"Is it more important to win more customers or get more revenue per customer?" This age-old business question of ‘customer count vs revenue size’ sits at the heart of countless strategic debates. While growing your number of customers seems like an obvious goal, focusing on increasing the revenue generated from existing customers is often touted as a more sustainable and profitable approach. But which one should you prioritize? The answer is not straightforward; it often depends on your specific business circumstances, market conditions, and long-term goals.

At Pricefx, we are proud to be the world’s leading cloud-native pricing software provider (according to renowned technology experts G2) but we are also a trusted partner for our customers and prospects. We have over a decade of experience in delivering fast and lasting business value through our pricing software, and we tailor our solutions to meet the specific needs and goals of each customer.

For now, let’s dive immediately into the pros and cons of both growing customer numbers vs maximizing revenue per deal and explore real-world examples to help you make an informed decision for your business.

The Decision-Making Process: New Customers vs. More Revenue from Existing Customers

Deciding whether to focus on customer acquisition or on increasing revenue from existing customers involves evaluating multiple facets of your business.

Here are 11 key considerations to help guide you through this decision-making:

1.        Business Maturity

How established is your business? Are you a new entrant in a market or an established player? For a new business, expanding the customer base might be crucial for survival, while a mature business might find more value in deepening relationships with existing customers.

2.        Market Penetration

Assess the potential for growth within your existing customer base. If there’s significant opportunity for upselling or cross-selling, focusing on existing customers could be more beneficial. Conversely, if you have already hit your up-sell/cross-sell ceiling with your customers, acquiring new customers may be necessary to achieve growth.

3.        Research and Development (R&D) Investments

Expanding into new customer segments often requires developing new products or services, which entails additional research and development costs. Understanding the level of investment required for new customer acquisition compared to expanding revenue from existing customers can help you make a more informed decision.

4.        Product Portfolio

A diversified product or service portfolio could offer opportunities for upselling to existing customers, potentially increasing revenue without the need to acquire new customers.

5.        Customer Satisfaction Levels

Happy customers are more likely to buy more from you. If your existing customers are satisfied, it might be easier and more cost-effective to increase revenue per customer rather than acquiring new ones.

6.        Target Market Size

The size of your target market is crucial. If your market is vast with plenty of untapped potential, acquiring new customers could be the right focus. However, if your market is more limited, extracting more value from existing customers might be the more prudent strategy.

7.      Competitive Landscape

How many competitors do you face, and how do their products compare to yours? In highly competitive markets, customer acquisition can be tough and costly, possibly making the expansion of existing customer relationships a better focus.

8.      Customer Acquisition Cost (CAC)

The cost of acquiring a new customer is often higher than the cost of retaining an existing one. Consider your CAC and compare it with the potential lifetime value (LTV) of new customers versus that of existing ones.

9.      Sales Model and Cycle

The nature of your sales model—whether transactional or recurring—can influence the strategy you should prioritize. Recurring models often benefit more from increasing customer revenue, while transactional models might need a constant influx of new customers. Additionally, the length of your sales cycle can impact the feasibility of either strategy.

10. Revenue Concentration

If most of your revenue comes from a small subset of customers, you might want to diversify by acquiring new customers. However, if your customer base is already diverse, focusing on increasing revenue per customer could be more lucrative.

11. Support Costs and Churn Rates

High support costs or a high churn rate among your existing customers may indicate that acquiring new customers could be more beneficial. However, if your support costs are low and churn rates are manageable, focusing on existing customers could lead to more stable revenue growth.

These questions provide a comprehensive framework to evaluate which path—customer acquisition or increasing revenue per customer—might be the best route for your business. But these decisions must also consider the competitive environment, as your competitors are likely making similar calculations. Ultimately, your primary business goal needs to be validated with these considerations, while also being flexible enough to change course if needed.

Let’s examine the benefits and drawbacks of each approach.

The Pros and Cons of Prioritizing Customer Acquisition

Let’s break down the key advantages and disadvantages of focusing on acquiring new customers:

The Pros of New Customer Acquisition:

• Diversification: Expanding your customer base can reduce dependency on a few key customers, thereby mitigating risk.
• Market Expansion: Acquiring new customers can increase your market share, enhance brand recognition, and potentially lead to industry dominance.
• Brand Awareness: Bringing in new customers boosts brand visibility, which can eventually lower customer acquisition costs as your reputation grows.
• Implementation of New Pricing Models: Acquiring new customers often allows for the introduction of new pricing models, which might be harder to implement with existing customers who are used to a certain price point.

The Cons of New Customer Acquisition

• Higher Costs: Acquiring new customers typically involves higher costs, including marketing, sales, and onboarding expenses.
• Longer Sales Cycle: The time it takes to acquire new customers can be significant, delaying the return on investment.
• Resource Intensiveness: Expanding your customer base may require the development of new products or services, demanding further investment.
• Risk of Churn: New customers may not be as loyal and could churn quickly, especially if expectations are not met.

Acquiring new customers is crucial for growth, but it comes with its own set of challenges. It can be more expensive and time-consuming than working with existing customers, and the risk of churn is higher. However, it’s a necessary strategy if you’re looking to enter new markets or if your current customer base has already maximized their share of wallet with you.

The Pros and Cons of Focusing on Revenue per Customer

Now, let’s examine the potential benefits and challenges of concentrating on getting more revenue from your existing customer base:

The Pros of Revenue Expansion

• Cost Efficiency: It is generally less expensive to sell to an existing customer than to acquire a new one, as the relationship is already established.
• Customer Retention: Satisfied customers are more likely to stay loyal, making it easier to upsell and cross-sell, thus increasing their lifetime value.
• Higher Profit Margins: With existing customers, there is often less need to discount or incentivize purchases, leading to better margins.
• Referral Opportunities: Happy customers are more likely to refer others, indirectly contributing to new customer acquisition without additional marketing costs.

The Cons of Revenue Expansion

• Revenue Concentration Risk: Focusing too heavily on existing customers can lead to an over-reliance on a small customer base, making your business vulnerable if key customers leave.
• Legacy Pricing Constraints: You might be stuck with outdated pricing models that existing customers are unwilling to move away from, limiting revenue growth.
• Diminishing Returns: Over time, the potential for upselling or cross-selling may decrease as customers reach their maximum spending limit or find other providers.

Expanding revenue from existing customers is often more cost-effective and can lead to higher margins. However, it does carry risks, particularly if it leads to over-reliance on a few customers or if the potential for further revenue growth becomes limited.

Practical Examples: When to Focus on New Customers vs Increasing Revenue Per Customer

Understanding when to prioritize customer acquisition versus revenue expansion requires looking at real-world examples:

Scenarios Where New Customer Acquisition Makes Sense

• Scale: If your growth strategy depends on increasing your market share, bringing in new customers will be crucial. This could be in an existing market or a new one you’re trying to tap into.
• Diversification: If your business has a high concentration of revenue from a small number of customers, acquiring new ones will reduce your risk.
• Transactional Sales Model: In businesses where transactions are one-off or low frequency, acquiring new customers is often necessary to sustain revenue.
• High Churn: If you’re experiencing high churn, you will need to bring in new customers just to maintain your current revenue level. However, it’s also essential to address the root causes of the churn to avoid a leaky bucket situation.
• Business Model Change: If your existing customers are no longer profitable under your current pricing model, acquiring new customers with a more profitable model can help you pivot quickly.

If you’re in a start-up, it’s easy to see why you need to focus on new business, but in established businesses it isn’t always that clear. One example comes to mind. In a previous role, one of our business units had a very strong foundation of existing customers, however, the margins were low, and the cost of service was high. These customers were mostly buyers at the smallest end of the industry.

Through market research we uncovered that there was a gap in the industry for companies like ours that were very service-oriented to move up market. This meant we would focus on customers that were just a little bit bigger and used to buying more of the add-on services than our current customers purchased. We ran some preliminary analysis to understand what we would need to invest to make this shift, and what the potential return would be. The model validated that we would see a strong ROI (Return on Investment), and as we started growing our business with these new customers, we realized another benefit – their propensity to purchase the services that wrapped around our standard offerings made them value us more as a partner. This led to us being able to reposition ourselves as a trusted partner, and not just a transactional resource, which in turn led to improved margins and meant that we had a stronger foundation for expansion.

Scenarios Where Expanding Revenue Per Customer is the Priority

• Market Saturation: In highly saturated markets, it can be more challenging and expensive to acquire new customers. Expanding revenue from existing customers might provide better ROI.
• Strong Customer Satisfaction: If your customers are highly satisfied, they are more likely to buy more from you. This makes revenue expansion a natural and low-risk strategy.
• Economic Conditions: During economic downturns, when customer acquisition costs rise, focusing on existing customers might offer more stable and predictable revenue.
• Product/Service Constraints: If your resources are limited, it might be more feasible to focus on increasing revenue per customer rather than stretching yourself thin trying to acquire new ones.

Some industries very tightly control the volume of product that they are putting into the market. If your business is reliant on that product, then you cannot just add new customers – you won’t have inventory to support them, but you can find ways to grow your revenue through the services that you wrap around those products.

A niche example of this is in transportation asset management, and specifically for long-lived assets like railcars.

The quantity of inventory is tightly controlled, which means that there are going to be times when you do not have assets available. So how do you keep growing your revenues? Depending on how you have structured your business, you are either insulating yourself by purposely having years where you do not expect growth, or you are finding additional services like storage, maintenance, and fleet management services.

These examples demonstrate that the decision isn’t black and white. The right strategy depends on your specific situation, market conditions, and long-term business goals.

Which Strategy is More Effective for Long-Term Success?

The question of whether acquiring more customers or increasing revenue per customer is more effective for long-term success depends on your business model.

Expanding revenue from existing customers is often a more cost-effective way to grow, particularly if your customers are satisfied and willing to refer others. This approach can lead to more stable revenue streams and reduce the volatility that comes with constantly needing to acquire new customers. It also fosters long-term relationships, increasing customer loyalty and lifetime value.

However, customer acquisition remains key for businesses looking to scale rapidly. This is particularly true for companies aiming to dominate their market or enter new ones. Acquiring new customers increases market share, enhances brand awareness, and creates opportunities for long-term growth. It also drives the need for innovation and diversification of product or service offerings.

A balanced approach is often the most effective for long-term success. Businesses need to continuously acquire new customers while also maximizing the revenue potential of their existing customer base. However, the emphasis might shift depending on the stage of your business, market conditions, and broader economic factors.

No One Size Strategy Fits All Organizations

There is no one-size-fits-all answer to whether acquiring more customers or increasing revenue per customer is more important. The best strategy depends on a variety of factors, including your business model, market conditions, and long-term goals. Ultimately, the key is to evaluate these factors carefully and remain flexible, allowing you to adjust your approach as your business evolves.

The decision to prioritize customer acquisition or revenue expansion should be made based on a thorough analysis of your business and market environment. Both strategies have their merits and can complement each other when applied in the right balance. The key is to ensure that whichever path you choose aligns with your overall business objectives and sets you up for sustainable, long-term growth.

However, collecting and analyzing these data can be challenging, especially if you have a large and diverse customer base or a complex product portfolio, and it is a major reason to invest in powerful and flexible pricing software that can automate and optimize your pricing strategy. A quality pricing software solution can help you segment your customers and products based on various criteria, such as behavior, preferences, needs, and willingness to pay – and allow you to test and compare different scenarios and strategies before implementing them. This way, you can tailor your pricing and value proposition to each segment, increasing customer satisfaction and loyalty.

What’s more, pricing software can help you monitor and respond to market changes, such as competitor actions, demand fluctuations, cost variations and adjust your prices in real time based on the latest data and insights, ensuring that you always capture the optimal value for your products and services.

By paying attention to the data and responding uniquely to it in a way that uniquely fits your organization’s KPI (key performance indicator) set like a glove will be key. Attention, analysis, and adjustment ensure that you're capturing the full value of your offerings while remaining competitive in the market.

To learn more about the most important KPIs to stay focused on in your business, check out this handy and insightful article from my colleague, Hartwig Huemer:

Meanwhile, Happy Pricing!

Or if you are looking to begin implementing a Pricefx solution for your company’s pricing needs, talk to one of our experts now.

Happy Pricing!