What is customer retention?
Customer retention is essential to business growth. When growing your business, it’s easy to get so focused on acquiring new clients that you forget about keeping your current customers happy — until it starts to affect your bottom line.
At that point, you’ve already lost ground, and it takes more effort to recover. That makes it essential to focus on both acquiring new customers and retaining existing ones. Otherwise, customers who have already purchased your product may start to feel like you no longer care about them.
In this article, we’ll define customer retention and explain why it’s crucial for your business. We’ll also discuss a few strategies for retaining customers.
What is customer retention?
Customer retention, or client retention, is a set of activities and strategies used to encourage customers to continue doing business with your company instead of defecting to a competitor. It’s a method of continually earning your customers’ loyalty. These activities start from the very first interaction prospective customers have with your organization and continue throughout the entire relationship.
When customers leave your company for another, it’s called churn. Successful customer retention strategies prevent churn and encourage repeat business from existing customers.
Why is customer retention important for your business?
It’s crucial to retain customers for the long-term health of your business. Existing customers already know your company and have previously bought from you. That makes them the easiest and most predictable source of new revenue.
They don’t buy from you once. They continue to come back to buy repeatedly. And they do this because you’ve already proven yourself by offering a quality product and value combined with an excellent customer experience. As a result, they trust you to continue to do so. That’s why customer retention increases customer lifetime value (CLV) for your business.
Continually losing existing customers while winning new business could cause your company to stop growing or, worse yet, start to shrink. Needless to say, you’d have to continuously spend on customer acquisition, thus ballooning your customer acquisition costs (CAC). Retaining existing customers, on the other hand, helps you steadily build your customer base along with revenue and profitability.
The value of customer retention vs. customer acquisition
Retaining existing customers can save your company a lot of money. It costs five times more to gain a new customer than it does to keep your existing ones. Plus, a 5% increase in customer retention could result in a 25% to 95% increase in company profitability. That makes customer retention a highly cost-effective investment.
Retaining customers is easier and less costly because you are familiar with their needs and preferences. This translates to them spending more on your business. According to Gladly, 84% of consumers say they’ll go out of their way to spend on better experiences — something you can offer when you know their preferences well.
The best part? Marketing to existing customers requires less effort, helping you contain marketing expenses and further developing your company’s relationship with them. Plus, as loyal customers of your company, they are an excellent source of referrals or warm leads to help further grow your business. These leads are easier to convert to customers because your existing happy customers suggested your product or service to them.
Existing customers provide you with an excellent resource for insights for continuous improvement, giving your organization a competitive advantage in the marketplace. And selling to loyal customers helps protect profit margins because your current customers will be less focused on price, having already experienced your superior products and services.
How to increase customer retention
By now, you have a fair idea of why customer retention is critical to your company’s sustained growth. But how do you retain customers and turn them into brand loyalists?
The key is to set your current customers up for success. That involves creating a frictionless customer experience and holding their hands at every stage of their buying journey. It’s crucial, considering that 77% of consumers say that great customer service is critical for their brand loyalty.
Here are a few effective customer retention strategies to help you get started.
Offer excellent customer service
Customer service and retention go hand in hand. You can’t retain and keep customers happy without proper and personalized customer service.
Start by identifying all the touchpoints a customer goes through in their buyer’s journey. Next, ensure they receive prompt and helpful customer support at every touchpoint.
Let’s say a prospect visits your website for the first time and wants to learn more about your product. Setting up a chatbot on your website is a cost-effective way to quickly answer their questions and nudge them in the right direction. It’s more convenient for customers to have their questions addressed right away than raise a ticket or call your customer service team.
It’s important to provide omnichannel customer support, too. Make it easier for customers to reach you through various channels, including live chat, social media, email, and phone.
It’s also important to provide your customer service team with the data and tools they need to deliver personalized support. The study by Gladly found that 77% of consumers would recommend you to their friends or family after receiving a personalized experience.
A solution like Act! will give your team a clear idea of a customer’s questions or complaints before getting on a call. That way, they can even identify the right solutions for the customer’s problem in advance.
Prioritize customer success
Finding effective solutions to customer issues isn’t enough. If you want to increase customer retention, you must empower current customers to reap the benefits of your products and services.
That involves outlining a step-by-step onboarding strategy to welcome new customers. Identify potential problems they might encounter at this stage and keep solutions ready. Use live chat support to walk them through any questions.
Additionally, it’s important to provide extensive educational content to help them explore various features and functionalities. You can use a wide variety of materials, from blog posts and user guides to video tutorials, for this purpose. Make sure your website has a comprehensive, accessible knowledge base.
That, in turn, will save customers the hassle of repeating their complaints to different support executives. It will also lead to speedier resolution, a decreased churn rate, and a better customer experience.
Accept customer feedback
You can’t improve customer satisfaction and retention without understanding what causes customer churn. You must identify the precise points in your customer experience that drive them away. And what better way of doing that than by asking for customer feedback?
The most common strategy is to send a feedback survey after a customer makes a purchase. But you can take things up a notch by asking about their experience after every customer service interaction. For instance, send an SMS asking them to rate a support executive after a call.
Reward loyal customers
How do you motivate customers to keep coming back to your business? One effective solution is to make them feel valued by offering personalized incentives.
The first step is to identify your most loyal customers. Then, dig deeper into their purchase history to come up with suitable discounts and freebies. Sixty-six percent of consumers expect brands to understand their needs and expectations, so make sure these incentives are tailored to each customer’s preferences.
Besides personalized discounts, you can also launch loyalty programs to reward customers. For instance, you can let them earn redeemable points on every purchase.
How to measure customer retention
Implementing a mix of customer retention strategies is one thing. You also have to determine whether these strategies are helping you strengthen customer relationships and aiding customer retention. That makes it crucial to calculate your customer retention rate.
But what exactly is it? Simply put, the customer retention rate is a measure of the percentage of customers who stayed with your business over a given period of time. To calculate it, you must measure the following:
- Number of customers at the beginning of a specific period (S)
- Number of customers at the end of the period (E)
- Number of new customers acquired over the period (N)
You can calculate the customer retention rate with the following formula: ((E – N) / S ) * 100
Monitoring the customer retention rate over a specific period will help you understand how well different customer retention strategies are working. You can then tweak them to maximize customer retention.
Besides the customer retention rate, it’s crucial to measure customer attrition rates and customer lifetime value. These key metrics will give you a more comprehensive view of how well different retention strategies are performing.
Boost your customer retention today
Start Creating More Meaningful Relationships With Act!
The sales and marketing strategies you employ to boost the number of customers you acquire are very important to your business. But without tracking your customer retention rate and building a consistent strategy to build a loyal customer base, your business could be in jeopardy.
Customer retention will allow your business to grow consistently over time, whether through economic downturns or when challenged by tough competitors. Never forget the value of your existing customers. Taking the time to focus on your repeat customers and their customer success will set you apart and keep your customers coming back for more, and even turn them into promoters for your business and brand.
With a powerful, all-in-one CRM and marketing automation solution like Act!, you can easily streamline your customer engagement to consistently meet your customer’s expectations, increase your loyal customers, and enjoy those ever-important repeat purchases! Try it free for 14 days.
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