It’s easy to focus on attracting new customers rather than retaining your existing ones. But customer retention is also essential for business growth and is often a lot more cost-effective than customer acquisition. To succeed at either, you need to have a strong strategy in place.
In this guide, we cover what is customer retention and why it’s important, how to work out your customer retention rate, and some key customer retention strategies.
What is customer retention?
Customer retention refers to a company’s ability to keep its customers over a specific period of time. In other words, it indicates your ability to turn first-time customers into repeat buyers and prevent them “churning” – for instance, by not returning to buy, cancelling their subscription, or switching to a competitor.
Customer retention is critical to business growth and success. Here are a few reasons why it’s so important:
- It’s cost-effective. Acquiring new customers is generally more expensive than retaining existing ones – in fact, depending on your industry, studies suggest that it can be anywhere from five to 25 times more expensive. Marketing and sales activities to attract, inform, and convert new customers can require lots of time and investment. Retention marketing to existing customers is often quicker and less costly as they’re familiar with your brand and you also have knowledge of their behaviours and preferences, which can make targeting easier.
- It drives profitability. Research shows that customers you retain tend to buy more often over time. And, as people become familiar with a brand, they’re often willing to pay more to stay with it rather than switch to a competitor. Loyal customers are more likely to explore and buy your more expensive products or services, making them a great target for up-selling and cross-selling efforts. This can help you increase customer lifetime value (CLV) and contribute to higher overall profitability.
- It can give greater financial stability. A solid base of regular customers can provide a more predictable revenue stream, allowing you to forecast and plan more accurately.
- It generates word-of-mouth referrals. Satisfied, loyal customers are more likely to recommend a brand to their friends, family, colleagues, or social media followers. Word-of-mouth referrals are highly effective as they tend to bring high-quality leads that are likely to convert, as they come from a trusted source and have been pre-qualified by the referrer. So, customer retention can aid your customer acquisition efforts in a powerful way.
- It’s a source of competitive advantage. Retaining customers can provide a significant competitive advantage, as loyal customers are often less price-sensitive and less likely to switch to competitors. By improving customer retention, you could build a loyal customer base that acts as a buffer against competitive pressures.
Customer retention rate
Before you start developing a customer retention strategy, you should know your customer retention rate. This is the percentage of customers that your company keeps over a specific period. To calculate it, use the customer retention rate formula:
[(Number of customers at the end of the time period - Number of new customers acquired within the time period) / Number of customers at the beginning of the time period] x 100
For example, say you started the month (or week, year, or other time period of your choosing) with 100 customers. You lose 10 customers, but gain 30 customers, so at the end of the period you have 120 customers. In this case, the calculation would be:
- 120 – 30 = 90
- 90/100 = 0.9
- 0.9 x 100 = 90
Therefore, your customer retention rate would be 90%.
7 customer retention strategies
Once you’ve worked out your customer retention rate, you can now start working on a customer retention strategy. There are lots of steps you can take to boost customer retention and foster brand loyalty. We’ve outlined some key customer retention strategies to consider below.
1. Deliver excellent customer service
Customer expectations for great customer service, including fast response and resolution times, are at an all-time high. Meeting and exceeding these expectations is one of the best ways of improving customer satisfaction and retention rates. To do this, you should give your customer-facing employees training so that they’re able to provide quick, helpful responses on your customers’ preferred support channels.
Training should cover hard skills (such as product and process knowledge and technical abilities) and soft skills (such as active listening, empathy, and problem-solving). Equip your employees with the tools and processes they need to work efficiently, whether that’s support ticketing systems, customer relationship management (CRM) software, or project management tools.
2. Keep in touch
Regular communication will help to keep your business in the minds of customers and build a relationship. Newsletters can be a great way of staying in regular contact and keeping your customers engaged. Produce content that will be relevant and valuable to them – for example, guides, new product updates, or exclusive offers.
3. Provide personalised experiences
Personalisation can be a powerful tool in retaining customers. By leveraging customer data, you can create more relevant and engaging experiences to build stronger, more meaningful relationships. For example, you could deliver content such as product recommendations or offers based on a customer’s preferences, behaviours, and past interactions with your business. However, it’s important to keep data security and privacy in mind. Make sure you’re following regulations and being transparent with customers about data collection and usage, so you don’t lose their trust. There’s also a risk of over-personalisation. Sending overly personal adverts and messages could come across as intrusive, so it’s essential to strike a balance and make your customers feel valued while respecting their privacy.
4. Implement a loyalty programme
Loyalty programmes can be an effective way to reward repeat customers and encourage continued business. There are various types, from points and tiered programmes to punch cards, but essentially loyalty programmes provide discounts, offers, or other incentives for repeat purchases. By offering perks and rewards, you can increase satisfaction and stop customers turning to competitors. Giving incentives to buy more often and spend more could significantly boost your customer lifetime value. Loyalty programmes can also provide valuable data on customer behaviour and preferences, further supporting your personalisation efforts.
5. Gather and act on customer feedback
Whether it’s through surveys, focus groups, online reviews, or other avenues, customer feedback is one of the most valuable tools at your disposal for improving customer retention. By regularly seeking and acting upon customer feedback, you can spot and address issues before they result in customer churn and take advantage of opportunities to optimise the customer experience. However, not all feedback is created equal. It’s important that you ask the right people the right questions at the right touchpoints. Make the feedback process as simple and user-friendly as possible and use clear, unbiased questions. Finally, demonstrate that you value your customers’ feedback by acknowledging it promptly and thanking them for their time and input.
6. Engage on social media
More and more customers are using social media to connect with brands – to ask customer service queries, stay updated about new products or services, or simply to enjoy their content. Being active on social media can provide a great opportunity to meet customer needs and strengthen relationships. Encourage interaction by creating content that’s valuable to your audience, reply to or share user-generated content about your business, and make use of features like polls and hashtags to spark conversation.
7. Surprise and delight
“Surprise and delight” is a marketing tactic that involves occasionally surprising your customers with unexpected and memorable gestures to show your appreciation. This could be anything from sending a handwritten thank you or birthday note to enclosing a little bonus gift or free samples alongside their purchase. When done right, surprise and delight tactics can have a great impact, boosting customer retention and encouraging brand advocacy. The key is to make it feel genuine and personal.
Conclusion
While attracting new customers is essential to expand your customer base, if you’re losing too many customers then you won’t achieve sustainable growth. With strong customer retention strategies and best practices in place, your business will be poised for long-term success.
Some of these customer retention strategies may require investment - whether it’s for marketing, hiring new staff, or providing training for your employees. If you need finance to help grow your business, please get in touch with us to discuss your options.
