While customer acquisition is essential to any business strategy, customer retention can often be overlooked. Customer retention, the metric that measures customer loyalty over time, is just as necessary if not more so.
It costs brands 5 times the amount to acquire a new customer than it does to retain an existing one.
Customer retention analyses a customer's interactions with a brand, from their first purchase to all subsequent activity. Organizations that focus on customer retention are able to use this data to analyze customer satisfaction, repurchase behavior, brand loyalty, and customer lifetime value.
Through looking at the most recent customer retention statistics we have come up with 7 of the best customer retention strategies for businesses looking to build customer loyalty, retain existing customers and gain maximum ROI marketing and sales efforts.
Let’s get started.
At the most basic level, customer retention is the metric utilized by businesses to measure customer loyalty over time.
In order to boost customer retention and keep loyal customers on board, organizations should implement a range of customer retention strategies.
They should also ensure they are examining their customer churn rate and customer feedback for the reasons why customers are not staying on the customer journey.
This information can be analyzed to adjust the product and service offerings and improve customer satisfaction.
All we’ve discussed, customer retention is an essential key performance indicator (KPI) for any organization looking to maximize its profitability.
In an increasingly saturated world marketplace, more than acquiring existing customers is needed.
Furthermore, customer acquisition is more expensive than maintaining the customers you have and transitioning them into loyal, repeat customers.
According to recent statistics, 65% of a company's business comes from repeat customers.
Additionally, a 5% increase in your customer retention rate can result in a 25% to 95% increase in profits, statistics that are hard to ignore.
Retaining customers is fundamental to short and long-term success for the following reasons:
The bottom line. At the end of the day, it is cheaper for the sales and marketing team to focus its efforts on selling to an existing customer rather than finding new customers.
Focusing on customer retention builds customer loyalty, and customer loyalty means long-term sales. Over 90% of US businesses offer some type of customer loyalty program, demonstrating the importance of this aspect of customer service.
Happy, loyal customers are more likely to provide referrals to new business for your company, without you having to do any of the heavy liftings.
To calculate your customer retention rate (CRR), simply use the following simple formula.
Divide the total number of customers you have at the end of the quarter, minus the customers acquired, by the number of customers you had at the start of the quarter. Times this by 100 and this will give you your customer retention rate.
For example, if you end the quarter with 160 customers, you acquired 40 customers along the way but you started the quarter with 130, the equation will appear as so.
Anything above 85 % is considered to be a decent retention rate and is something businesses should be looking to achieve.
A strong customer retention strategy is something that will build and evolve over time, both through data analyses and making strategic, calculated changes to the way you meet customer expectations.
However, there are some foundational elements that every organization should have in place to meet customer expectations and increase customer retention.
One of the primary reasons found for customer churn is a poor onboarding process after the initial purchase. If your customers don’t understand the benefits of your products and services they are unlikely to stick around.
By providing comprehensive training that addresses the key tools and benefits up front, your will increase customer satisfaction and customer retention rates.
A customer roadmap is a client-facing communication document that explicates s your product's direction, intention, and problems you are interested in solving. Taking the time to map this out with your new clients will not only improve customer communication but will set clear expectations and achievable goals.
Customer feedback is essential when it comes to addressing weaknesses across the board. By creating a customer feedback loop, businesses can continually enhance and improve their services based on user reviews, customer complaints, opinions, and suggestions.
Gathering accurate feedback can be achieved through a range of strategies, including customer surveys, or direct interactions with the customer service team.
Creating a Customer experience map or customer journey map is one of the most effective ways your team can track the journey of both new and existing customers. Customer experience mapping tracks a customer's journey across all touchpoints in order to give insight into their purchasing behaviors.
Customers in 2023 expect businesses to provide excellent customer service, and in many cases, they want it then and there. Ensuring you have a customer support team responding immediately to any queries on social media is one of the best ways to ensure customers feel valued and heard. Not only does social media provide the opportunity to provide great customer service it is also a platform that helps to tie together the customer experience across various touchpoints.
By segmenting customer data, businesses are able to target their marketing efforts for maximum results. Most sales CRM software helps facilitate the segmentation of new and existing customers into groups based on how they interact with your brand.
This data can then be used to tailor marketing campaigns rolled out across various platforms including social media and email to deliver the right messages at the correct times. When implemented correctly targeting through segmentation is a fantastic strategy to improve customer retention.
Reaching out to customers who have been inactive for a certain amount of time is an essential part of any effective customer retention program. Businesses can automate emails via their CRM that target inactive customers after a certain amount of time, based on their specific purchasing habits.
Upselling is an invaluable way for companies to ensure repeat business. Utilizing a range of marketing tools including ebooks, emails, and social posts to remind your customer base of your additional services will make repeat purchases and upgrades of any subscription service far more likely.
The flip side of customer retention is customer churn. Churn, also known as customer attrition, is the rate at which customers stop doing business with your company. It can have a significant impact on your company's revenue and growth.
Predicting and preventing customer churn is a strategy that you can use to identify customers who are at risk of leaving and take steps to retain them.
One way to predict customer churn is by analyzing your customer data and identifying patterns or indicators that suggest a customer may be at risk of leaving. This can include factors such as a decline in purchasing activity, a decrease in engagement with your company's website or social media, or a rise in customer complaints or negative feedback.
Once potential churn has been identified, you can take steps to prevent it. One way is to offer incentives such as discounts or promotions to customers who are at risk of leaving. Another way is to reach out to these customers directly and address any issues or concerns. Another way is to engage in personalized marketing, which is tailored to the customer's behavior, needs, and preferences.
Another way to prevent churn is by improving the customer experience. This can include simplifying the buying process, providing excellent customer service, or offering additional value-added services.
By using a combination of these strategies, you can retain customers and reduce churn. By predicting and preventing churn, you can improve customer satisfaction, increase revenue, and ultimately grow your customer base.
Creating a customer loyalty program is a great way to reward customers for their continued patronage. By offering rewards, discounts, or exclusive perks to loyal customers, businesses can incentivize them to continue to choose their brand over competitors.
Additionally, a loyalty program allows businesses to gather valuable data on their customers, such as their purchasing habits and preferences, which can be used to further personalize and optimize the customer experience. This helps to foster a sense of community and belonging among customers, making them more likely to remain loyal to the brand.
Furthermore, loyalty programs can also serve as a form of word-of-mouth marketing, as satisfied customers are more likely to recommend the brand to their friends and family, leading to new customers and more revenue.
Exceptional customer service is essential in retaining existing customers. In an ideal world, every business would be able to have a 24/7 customer service team on the books to collect customer feedback and respond to any issues quickly and reliably. However, for SMEs that may not have the budget for around-the-clock customer service reps, leveraging a range of digital tools can help immensely.
For example, implementing an AI-powered chatbot to provide 24/7 customer service and support can be a great alternative for businesses with a restricted budget. While a bot may not be able to answer all the required questions, it can act as a stopgap to engage your customer until a real person can respond to their query.
Shoe company Zappos is widely known for its ability to exceed customer expectations. With a 365-day return policy on all their products and a 24/7 call center, this company goes above and beyond when it comes to building customer relationships.
Zappos' entire business model is based on their team culture and how this flows to the customer. CEO Tony Hsieh described it like so:
‘We bet that by being good to our employees we would be able to offer a better service than our competitors. Better service results in many recurring customers and this means low marketing expenses, long-term profits, and rapid growth.’
Cultivating a brand that is built on innovation and inspiration helps to build a strong emotional connection with customers. When customers feel a personal connection to a brand, they are more likely to continue using the brand's products or services and to recommend them to others.
Additionally, an inspiring brand can also create a sense of loyalty and trust among customers, making them less likely to switch to a competitor. Furthermore, it will be easier to build a community around the brand which leads to advocacy and word-of-mouth marketing which can lead to more sales and ultimately customer retention.
Apple is a great example of a business whose success is inextricably tied to its branding. Marketer Marc Gobe, the author of Emotional Branding and principal of d/g worldwide, says Apple's branding is the key to its survival.
"Without the brand, Apple would be dead," he said. "Absolutely. Completely. The brand is all they've got. The power of their branding is all that keeps them alive. It's got nothing to do with products."
When Steve Jobs returned to Apple in the mid-1990s the brand looked headed for bankruptcy. Through strategic emotional branding, Jobs was able to revive the Apple brand and position it as a company that is synonymous with innovation, design, and quality.
Personalization is essential for customer engagement. It serves two main purposes. Firstly, it serves to remind customers that you care about them and have an element of humanity in your brand. Secondly, it aids in segmenting marketing messages to personalize your sales efforts.
Even with more competitors in the online marketplace space than ever before, Amazon has been able to maintain an astonishing 90% customer retention rate.
This is largely down to Amazon’s personalized return customer experience. With 79% of customers stating they are more likely to make a purchase when it has been personalized based on past experiences, personalization is a fabulous strategy to engage customers and up your repeat customers rate.
It may seem simple, but communicating regularly is a fantastic way to increase your repeat customer rate. By speaking to your customers regularly via their preferred channels you gain valuable insight into what you are doing right and where you can improve. It also encourages your customers to reach out to you if they have a problem, reducing the risk of churn.
While Starbucks has always had a strong acquisition strategy, they were struggling when it came to customer retention metrics. By introducing their Mobile Order & Pay feature, they allowed customers to order before they even reached the shop. Further to this, Starbucks leverages the app to regularly communicate with its customers. This simple change to their products and services offering has made a huge impact, increasing communication and convenience in one fell swoop.
Customer loyalty programs reward customers for repeat business or for reaching certain milestones, such as a certain number of purchases or a certain amount of money spent.
By offering rewards, discounts, or other benefits, loyalty programs encourage customers to continue making purchases and to remain loyal to the brand. This can lead to repeat business and a longer customer lifetime value.
With over 13 million users in 2018, the Chick-fil-A app, and its accompanying loyalty program, are one of the most successful loyalty programs to date.
Chick-fil-A's rewards program, which allows customers to earn points for every purchase that can be redeemed for free food, is a great example of how to use loyalty programs to retain customers.
This strategy is particularly relevant for digital brands that offer subscription services. At the end of the introductory offer or free trial period, the customer will often set an alarm to ensure they cancel their subscription before they are charged. Anticipating this churn and offering incentives encourages customers to stick with your brand.
Adobe is master when it comes to anticipating churn and stopping it in its track, particularly when it comes to its Creative Cloud app subscriptions.
Adobe offers monthly subscriptions to their Creative Cloud services, with their clients locked in for a year at a time.
If a customer chooses to cancel for whatever reason, Adobe offers a two-month free membership. By anticipating this churn and stepping in at this time in the customer journey they allow themselves to further prove the value of their services and keep these customers far past the two-month free trial period.
Segmentation and targeting are marketing strategies that involve dividing your larger market into smaller groups of consumers with similar characteristics or needs, and then creating customized marketing campaigns or products to appeal to each group. Using these elements in your marketing interactions is one of several retention strategies that work time and time again.
Netflix’s continued dominance at the top of the OTT race is a fantastic example of using segmentation and targeting to increase customer retention rates.
Netflix uses data on user behavior and preferences to segment their audience into different groups, and market accordingly, both through advertising and their recommendation engine.
Their recommendation engine has its roots back in 2000 when Netflix began user data analytics to recommend video rentals to their customers. Since then it has established 1300 different clusters of recommendations based on users viewing preferences.
The majority of Netflix's users rely heavily on the service's recommendations, with around 80% of Netflix views coming from these suggestions.
These personalized recommendation algorithms generate significant value, estimated to be around $1 billion a year, through customer retention. During the last three years, Netflix’s churn rate has been as low as 2.5%, demanding the strength of this retention strategy.
Now that you understand the business philosophies and data metrics behind customer retention, you can start to evaluate which will be the best fit for your business.
While there is no one size fits all approach to keeping loyal customers happy and engaged, by integrating several of the above ideas into your existing marketing model, you will be able to reduce customer churn and build your business year after year.
Ranee has worked in the SaaS industry for nearly ten years. She loves working with, learning from, and helping develop effective leaders and is willing to share her thoughts through words. Outside of work, you can find her dancing, hiking in the mountains, or reading in a cafe.