As time goes on, customer retention seems to become increasingly complicated. With the proliferation of consumer options, companies need to constantly adapt and find innovative ways of keeping their customers close. The importance of customer retention has never been more evident than it is today.
Put simply, customer retention is about businesses trying to keep their customer base for the longest time possible so that they can spend more over the customer lifetime. A customer retention program is, after all, about focusing on loyal customers instead of just recruiting first-time customers. The latter falls under what’s known as customer acquisition. However, it takes more than just acquisition to grow a business on a sustainable level. Without building and maintaining customer loyalty, companies are expected to stagnate and, eventually, fail.
That said, keeping customers happy consistently doesn’t happen by accident or overnight. While the acquisition is easy to see and measure, the customer retention metrics are not as straightforward and may require some time before it’s noticeable.
The Importance of Customer Retention By the Numbers
Studies are pretty conclusive when it comes to the efficacy of customer retention strategies. For starters, a Harvard Business Review study has discovered that increasing customer rates by as much as 5% can increase profits by 25% to 95%. Other studies have shown that acquiring a new customer can cost businesses between 5 and 25 times more expensive than retaining an old one. Also, the success rate of selling to current customers is between 60% to 70%. Yet, the success rate is only at around 5% to 20% when it comes to new clients.
In terms of retention marketing opportunities, loyal customers have a purchase frequency that’s five times higher than new customers. They were also five times more likely to forgive their unfulfilled customer expectations, four times more inclined to refer the company, and seven times as likely to try a new product or service. That said, it was also found that around a third of clients will consider switching companies after a single instance of poor customer service. On average, U.S. companies lose about $136.8 billion per year because unhappy customers switched to their competition.
Put simply; an effective customer retention plan costs less than focusing solely on acquisition. As mentioned, return customers are also more likely to engage in word of mouth advertising, acting as the company’s advocates, free of charge. Also, referred clients tend to have a higher customer lifetime value than those acquired through conventional means.
What Influences Customer Retention?
The exact percentage of customers that remain loyal to brands can vary quite significantly. These differences can depend on each industry, but several factors can be found throughout most of the business sector. Among these, we can include the following “gold standards”:
One significant indicator of customer satisfaction is the relationship between customer expectations and user experiences. If the experience matches the expectation, satisfaction is assured. If, however, the expectation is higher than the quality of the customer experience, you’re dealing with an unhappy customer, and retention rates drop.
That said, the correlation between satisfaction and retention is not always as straightforward as that. Depending on the circumstances and some industries, other factors may influence the customer base to remain with the company over the long term. That said, by measuring customer satisfaction on an ongoing basis, organizations can adjust their customer retention strategy and stay in line with their business goals.
The scope of many products and services is to address the essential needs and pain points of customers. By extension, your customer’s success is directly tied to yours. If they can realize their goals by using your products and services, they will likely stay with your brand for the long term. Your business will be able to generate revenue throughout the entire duration of your customer relationships. There are some industries out there where customer success will take precedence over their satisfaction.
Another driver of customer retention is reliance. Namely, this refers to how much do your clients rely on your products and/or services for their daily operations. The more clients rely on you, the harder it will be for them to leave or switch to your competitors without incurring significant losses or downtime. The longer companies provide excellent services to their product users, the more dependent these become on their vendors. Therefore, dependency can have a considerable impact on both retention and revenue.
Difficulty Changing Vendors
Some businesses also try keeping clients bound to their brand through contract exit clauses. The more difficult it is for clients to leave, the less likely they are to switch to other providers throughout the contract’s duration. Going the extra mile by offering strong incentives, you can also prolong the contract, making it even more difficult for clients to leave once the current contract is up.
Why Customer Retention Is Key To Business Success
Regardless of the benefits mentioned above, many organizations are not aware of the importance of retention, focusing instead on the acquisition and, frequently leaving their loyal customers unsatisfied. Current customers and their long-term retention help increase business profitability in many different ways.
- Identifying referral sales opportunities – Satisfied customers are more likely to tell their friends and family about your brand. It would be best if you made it easy for them to give you a referral by implementing a system that rewards them whenever they do so. Once you receive these leads, explore them even further and determine if there are any new clients that you can earn.
- Fostering a constructive long-term relationship – Everyone, your clients included, wants to be treated with respect. This is, in a sense, the backbone of customer retention. The way you manage to build your relationships will also dictate how your company will move forward. By creating a comprehensive customer loyalty program and generally taking advantage of other such tools and strategies, companies can ensure that they’re headed in a constructive direction.
- Rectifying flaws with policies and procedures – Loyal clients are among the best sources of information on how to improve your company’s policies and procedures. Unlike unhappy clients, who might vent their frustrations in angry customer reviews, loyal customers will let you know about your company’s problems and shortcomings, hoping that you will improve it for the benefit of everyone involved. By listening to this customer feedback, you will stand to gain in terms of both retention and acquisition.
- Enhancing your brand reputation – Companies that provide the highest levels of customer service and invest in retention strategies also experience a solid brand reputation. The quality of the care supplied will frequently turn clients into brand evangelists. So, just by focusing on customer retention, companies are making considerable investments in brand reputation as well.
- Understanding future trends and customer needs – One of the best ways of anticipating trends and understanding clients’ future needs is by working together with them to keep them around as long as possible. As a general rule of thumb, for every customer complaint you come across, there are at least ten others that you will never find out directly from them. This is why it’s so important to listen to your clients whenever they bring up things and issues, as they will help you understand the wants, needs, and pain points of future customers. Alongside listening to them, you can also monitor user engagement over time. All of this will tell you what customers are thinking and where they want you to go.
While customer loyalty is harder to come by in today’s digital age, it’s more important than ever to invest your time, energy, and resources in customer retention strategies. The importance of retention is not about keeping an extra customer or two around, but about treating your customers the way they should be treated, in the first place.
When it comes to improving your customer retention rates and developing the right programs and strategies to make it happen, organizations 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!