Managing customer retention is vital for the sustainable growth of any business. In fact, research from Harvard Business School reveals that increasing customer retention rates by only 5% can result in a significant boost in profits ranging from 25% to 95%. Poor customer retention is akin to filling a bucket with holes in the bottom – it’s far better to address the root causes and fix them.
What is customer retention?
Customer retention encompasses a range of activities aimed at ensuring long-term customer loyalty and maximizing their lifetime value (LTV). The ultimate goal is to transform first-time buyers into repeat customers.
Why is customer retention important?
Paying attention to customer retention allows you to gauge customer loyalty and satisfaction, evaluate the strength of your customer service, and identify potential red flags that may discourage new customers. Focusing on customer retention offers several benefits:
- Lower cost compared to customer acquisition: According to Econsultancy, 82% of companies acknowledge that customer retention is significantly cheaper than customer acquisition. However, many businesses tend to allocate more resources to acquiring new customers instead of nurturing existing ones.
- Increased average order value (AOV): Retained customers not only cost less, but they also tend to spend more over time. Research demonstrates that loyal customers are 23% more likely to spend with a company than the average customer.
- Increased profits: Taking care of and retaining customers over time has a positive impact on your bottom line. Data shows that a 5% increase in customer retention can lead to a profit increase ranging from 25% to 95%, and existing customers account for 65% of a company’s business.
- Brand ambassadors: Loyal customers often share their positive experiences, becoming brand ambassadors. According to Yotpo, 60% of consumers discuss the brands they are loyal to with their friends and family. Word of mouth recommendations amplify exponentially, making customer retention a must-have for any business.
How to calculate your customer retention rate
The customer retention rate (CRR) indicates the percentage of customers a company has retained over time. To calculate your CRR, subtract the number of new customers acquired during a specific period from the number of customers remaining at the end of that period. Divide the result by the total number of customers at the start of the period and multiply by 100.
CRR = ((Customers at end of period – New customers during this period) / Total customers at the start of the period) x 100
Customer retention rate complements customer churn, which represents the percentage of customers a company has lost within a specific timeframe.
Proven customer retention strategies
Retaining customers not only costs less but also contributes to your company’s bottom line. Before diving into tactics to attract new prospects, consider implementing these proven customer retention strategies to grow your revenue by nurturing your existing customer base:
1. Stand for something
Few customers feel a genuine connection with the brands they purchase from. However, shared values play a crucial role in forging relationships. Make sure your company stands for something and communicates these values to your customers. This not only fosters a sense of connection but also increases customer loyalty over time.
2. Collect feedback with customer surveys
Asking for customer feedback shows that you care about their opinions. Use customer surveys to collect valuable insights and identify areas for improvement in your online experience.
3. Capture your product’s momentum
Exciting improvements to your product should be shared with your customers. Highlight the latest features and explain how they will benefit your customers. Generating excitement and anticipation helps retain existing customers and promotes new features.
4. Don’t just sell – educate
Offer resources and training to help new customers understand and effectively utilize your product. This can include in-product onboarding, email tutorials, one-on-one training sessions, or an online training academy.
5. Communicate with your customers
Maintain constant communication with your customers using their preferred channels. Despite the popularity of social media, email remains the preferred communication tool for most customers. Ensure consistency and leverage personalization for spot-on relevancy.
6. Leverage personalization
Offer a personalized experience to your customers by collecting relevant information about them and tailoring their interactions accordingly. Customer behavior-based product recommendations are a simple way to add a sense of personalization.
7. Deliver surprise reciprocity
Surprising customers with unexpected acts of kindness deepens the bond and fosters reciprocity. For example, sending handwritten notes or small gifts as tokens of gratitude can make your customers feel valued and inclined to remain loyal.
8. Offer fast delivery and easy returns
In the realm of e-commerce, efficient delivery and hassle-free returns are key concerns for customers. Stand out from the competition by ensuring quick deliveries and simplifying the return process.
9. Find ways to consistently delight your customers
Surprise and delight your customers with thoughtful gestures, rather than relying solely on discounts and freebies. Small, inexpensive acts of appreciation can make a significant impact on customer loyalty.
10. Provide exceptional customer service
Efficiently resolving customer problems and meeting their expectations is crucial for customer retention. Focus on providing support on the right channels and ensure everyone in your team is involved in the support process.
11. Accept that speed is secondary to quality
While prompt service is appreciated, quality and completeness are more important factors in customer satisfaction. Take the time to address customers’ needs properly, even if it means spending more time with them.
12. Use subscriptions to keep customers coming back
Implementing a subscription model appeals to customers who seek convenience and predictability. Offer exclusive benefits or products that customers frequently use and replenish to encourage subscription sign-ups.
13. Build customer loyalty programs strategically
To create effective loyalty programs, understand why customers use them and what motivates them to continue participating. Consider offering incentives, creating tiers, and labeling your customers positively to enhance loyalty.
14. Turn negative experiences into positive ones
Don’t give up on customers who have shown interest but haven’t converted. Use abandoned cart emails to remind them of their potential interest and provide solutions to any complaints they may have.
15. Reward your loyal advocates
Acknowledge and appreciate customers who recommend your products or services to others. Engage with them on social media and consider implementing a referral program to incentivize their advocacy.
16. Over deliver on your promises
Exceeding customer expectations is crucial in today’s competitive landscape. Strive to create the best possible online shopping experience, satisfying customers and encouraging them to remain loyal.
Conclusion
Customer retention is a complex balancing act that requires ongoing effort and commitment. While the strategies mentioned above can provide fresh ideas, there are no shortcuts to building personal relationships with customers. Ultimately, the quality of your product and service will play the most significant role in fostering customer loyalty. By implementing effective customer retention strategies, you can boost customer satisfaction, increase profitability, and create a strong foundation for long-term business growth.
FAQs
Q: Why is customer retention important?
A: Customer retention is important because it helps businesses measure customer loyalty, evaluate customer service quality, and identify potential red flags that may deter new customers. Additionally, customer retention offers cost advantages over acquiring new customers and increases profits through increased average order value.
Q: How can I calculate my customer retention rate?
A: To calculate your customer retention rate (CRR), subtract the number of new customers acquired during a specific period from the number of customers remaining at the end of that period. Divide the result by the total number of customers at the start of the period and multiply by 100.
Q: What is the key to exceptional customer service?
A: According to research, the key to exceptional customer service lies in the ease of problem resolution. Customers value courteous, willing, and helpful service. Focus on consistently meeting expectations, avoiding unpleasant surprises, and providing support through the appropriate channels.
Q: How can I turn negative experiences into positive ones?
A: Persistence is key when customers leave your website without making a purchase or subscribing. Use abandoned cart emails as an opportunity to recover customers rather than solely focusing on completing the sale. Additionally, solving customer complaints quickly and efficiently can turn dissatisfied customers into loyal ones.
Q: How can I reward customer advocates?
A: Recognize and appreciate customers who recommend your products or services by engaging with them on social media and implementing a referral program. Incentivize their advocacy by offering rewards such as gift cards or account credits for successful referrals.
Q: Why is over-delivering on promises important for customer retention?
A: Over-delivering on promises creates an exceptional customer experience, exceeding customer expectations. In today’s competitive landscape, exceptional service is crucial for retaining customers and ensuring their continued loyalty.