Customer Retention vs. Customer Acquisition: 2 Pros and Cons

Nicole Georgiev
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    When opening a business, one thing you have to think about is your customers and how you will acquire and retain them. One way is through customer acquisition and customer retention strategies

    As a business owner, you should identify whether you will focus on customer acquisition vs customer retention when you write a business plan. This will depend on your growth strategy and business model. 

    Keep in mind that both customer retention and customer acquisition are necessary in order to run a successful business. The key is to find a balance between the two to ensure proper customer relationship management (CRM). 

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    Customer Retention Meaning

    Customer retention is any single or combination of strategies that businesses use to maximize repeat customers while minimizing customer churn. This is possible through different strategies that focus on nurturing customers back into your sales funnel after their first purchase or visit. 

    Customer retention strategies include:

    Customer and guest retention is different from customer acquisition because it focuses on two phases of the customer journey including the purchase and post-purchase phase. This shows that your business cares about its customers, even after the transaction takes place.

    On the other hand, customer acquisition focuses on gaining new customers using customer acquisition strategies. These include reaching out to prospects and customers through different marketing channels. 

    With customer retention, businesses aim to develop relationships with existing customers while increasing loyalty and repeat purchases. Successful customer retention tactics include delivering contextual information to customers that align with their interests and preferences. 

    Key Takeaway: In the restaurant industry, it’s important to pay attention to customer retention–along with restaurant customer acquisition–in order to maintain a steady flow of customers.
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    Measuring Customer Retention

    It’s possible to measure customer retention and loyalty using a few key metrics. Here are a few to keep in mind: 

    • Customer Retention Rate (CRR). This rate refers to the percentage of customers that continuously engage with a business during a specific period of time. To calculate this rate, use the CRR formula.
    CRR = [(customers at the end of a period - new customers during the period) / (customers at the beginning of the period)] x 100. 
    • Customer Churn Rate (CCR). The churn rate refers to the percentage of customers that have stopped engaging with your business. To calculate customer churn, use the CCR formula.
    CCR = (customers lost during a specific period/customers at the beginning of the period) x 100. 
    • Customer Lifetime Value (CLV). This metric shows the amount of money your customers are spending on your business during their respective customer lifecycles. Use the CLV formula to calculate this value.
    CLV = gross margin per customer lifespan x [CRR over period / (1 + discount rate of period - CRR over period)].

    Pros and Cons Between Customer Retention and Customer Acquisition

    Focusing on acquiring new customers is crucial when starting a business like opening a restaurant. However, with customer retention, businesses strive to nurture their relationship with current customers. This way, customers will continue to use their products or, from a restaurant perspective, dine at their establishment.

    There are pros and cons to each strategy:

    Pros of Customer Retention

    1. It’s budget-friendly. Businesses work with leads that they have already managed to convert. According to Marketing Metrics, a book by Neil T. Bendle, Paul W. Farris, and Phillip Pfeifer, there is a 60-70% chance that an existing customer will buy from you. This compares to a 5-20% chance of new customers buying from you. This is because you’ve already done the work in terms of customer engagement and won them over. 
    2. Opportunity for free marketing. When you provide customers with a good experience, they start doing the marketing for you. This is done through word-of-mouth marketing. Customers begin to advocate for your business and this is especially true in the restaurant industry. This can help businesses lower their customer acquisition cost in the long run. 
    3. Boosts customer loyalty. Taking care of your customers and providing them with excellent customer service increases the chances of repeat business. 

    Cons of Customer Retention

    1. Requires consistency and commitment. The key to customer retention is good service which requires commitment and consistency from every member of the business. For businesses in the restaurant industry, this includes wait staff, bar staff, servers, hostesses, and the different types of chefs
    2. It’s possible to overlook new customers. Making an effort to satisfy existing customers may result in overlooking new customers. This can result in unsatisfied customers and negative results for your business. 

    Pros of Customer Acquisition

    1. Allows businesses to grow their customer base. Without customer acquisition, it’s difficult to tap into new markets or evaluate ways of expanding your business. Aggressive customer acquisition strategies will allow you to quickly increase brand awareness and boost sales. 
    2. Evaluating results is simple. If you want to determine how effective your customer acquisition strategies are, all you need is to calculate the customer acquisition cost (CAC). This refers to a business’ cost of acquiring a new customer.

    Cons of Customer Acquisition

    1. It’s costly. This is true regarding money and time spent on customer acquisition strategies. These strategies require consistent outreach through different types of lead generation such as giveaways, content marketing, paid ads, and events. With such consistent outreach, it will eventually lead to a drain on your business resources. 
    2. Short lifespan. Businesses allocate a certain amount of money towards marketing efforts for their business. This helps with customer acquisition. However, most businesses end up spending a chunk of the marketing budget on acquisition which leaves little left over for customer retention. 

    Customer Acquisition vs Customer Retention: What Matters More?

    Today, businesses are better off finding a balance between focusing on customer acquisition and customer retention. Ultimately, this decision will depend on the current stage of growth that you’re at with your business.

    If you’re just starting a business, such as opening a coffee shop, opening a grocery store, or opening a food truck, customer acquisition will be your top priority. This is because you have to spread brand awareness. 

    However, if you have an established business, it will be beneficial to focus on customer retention strategies to improve customer loyalty. Combining customer retention and acquisition strategies will allow you to run a strong and successful business. 

    At the same time, you will be able to maximize the return on investment (ROI) of your acquisition efforts. This will allow you to expand on your loyal customer base and boost your revenue long-term. Look into the ROI meaning to familiarize yourself with this term.

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    Frequently Asked Questions About Customer Acquisition and Retention

    Businesses tend to spend their marketing budgets on finding new customers instead of improving their relationships with existing customers. Existing customers are important for a business and improving your relationship with them will encourage them to stay loyal. 

    Here are some commonly asked questions about customer retention vs customer acquisition:

    What Is the Purpose of Customer Retention?

    The purpose of customer retention is to improve the relationship between businesses and existing customers in order to improve customer loyalty. It’s possible to do this through loyalty programs, such as a restaurant loyalty program, and customer interactions. 

    What Are Four Ways to Keep Customers Coming Back?

    Four ways to keep existing customers coming back include: 

    1. Staying in touch with customers, such as through email marketing
    2. Employing the right staff to deliver a positive customer experience
    3. Make it possible for customers to contact you 
    4. Showing customer appreciation

    What Is a Good Customer Retention Rate for a Restaurant?

    The average customer retention rate for a restaurant business is 30%. According to this, a customer retention rate above 30% is considered good for a restaurant. This means that 70% of customers prefer not to go back to the same restaurant after visiting once. 

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