How to retain customers
Improving customer retention can make a significant impact on a company's financial well-being and growth potential. The ability to keep your current customers loyal, engaged, content, and consistently returning is often what separates those who thrive from those who merely survive.
In this blog, we'll dive into strategies you can deploy to improve retention and also explore ways to combat the challenging issue of customer churn.
Whether you're a seasoned professional or just embarking on your business journey, mastering the art of keeping customers returning for more is a valuable skill that can pave the way for your business's enduring success.
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Why good customer retention is so important
Customer retention involves the skill of maintaining your existing customers' satisfaction and involvement, ensuring they consistently choose your products or services over those offered by your competitors. If you're committed to achieving long-term success for your business, it’s a critical aspect that shouldn’t be underestimated, and here's why.
First and foremost, improving customer retention is a catalyst for revenue growth.
Existing customers often make repeat purchases. If they begin to trust your brand over a period of time, they’re likely to increase their spending which creates a consistent source of revenue.
Moreover, customer retention is typically a cost-effective strategy to maintain, as opposed to constantly chasing new customers, which often involves hefty marketing expenses.
It typically costs 5 to 7 times more to acquire new customers than retain existing.
When your customers consistently enjoy positive experiences with your business, they become more than just buyers; they evolve into loyal advocates for your brand.
As such, happy customers often become your most enthusiastic brand promoters - bringing in friends, family, and colleagues and contributing to your organic growth. Over time, this ripple effect can lead to an increased customer lifetime value (CLV).
How customer loyalty and advocacy plays a part
Retaining customers is about more than just convincing people to make repeated purchases.
Faithful customers choose to become brand enthusiasts who genuinely appreciate what you have to offer. This isn’t just about being driven by promotions and discounts; but rooted in the creation of a lasting emotional connection that goes beyond a quick sale.
On the flip side, those who've never felt any attachment to your brand may be quick to switch to competitors. There are many reasons for this; whether it be down to convenience, a tempting promotion, or simply growing more attached to a competing brand.
Check out our blog on the different types of customer loyalty here.
The role of rewards in customer retention
While a customer may be showing loyalty today, there's no guarantee they'll remain as devoted in the weeks and months ahead.
Customers are always on the lookout for the best value for their money or exceptional customer support, and their preferences can shift in a matter of seconds. Therefore, it's essential not to become overly complacent and assume that a quick-fire promotion should revolve solely around handing out rewards.
In reality, customer retention is an ongoing journey.
While rewards are an attractive draw, it’s about forging a genuine connection with each one of your customers. This may include actively listening to their needs and adapting to meet their changing expectations. By staying in tune with your customers’ preferences, you can ensure that they stay committed to your brand for the long haul. It doesn’t matter whether you’re running a small-scale B2C company or a global B2B brand, the same rule applies.
What metrics should you use to monitor customer retention rate?
Keeping tabs on customer retention is a breeze with the right metrics, and, frankly, it's essential if you're serious about growing your business.
Consider this: a modest 5% increase in customer retention can catapult your revenue by a whopping 95%.
It's a clear win-win.
So here are some of the key metrics you should have on your radar:
- Customer Effort Score (CES): Think of this metric as a litmus test for how easy or tough it is for your customers to interact with your brand. It's as simple as asking them to rate their experience when taking specific actions, like browsing your website, signing up for a subscription, or making a purchase. By using a numerical rating system, it’s easier to make sense of the data.
- Customer churn: Ignoring the signs of customer disengagement can cost you dearly. A dip in subscribers or a slump in sales could be telling you that your customers' preferences are changing. This could be due to pricing, dissatisfaction with your services, or the lure of competitors. Calculating churn is a breeze with this formula: Number of users who ditched your service / Total number of users (We will discuss more on this later).
- Customer satisfaction: It’s fundamental to tap into customer feedback through surveys and data to gauge how content customers are with your products and services. Gathering feedback regularly empowers you to make meaningful improvements to the customer journey. Just like CES, use a rating scale for specific interactions.
- Customer engagement: Measuring customer engagement is like having your finger on the pulse of your audience. It reveals how they respond to your marketing content and how they interact with you across different channels, such as email, social media, and your website. Key metrics include time spent on your site, event participation, social media mentions and shares, email open and click-through rates, engagement in loyalty programmes, and involvement in your promotions.
- Customer Lifetime Value (CLV): CLV is about figuring out how valuable a customer is to your business over time. It's not just about what they do right now; but the actions they may take in the future. CLV helps you see the long-term financial picture and make smarter decisions about how to retain and nurture your customer base.
- Repeat Purchase Probability (RPP): How likely is it that a customer will make another purchase from you? In a world where brand loyalty isn't a given, RPP is your tool for retaining customers. It's closely tied to customer churn and can be boosted by improving the customer journey. Many businesses use reward and loyalty programmes to inspire repeat purchases and increase engagement.
- Time between purchases (TBP): The frequency of repeat purchases depends on the nature and lifespan of your product or service. However, this doesn't mean you should go silent after a sale, hoping they'll return on their own. Calculating the time between purchases is your key to understanding buying patterns. This insight enables you to implement appropriate customer nurturing strategies, ensuring your brand remains top-of-mind when it's time to restock. To calculate TBP, simply divide 365 days by the current purchase frequency of your existing customers.
What is customer churn rate?
Churn rate (as briefly mentioned above) is a crucial metric that measures the percentage of customers who stop using a product, service, or subscription over a specific period. It is commonly used in subscription-based businesses, software services and telecommunications, but resonates with companies in all industries.
The churn rate is typically calculated using the following formula:
Churn Rate = (Number of Customers Lost during a Given Period / Total Customers at the Start of the Period) x 100
For example, if a software-as-a-service (SaaS) company starts the month with 1,000 subscribers and loses 50 of them by the end of the month, the churn rate would be:
Churn Rate = (50 / 1,000) x 100 = 5%
A high churn rate indicates that a significant portion of customers are discontinuing their use of a product or service – and this should be a cause for concern. It may be down to one, or several factors including dissatisfaction of the product or service quality, finding cheaper alternatives, or a simple change in needs.
Why is my customer churn rate so high?
It’s unrealistic to think you’ll retain every customer that walks through the door, but, ideally, the churning customer rate should never sit above 10% to remain profitable. Unfortunately, there’s no quick and simple fix – especially if you’ve got no idea what’s causing it.
There are however some questions to ask yourself which may help you nail down the problem and decrease churn:
1. Are you actively seeking customer feedback?
Customer feedback is a valuable asset for any business. Customers who provide candid insights about what works and what doesn't - what keeps them engaged or what might drive them away - are essentially giving you the secret to excelling in your business endeavours.
A lot of businesses don't fully appreciate how crucial customer feedback is, even though collecting it is simple, fast, and budget-friendly. The trick is to keep it short and sweet.
Research by Survey Monkey found that the more brief the survey was, the more time (and, presumably, thought) customers put into answering it. A single-question survey saw an average of 75 seconds spent on answering that question, whereas that time dropped to 30 seconds for surveys featuring 3-10 questions.
Collecting feedback is just the start of the process; it's crucial to take action. After all, actions speak louder than words, and demonstrating that you genuinely listen to your customers may just prove that you’re a business worth investing in.
2. Are you lacking a long-term loyalty-building strategy?
If you haven't mapped out a solid, long-term strategy for building customer loyalty, you're essentially setting yourself up for a slippery slope when it comes to retaining your customer base.
Loyalty programmes, which are typically a fantastic way to encourage repeat business and can be a lifeline when you're up against attractive short-term deals or promotions from competitors.
It's surprising that many businesses still don't fully grasp the incredible potential of customer reward programmes. So, why not gain a competitive edge by taking the plunge and launching your own?
Yet, it’s not something you can rush into. It requires careful planning and in-depth research to keep your customers engaged and intrigued. You need to offer appealing rewards that cater to their interests and needs, as well as providing clear and consistent rules. Failing to do so may leave your customers scratching their heads and losing interest in the programme altogether.
3. Are you attracting the right customers?
Drawing in the right customers can be a bit of a minefield. Sometimes, businesses inadvertently end up reeling in the wrong kind of customer, which can result in increased churn rates.
To guarantee that you're casting your net for the right customers, it's imperative to have a clear understanding of what your ideal customer truly looks like. It all starts with asking the right questions and avoiding promotions that largely entice deal-seekers.
But it doesn't stop there. Using the most appropriate marketing channels to effectively convey your brand's identity and communicate the specific type of customers who stand to benefit the most from your offerings is essential. In doing so, you're not just attracting any customer that heads in your direction, but the right customers who are genuinely interested in what you have to offer and therefore, more likely to stay loyal.
4. Are you meeting your customers' needs?
Perhaps the most obvious reason (and complex issue) for customer churn is when customers’ needs aren’t being met. Customer dissatisfaction can stem from various sources, but it often ties back to the lack of knowledge and support of your workforce.
When once-loyal customers start going off-the-radar, it's a clear signal to look within your organisation for the answers. You need to assess whether your employees and operations are prepared and equipped to provide top-notch customer experiences.
Take a moment to ask yourself some key questions:
- Are your employees well-trained and knowledgeable about your products and services?
- Can they handle customer queries and issues effectively?
- Are they attentive to customer needs and concerns?
It's not just about your staff, though. You should also examine your business processes. Are they running smoothly and efficiently, ensuring a seamless customer experience? Or are there bottlenecks and hurdles that frustrate your customers?
If you enjoy a seemingly low churn rate, don’t let that lull you into complacency.
Even if your customer turnover appears to be under control, there's always room for improvement. The goal isn't just to satisfy your customers; it's to deliver the absolute best experience possible.
Customers today have high expectations. Therefore, invest in ongoing improvements in your products, services, and customer support to leave them wanting for nothing.
Download our free guide to improving customer retention
Understanding how to consistently improve customer retention is vital for any business aiming to thrive. By focusing on how to boost customer retention and build strong relationships along the way, you’ll significantly impact your brand's profitability and growth.
It's not just about keeping customers on the sidelines; it's about turning them into loyal brand advocates who bring in more business through referrals.
Need some extra support? Download our free step-by-step guide to improve your customer retention strategy in no time.