New vs returning customers: Which group drives more revenue?

Here's a question that divides e-commerce managers: should you focus on acquiring new customers or keeping the ones you already have? It's a bit like asking whether your car needs fuel or oil—you need both, but the right balance depends on your specific situation.

Most stores pour money into acquiring new customers while letting existing customers drift away. That's backwards for most businesses. But—and this is important—some stores actually do need to prioritize acquisition. Let's figure out which approach makes sense for your business and how to optimize for both.

💰 The numbers tell an interesting story

Returning customers typically generate 3-5x more revenue per visit than new customers, according to data from Adobe analyzing 100 million shopping sessions. Why such a massive difference? Think about your own behavior. When you buy from a new store, you're cautious. You might order one item to test quality, shipping speed, and return policies. If everything works well, your next order is usually bigger because you trust them now.

The conversion rate difference is even more dramatic. New customers convert at 1-3% on average, while returning customers convert at 5-12%. That means if you send 1,000 new visitors and 1,000 returning visitors to identical product pages, you'll get 15-30 sales from new customers but 50-120 sales from returning customers. Same traffic volume, 3-4x more sales.

But here's where it gets interesting (and why the answer isn't simply "just focus on retention"). New customers represent your growth potential. Every successful business started with zero customers and built from there. If you stop acquiring new customers, your business gradually shrinks as existing customers naturally churn—they move, change preferences, find alternatives, or simply stop needing your products.

🎯 When to prioritize new customer acquisition

You should emphasize new customer acquisition if you're experiencing these situations. First, if you're a newer store (under 18 months old), you need a customer base to retain. Can't build repeat purchase rates without initial purchases. Focus 70% of marketing budget on acquisition, 30% on retention until you've built a foundation of at least 5,000 customers.

Second, if your product category has naturally low repeat rates—like wedding dresses, once-in-a-lifetime experiences, or major appliances—retention marketing delivers limited returns. A customer who just bought a refrigerator won't need another for 10+ years. Better to find new customers than email existing ones about products they don't need.

Third, if your market is growing rapidly and you're gaining share, aggressive acquisition captures the expanding opportunity. During growth phases (like home fitness during COVID), customer acquisition cost stays low because rising demand means high-intent customers actively seek products. Strike while conditions favor acquisition.

Fourth, if your repeat purchase rate is already strong (50%+ customers purchase twice within 6 months), your retention is working well. Additional retention investment yields diminishing returns. Better to grow the base of customers entering your retention funnel through increased acquisition.

Signs acquisition should be your priority:

• Customer base under 5,000

• Product category with naturally low repeat purchase rates

• Growing market with declining customer acquisition costs

• Strong existing retention rates (50%+ repeat within 6 months)

• Churn rate under 30% annually

🔄 When to prioritize customer retention

Shift focus to retention if you're facing different circumstances. If you're an established store (2+ years) with thousands of customers, retention investment often delivers higher ROI than acquisition. Retention marketing costs 60-70% less than acquisition according to Bain & Company research, making it far more profitable once you've built sufficient customer base.

If your customer acquisition cost is rising (common as markets mature and competition increases), retention becomes critical for profitability. When CAC rises from $30 to $60 while customer lifetime value stays constant, your unit economics compress dangerously. Improving retention extends customer lifetime value, maintaining healthy ratios even as acquisition costs increase.

If your repeat purchase rate is low (under 30% of customers purchase twice), you're leaving massive revenue on the table. According to research from Adobe, improving repeat purchase rate from 25% to 35% typically increases annual revenue 30-40% without acquiring a single new customer. That's pure profit growth since acquisition costs don't increase.

If your churn rate exceeds 40% annually, you're bleeding customers faster than you can replace them—a slow death spiral. Stemming churn must take priority over acquisition. Imagine filling a bathtub with the drain open; you can't fill it regardless of how much water you pour in until you close the drain. Fix retention before scaling acquisition.

Signs retention deserves priority:

• Established store with 5,000+ customer base

• Rising customer acquisition costs

• Low repeat purchase rates (under 30%)

• High churn rates (over 40% annually)

• Product categories with natural repeat potential (consumables, fashion, household goods)

📊 The revenue contribution reality

Let's look at actual numbers from a typical mid-sized store to see how new versus returning customers contribute to revenue. This example comes from research by RJMetrics analyzing 500 e-commerce companies:

Year 1 (building phase):

• New customers: 90% of orders, 85% of revenue

• Returning customers: 10% of orders, 15% of revenue

Makes sense—you're new, most customers are first-timers. But watch what happens as the business matures.

Year 3 (established phase):

• New customers: 40% of orders, 32% of revenue

• Returning customers: 60% of orders, 68% of revenue

The shift is dramatic. By year three, returning customers dominate both order volume and revenue despite representing a smaller percentage of site traffic. This happens because repeat customers place larger orders (they trust you and stock up) and convert at 3-4x higher rates (they're not browsing, they're buying).

Here's the really interesting part: those returning customers in year 3 cost almost nothing to generate those sales. You already acquired them. Your marketing costs for repeat purchases might be $5 per order (email marketing) versus $45 per order for new customer acquisition. That 9x cost difference explains why mature e-commerce businesses often generate 60-70% of profit from repeat customers despite split revenue contributions.

💡 The balanced approach (what most stores should do)

Unless you're in one of the extreme situations described earlier, you need both acquisition and retention working together. The question isn't "which one?" but "what's the right mix?" Here's a framework based on business stage.

Early stage (0-18 months, under 5,000 customers):

• 70% of marketing budget on acquisition

• 30% on retention

• Focus: Build customer base quickly

• Accept lower initial profitability to establish market presence

Growth stage (18 months - 3 years, 5,000-25,000 customers):

• 55% of marketing budget on acquisition

• 45% on retention

• Focus: Balance growth with emerging retention opportunities

• Start seeing profitability improvements from repeat purchases

Mature stage (3+ years, 25,000+ customers):

• 40% of marketing budget on acquisition

• 60% on retention

• Focus: Maximize customer lifetime value

• Strong profitability from efficient retention marketing

These percentages aren't rigid rules—they're starting points. Adjust based on your specific metrics. If retention is already strong (50%+ repeat rate), you can invest more in acquisition. If retention is weak (under 30%), invest more in fixing it even if you're early stage.

🎯 Optimizing for both simultaneously

The best approach isn't choosing between acquisition and retention but optimizing both. Here's how.

For new customers, focus on exceptional first-purchase experience. Fast shipping, great packaging, helpful follow-up, and simple returns all increase likelihood of second purchase. According to research from Narvar, customers who rate their first delivery experience as "excellent" have 2.4x higher repeat purchase rates than those rating it merely "acceptable."

Create new customer journeys that educate and build trust. Send a welcome series explaining your brand story, highlighting popular products, and offering helpful content (size guides, usage tips, care instructions). This nurturing converts one-time buyers into repeat customers—the critical transition.

For returning customers, personalize based on purchase history. If someone bought running shoes, show them running apparel and accessories, not random products. Shopify data shows personalized recommendations increase repeat purchase rates by 20-30% compared to generic product displays.

Implement loyalty programs that reward repeat purchases. Simple points systems increase purchase frequency by 15-25% according to research from LoyaltyLion. Customers who join loyalty programs purchase 2-3x more frequently than non-members. The program creates psychological commitment beyond rational decision-making.

Use email marketing to stay top-of-mind without being annoying. A monthly newsletter with genuinely useful content (not just promotions) maintains engagement. Research from Klaviyo shows stores sending 4-8 emails monthly achieve optimal balance: high engagement without unsubscribe spikes. Less than 4 emails and you're forgotten; more than 8 and you're annoying.

The truth is that successful e-commerce businesses excel at both acquisition and retention. They acquire new customers efficiently, then nurture those customers into loyal repeat buyers, creating a growth engine that compounds over time. Each cohort of new customers becomes a reliable revenue stream through repeat purchases, reducing dependence on constantly acquiring new customers at escalating costs.

Want to automatically track new versus returning customer revenue, conversion rates, and behavior patterns? Try Peasy for free at peasy.nu and instantly see which customer type drives your revenue, where to invest marketing budget, and whether your retention efforts are working.