With more options than ever before, companies need to constantly adapt and change their tactics to keep their clients close. Customer retention has become more important than ever before. Simply put, customer retention is helping businesses that try to maintain their customer base for the longest period of time as possible. In the meantime, clients can spend more over their own individual customer lifetime.
Instead of relying solely on recruiting first-time customers, which is the purpose of customer acquisition, a customer retention program is about focusing on loyal customers. It’s about turning existing customers into repeat customers who will continue to purchase from your organization instead of your competitors. A customer retention strategy typically focuses on building and maintaining brand loyalty, increasing customer satisfaction, and boosting customer relationships. When it boils down to it, customer retention helps a company boost its bottom line profits. Keeping customers happy on a consistent basis doesn’t happen accidentally or overnight. This guide will highlight the importance, the benefits, and the strategies to make the best use of customer retention in 2022.
Why Customer Retention is Important
Significant research has been done on the issue, and according to the Harvard Business Review, a slight increase of as little as 5% in customer rates will help increase profits by as much as 25% to 95%. It was also shown that customer acquisition could be between 5 and 25 times more expensive than retention. In addition, new customers are more challenging to sell to than current customers. Statistics show that sales to existing customers have a success rate of 60% to 70%, whereas new clients have between 5% to 20%.
In addition, loyal customers are also five times higher purchase frequency and are five times more likely to forgive their unfulfilled customer expectations. Similarly, they are seven times as likely to try out a new product or service and four times more inclined to refer the brand to their friends and family. Also, around a third of all clients were found to, at least, consider switching companies after a single instance of poor customer service. In the United States alone, over $136.8 billion per year worth of profits are lost because of unhappy customers moving over to the competition.
The Benefits of Customer Retention
While there are several benefits to why customer retention is essential to a business, there are three main ones that can significantly impact the company’s overall well-being.
- Referrals – Loyal customers who regularly purchase from the same company are more likely to post positive feedback and customer reviews online. In doing so, they will also provide you with free word-of-mouth advertising to their friends, family, and social network acquaintances.
- Cutting Costs – As mentioned earlier, it’s generally more expensive to obtain a new customer than to hold on to an existing one. Better customer retention leads to a decrease in resources spent on marketing and advertising.
- Revenue Increase – There’s a clear correlation between customer retention and customer lifetime value. This is one of the key metrics signifying the total amount of money expected to be earned from a customer throughout their entire relationship with the company. By increasing customer retention, brands also increase their customer lifetime value, which positively impacts the company’s profitability.
Deciding on how much to focus on customer retention programs depends mainly on where the company is in its lifecycle. Startups may want to focus on expanding their customer base, investing more into customer acquisition. More established companies with an existing customer base can benefit more by investing more of their resources in a customer retention management program.
What Influences Customer Retention?
There are significant differences between industries and types of business, which can also translate to the exact percentage of customers that remain loyal to brands. The most important factors influencing customer retention include the following:
- Customer Satisfaction – The correlation between customer expectations and experiences is a strong indicator of customer satisfaction. Higher expectations that the actual experience can lead to unhappy customers and lower retention rates.
- Customer Success – Since many products and services are specifically designed to address the needs and pain points of customers, your success is, therefore, tied to yours. The longer your product/service will help guarantee their success, it will increase their retention and also help you make more sales throughout the entire duration of their customer relationships.
- Customer Reliance – This factor indicates how much current clients rely on a company’s products for their daily operations. The more they rely on your company, the harder it will be for them to leave for the competition. Their dependence on your brand will have a significant impact on your retention and revenue.
Top Important Customer Retention Metrics
Before developing and implementing a comprehensive customer retention strategy, brands need to keep in mind several essential customer retention metrics. These include the following:
- The Customer Retention Rate – This is a key metric that measures the percent of customers that continue to do business with the brand over a specific time.
- The Customer Churn Rate – The customer churn rate metric measures the percentage of customers lost over a specific period.
- The Repeat Customer Rate – The percent of customers who made multiple purchases over a period of time. The higher the repeat customer rate, the better.
How to Calculate Customer Retention Rate
Calculating the customer retention rate is done by using the following formula:
[(E – N) / S] * 100 = X
In this customer retention formula, E stands for the number of customers at the end of a time period. N represents the number of new customers acquired during that same period of time, while S indicates the number of customers at the start of the time period taken into consideration.
So, for example, if you’re measuring the retention rate and start with 100 customers (S), get 40 new customers (N) but also lose 20 existing customers, that means that by the end of the time period in question, you end up with 120 customers (E). To determine the customer retention rate, you calculate
- (120-40)/100 = 0.8
- 8*100 = 80% – which represents the customer retention rate.
As a general rule of thumb, most businesses aim to achieve a retention rate of at least 85% or higher.
Strategies to Improve Customer Retention
Another way of framing retention is to look at it as an essential cog within its customer relationship management. This means that customer retention helps to ensure customer satisfaction and increase their return rates, therefore spending more money throughout their lifecycle. Below, we’ll be looking at several customer retention tips and strategies that can help ensure customer happiness.
Making It Easy For People To Contact You
When customers look to contact a brand, they typically want quick answers. The best way to approach the situation is to provide them with multiple channels to do so. This can include everything from phones to emails, social media, and live chat. However, the important thing is to make sure that whatever channels you use, you have a system in place capable of answering all customer requests as soon as possible. There’s nothing worse for your customer retention program than having a client reach out only to receive the silent treatment.
As in personal relationships, business relationships thrive on trust. And to achieve a high level of trust, you will need to provide your clients with transparency. A brand that’s unwilling to disclose information may seem like it’s trying to hide something. So, for example, if you’re anticipating an ongoing issue, it’s far better to let your customers know about it in advance than have an unexpected lousy experience, second-guess your motivations, and ultimately leave because of it.
Quality Customer Service
Excellent customer service is the backbone of customer satisfaction and has a tremendous impact on customer retention. As mentioned earlier, a significant chunk of your customer base will be inclined to switch to your competition if they have a terrible experience resulting from poor customer service. A good way of showing your dedication is by being there and listening to their concerns. Frustrated clients want human interaction more than anything else. By offering them empathetic responses to their issues will help maintain your customer retention rate.However, if clients are greeted with automated responses straight out of a support script, the opposite effect may end up happening.
To build trust with customers, plenty of companies use customer education as an effective retention marketing strategy. By sharing useful and valuable information, brands can guide prospective clients through their customer journey and help increase trust. This form of inbound marketing can be an excellent tool in a brand’s customer loyalty program.
The Onboarding Process
Similar to the point above, an onboarding process aims to provide clients with helpful information. The only difference here is that the onboarding process is strictly about teaching them how to use your product as efficiently as possible. In doing so, brands will help ensure customer success which, in turn, will have a strong influence on retention. An effective onboarding process also helps limit the customer churn rate, especially during the early phases of using a new product, when people can become easily frustrated with not knowing how to use it properly.
Personalized Customer Experience
Statistics show that 80% of consumers are more likely to do business with an organization if it offers a personalized experience. By adding a personal touch throughout all customer interactions, including email marketing and even product packaging, you can help achieve overall better customer retention rates.
Social proof in customer reviews and testimonials helps to improve and promote a brand’s credibility. Not only do they assist in providing authenticity, but they also can improve conversion rates. In addition, some 72% of consumers say that positive reviews and testimonials make them trust a business more. Several ways to achieve this are by encouraging customers to add reviews and testimonials to your site and product pages and share their experiences on social media.
Seeking Out Feedback
Among the most effective ways of understanding your product’s strengths and weaknesses is to speak directly to their users/your customers. They are essential in understanding the product as thoroughly as possible. By using this feedback to improve your product, you are essentially working on making your customers remain by your side over the long term. An effective way of gathering feedback is through customer surveys. Another way is by arranging a feedback session over the phone or in-person with a user that’s willing to help you out.
The Customer Advisory Board
Loyal customers are known as the biggest spenders throughout their lifetimes. But what’s generally less known about them is that they’re also an essential source of highly valuable information for the company. By putting together a panel of loyal customers, businesses can fine-tune their products and services. These clients can also be encouraged to become brand advocates and promote the brand on your behalf.
Occasional sales, discounts, and coupon codes were also shown to have an impact on retention and help keep customers satisfied. Similarly, consumers will appreciate small gestures as much as they do perks, as these will appear to be more genuine and personalized. Sharing their stories on social media, organizing various contests, or even interviewing clients for your blogs are excellent and creative examples of incentivizing customers.
A Customer Loyalty Program
Another solid retention strategy is a customer loyalty program. Too often, the focus is placed too much on customers at risk of churn. Brands should never ignore their loyal customers, thinking that they will always remain as such. A rewards program will repay premium clients for their continued loyalty. Basically, the more they interact with your brand, the more they spend throughout their lifecycle, and the more they should be rewarded for it. This strategy helps keep customers happy because they’ll receive additional incentives than the ones mentioned above.
Focusing on Customer-Centricity
The entire team on your payroll must understand the customer as much as possible. Having a customer-oriented workforce will be highly beneficial for product production as well as marketing. By understanding the target audience, brands will create a type of product that will better address their needs and pain points, which will increase the likelihood of their success.
A Communication Calendar
Communication is essential for any type of relationship, personal or otherwise. Even if you’re dealing with inactive customers that haven’t interacted with your brand for a while, it’s still a worthwhile effort to try and re-establish a connection with them. A communication calendar is especially useful in keeping yourself organized when it comes to managing customer engagements.
A communication calendar is a chart that keeps track of all customer communications and interactions. It will let users know when was the last time clients made contact with the company and alerts team members about those that haven’t interacted with the brand within a given period of time. Such a calendar can also launch various promotional offers or take a more proactive approach to customer service.
Building a Corporate Social Responsibility Program
With the proliferation of the digital environment and social media, today’s consumers are more informed and involved than ever before. Brands looking to increase their customer retention rates will also need to get involved with their customers beyond just through their products. A Corporate Social Responsibility Program looks to pursue a moral goal aligned with the core values of its customer base and target audience. Companies, big and small, have employed such a responsibility program.
Lego, for example, is known for making significant investments into making its products more eco-friendly. Microsoft and Patagonia are also known for their many philanthropic projects. General Mills aims to reduce its greenhouse gas emissions by 28% by 2025, hotel and resort operator Hilton is known for its workplace diversity, and more. While not all companies need to embark on such ambitious projects, they can still get involved in their local community and demonstrate their commitment through smaller but equally important acts.
There are plenty of ways to improve customer retention, but there is no one-size-fits-all approach for all companies looking to employ it. Your product and the level of your customer service will help mod customer loyalty. Customer relationships need to be invested in and nurtured over time. And while customer loyalty is harder to come by in today’s day and age, it’s more important than ever to invest in customer retention measures aimed at improving your retention rates.
When it comes to developing the right programs and strategies to make it happen, brands need to focus on detailed business analysis to understand which metrics to follow and how to calculate them. Consero offers a financial solution, intuitive systems, and the expert support necessary to help you better understand your company from every angle. Request your free demo today!