Average Number of Purchases Per Year Per Customer x Average Length of a Customer Relationship In Years
You can use this formula to calculate your average order value:
Average Order Value = Revenue/Orders
If you are running a subscription business, the math gets more complicated.
For example, here’s a simple CLV formula for SaaS businesses:
CLV = Average Revenue Per Account (ARPA) / Revenue Churn Rate %
Say, if the monthly ARPA is $1,000 and the monthly revenue churn rate is 15%, then your LTV will be $6,666.
You can also use this advanced CLV formula for SaaS businesses:
CLV = Average Revenue Per Account (ARPA) x Gross Margin %/ Revenue Churn Rate %
Say, if the monthly ARPA is $1,000, the gross margin is 40%, and the revenue churn rate is 15%, then the CLV would be $2,666.
As you can see, the CLV changes drastically once you introduce the gross margin variable into the equation.
It’s extremely important to know your CLV so make sure to calculate it as accurately as you can!
What Is the Best Way to Retain Customers?
The single best way to retain customers is to have a great product that delivers the value that you promised.
You should also ensure excellent customer service: 24/7 customer support, quick response times, and easy returns/refunds/cancellations.
Beyond that, you want to look for ways to regularly provide free value to your customers. Say, a weekly newsletter with interesting content can help you stay top of mind with them.
The Relationship Between Customer Acquisition and Customer Retention
There’s a relationship between customer acquisition and customer retention.
Or, to be more precise, there’s a relationship between customer acquisition cost (CAC) and customer lifetime value (CLV).
If you want to build a sustainable business, your CAC cannot exceed your CLV. Otherwise, you’ll end up in the red!
This means that when it comes to CAC, your CLV is the primary limiting factor.
Consequently, if you want to spend more on customer acquisition, you need to increase your customer lifetime value first.
Remember Danny Kennedy’s quote “Whoever can spend the most to acquire a customer wins?”.
Customer retention is the secret to that!
What Should You Prioritize: Customer Acquisition or Customer Retention?
Both are extremely important.
However, the general rule is that in a typical sales funnel, converting leads into new customers is the greatest challenge.
Meanwhile, converting new customers into repeat customers is much easier. Consequently, prioritizing customer retention makes more sense.
Of course, you still need to set up a customer acquisition funnel that ensures a constant influx of new customers. Otherwise, your business will start withering.
But your main focus should ultimately be customer retention because it’s the key to building a sustainable business!
Build Your First Customer Acquisition Funnel In Just Five Days!
So how can you build a customer acquisition funnel?
We recommend joining our 5 Day Lead Challenge where Russell will walk you through it step-by-step.
You will:
- Create your first lead magnet.
- Build your first sales funnel.
- Set up a six-email welcome sequence.
…and launch your funnel in just five days!
So don’t hesitate. Take action now. It can change your life!
Join Our 5 Day Lead Challenge Today!
P.S. This challenge is completely FREE!