Managing customer retention is critical for building a sustainable business. According to research from Harvard Business School, increasing customer retention rates by only 5% can boost a company’s profits by 25-95%. Just like filling a bucket with holes, it’s essential to identify the causes of customer attrition and find effective strategies to patch them up.
What is customer retention?
Customer retention refers to a set of activities aimed at retaining customers in the long term and converting them into loyal buyers. The ultimate goal is to transform first-time customers into repeat customers and maximize their lifetime value (LTV).
Why is customer retention important?
Paying attention to customer retention matters because it helps gauge customer loyalty and satisfaction, evaluates the strength of customer service, and identifies potential red flags that may deter future customers. Focusing on customer retention yields significant benefits:
- Lower cost compared to customer acquisition: As Econsultancy reports, 82% of companies believe that customer retention is cheaper than customer acquisition, yet many still allocate more resources to acquisition.
- Increased average order value (AOV): Retained customers not only cost less, but they also tend to spend more over time. Studies show that loyal customers are 23% more likely to spend with you than the average customer.
- Increased profits: Taking care of customers and nurturing long-term relationships has a positive impact on your bottom line. Data suggests that a 5% increase in customer retention can boost profits by 25% to 95%, and existing customers contribute up to 65% of a company’s business.
- Brand ambassadors: Loyal customers tend to share their positive experiences, becoming your brand ambassadors. This word-of-mouth marketing is invaluable. According to Yotpo, 60% of consumers discuss brands they are loyal to with their family and friends. Thus, customer retention becomes a vital aspect of any business.
How to calculate your customer retention rate
The customer retention rate (CRR) reflects the percentage of customers that a company has retained over time. To calculate 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 is the opposite of customer churn, which represents the percentage of customers lost by a company over a specific period.
16 customer retention strategies that work
Retaining customers costs less than acquiring new ones, and both contribute to your company’s bottom line. Before focusing solely on acquiring new prospects, consider implementing these 16 research-backed customer retention strategies to grow your revenue by nurturing existing customers.
1. Stand for something
Few customers feel a genuine connection to the brands they purchase from. Research shows that only 23% of consumers have a relationship with a brand, and shared values account for 64% of those relationships. By defining and highlighting your company’s values, you can foster real connections with customers who share those values. For example, becoming a certified B Corp demonstrates our commitment to a positive impact beyond profit.
2. Collect feedback with customer surveys
Asking customers for feedback through surveys demonstrates that you care about their opinions and are willing to go the extra mile to keep them satisfied. Surveys provide valuable insights and help identify areas for improvement in the overall customer experience.
3. Capture your product’s momentum
When making exciting improvements to your product, ensure that your customers feel the same level of excitement. Share your work with them, highlighting the benefits and how the new features will enhance their experience.
4. Don’t just sell — educate
Support your customers after they’ve made a purchase by providing resources that help them learn how to use your product effectively. This can include in-product onboarding, lifecycle emails, one-on-one training sessions, online training resources, and building a community of product experts.
5. Communicate with your customers
Consistent communication with customers through their preferred channels is key to customer retention. Email remains the preferred communication tool, with 4.2 billion email users worldwide. Personalization and relevancy play vital roles in effective communication.
6. Leverage personalization
Offer customers personalized experiences by using the information they provide to cater to their specific needs. Customers are more likely to share relevant information about themselves when it results in contextualized interactions. Product recommendations based on customer behavior are another way to add a sense of personalization.
7. Deliver surprise reciprocity
Reciprocity plays a significant role in customer loyalty. People respond positively when treated well and negatively when treated poorly. Surprising customers with unexpected acts of kindness leaves a lasting impression. Consider sending handwritten notes or small gifts to show appreciation.
8. Offer fast delivery and easy returns
When it comes to e-commerce, effective delivery and returns management sets businesses apart from the competition. Simplifying the returns process and ensuring fast delivery give customers peace of mind and encourage them to return to your store.
9. Find ways to delight your customers consistently
Small, thoughtful gestures can go a long way in creating customer delight. Instead of relying solely on costly discounts and freebies, focus on creating a sense of reciprocation through small, consistent acts of appreciation. For example, incorporating fun illustrations or surprise rewards into your product can brighten your customers’ day.
10. Provide exceptional customer service
Exceptional customer service is not about extravagant gestures but about consistently meeting customer expectations and efficiently solving their problems. Offer support through channels that make sense for your business, and ensure that communication is a communal effort to keep everyone informed and aligned.
11. Accept that speed is secondary to quality
When it comes to customer service, quality and completeness matter more than speed. Customers are nine times more likely to engage with a brand that provides courteous and helpful service rather than speedy service. Take the time to address customer needs thoroughly and avoid rushing to provide subpar solutions.
12. Use subscriptions to keep customers coming back
Consider implementing a subscription model to retain customers. Fifteen percent of online shoppers have subscribed to receive products on a recurring basis. Offering something exclusive or replenishable can entice customers to opt for a subscription.
13. Build loyalty programs the right way
To create effective loyalty programs, understand why customers use them and what keeps them engaged. Encourage participation by giving loyal customers a head start, making them feel like VIPs, and assigning positive labels that encourage a sense of pride.
14. Turn negative into positive
Don’t give up on customers who leave your website without purchasing. Use abandoned cart emails to recover customers rather than just sales. Additionally, promptly resolving customer complaints can turn dissatisfied customers into loyal advocates. Research shows that 95% of unsatisfied customers will return if their issues are resolved quickly and efficiently.
15. Reward your loyal advocates
When customers go out of their way to recommend your product or service, acknowledge and appreciate their support. Engage with customers who promote your brand on social media, and consider implementing a referral program to incentivize recommendations.
16. Overdeliver on your promises
To create the best online shopping experience, consistently exceed customer expectations. In an era of high customer expectations, going above and beyond is essential to retaining customers and encouraging future purchases.
Retaining customers is a balancing act
Implementing customer retention strategies requires time and effort. Building personal relationships with customers is not a process that can be hacked. Instead, focus on continuously improving your product and service, as they are the foundation of customer loyalty. Keep in mind that the strategies mentioned above provide fresh ideas, but there are no shortcuts. Nurturing loyal customers requires dedication, authenticity, and a commitment to delivering exceptional experiences.