For small business owners with limited marketing dollars, it’s not just A question, but very often it is THE question: “Should I focus my marketing budget on generating new customers, or should I focus my time and efforts into cultivating repeat customers?” Well, according to a survey by Econsultancy, the majority of small business owners are deciding to focus on acquisition of new customers.

But how smart is that decision? Does that make good business sense? The math would seem to say no. Ohad over at clickz.com has a pretty simple explanation:

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“Joe is an online shoe retailer who became really successful with his business. He uses Google and Facebook to advertise the branded shoes he has on offer. In a hyper-competitive branded-shoe industry, the customers are only looking at the prices they can easily compare with a simple search. So Joe needs to invest a lot of money to generate sales. Ninety-eight percent of his business is first-time buyers. With only 2 percent repeat buyers, his product costs are most likely to look like this:

Acquisition: $20.00
G&A: $10.00
Shipping: $5.00
Product cost: $50.00
Profit margin: $15.00
Total: $100.00

With higher advertising costs and lower loyalty, he is seeing his acquisition costs spiking. With this example, and provided that advertising costs remains the same, he will need to sell 6,600 pairs of shoes for a profit of $100,000.

To prove my point, let’s assume that 98 percent of his business will be focused on selling to clients he already acquired: He’s profit margin grows to $35, as he is dropping his acquisition costs. In order to reach to a $100,000 profit he will now need to sell only 2,800 pairs of shoes (i.e. 58 percent less). This in turn will probably further help to decrease the G&A costs, and Joe will be able to pass on some of these savings to his customers.”

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Using the logic laid out in this scenario, customer retention should be a clear winner over customer acquisition. But how do you do it? What can you do to keep your customers coming back in? Here are a few quick tips that are easy to implement but could give you big results:

1. Stay social.
Be as active as possible on sites like Facebook and Twitter. Let people know what specials you have going on or when new products arrive. Listen for feedback from customers and search your businesses name to see what people might be saying.

2. Get Personal
One big advantage small businesses have over larger companies is people. A smaller operation means you can really get to know your best customers. Try and greet them by name and anticipate what they will need. That personal service almost always strikes a chord and will keep customers coming back in, and it might discourage them from even considering a competitor, even if they can get a better price.

3. Give Rewards
A customer loyalty program can be the most effective tool your small business has in regards to generating repeat business. Once a customer joins a loyalty program, they are 70% more likely to make a repeat visit, and are more likely to recommend your business to friends. Plus, with Huzzah Loyalty Rewards, when customers check into your business they can share their check in on Facebook, giving you even more valuable word of mouth and social exposure. (Learn more about Huzzah Loyalty Rewards.)

[Source] – Retention vs. Acquisition – and the Winner Is…