Customer loyalty can hold massive value for any business. With a conversion rate nine times higher than that of first time customers, a tendency to spend as much as five times more an average on your products and services, and a promising likelihood of becoming brand ambassadors, it is only right that returning customers deserve to feel rewarded for their commitment to your company. This is why any company should have a strong customer retention strategy in place.
This blog post is part of "Your Definitive Guide to Lead Nurturing" blog series.
What is Customer Retention?
Customer retention refers to the strategy and actions that a company takes to retain its customers over a period of time. Retention campaigns often focus on building long-term relationships with customers by rewarding loyalty, maintaining engagement, and earning trust.
Customer retention is dependent mainly on the acquisition of new customers and on churn-- the stage when customers stop doing business with a company or end their subscription to a service. The most straightforward way of assessing how effectively a company is retaining its customers over a period of time is with the customer retention rate.
How Do You Measure Customer Retention?
Mathematically, customer retention is expressed as a percentage. To calculate it, a time period first needs to be specified—this can be in days, weeks, months, even a year. The formula for calculating the retention rate is ((number of customers at the end of the period – the number of customers gained throughout)) / number of customers at the start of the period)) X 100.
An example: If you had 1000 customers at the start of the determined period, lost 40 customers, and gained 65 new ones, you would have 1,025 customers at the end of the period. Thus, your retention rate would be ((1,025-65)/1,000) X 100, or 96%.
Why Customer Retention Matters
Customer retention is important to a growing company as an indication of literally “withstanding the test of time” when it comes to addressing the needs of existing customers, not just attracting new ones. Did you know that acquiring a new customer can cost five times as much as maintaining a relationship with an existing one? That being said, the bottom line is that low retention rates hurt your ROI considerably.
In addition, customer retention plays a significant role in a company’s reputation. Those customers who find their needs served and their loyalty rewarded are, unsurprisingly, more likely to leave positive testimonials and provide referrals. In short, retention is a KPI with regards to gauging the quality of the relationships being built with customers over time.
Key Customer Retention Strategies
Now, let's go through an overview of some best-practice strategies for customer retention.
1. Set Expectations Properly
This includes both expectations set for your company with regards to its retention rates, and the expectations set for customers themselves. These should be established early on, and above all be specific, consistent and realistic. For instance, a 99% retention rate is virtually impossible for any company to maintain, and aiming to achieve it would be unreasonable.
Notably, there is no single benchmark for a “good” retention rate—the answer varies by company size, industry, sales cycle length, whether the company is B2B or B2C, and a multitude of other factors. It is a good idea to conduct some research on the performance of similar (successful!) businesses in your field before setting objectives.
With regards to customer expectations, perhaps the most straightforward rule is to make promises on which the company can deliver. Avoid overselling products and services; keep time-sensitive offers and deadlines in mind, maintain regular communication, and offer some sort of compensation in the case that you do fail to deliver the anticipated level of quality.
Trust is the most valuable currency in your relationship and it should not be exploited carelessly!
2. Create a Roadmap
If acquisition is a sprint, customer retention is a marathon—so a strategy is all but necessary going forward. A retention roadmap, featuring upcoming initiatives, projects, promotions, etc., can help prevent relationships from stagnating and organize multiple “tracks” of retention programs with a precise schedule in mind.
Loyalty and rewards programs have become staples of long-term customer service strategy in the marketing world, particularly for eCommerce. Consider the nature of the products/services offered by your company when deciding on the kinds of promotions and initiatives that customers would find most relevant. Fortunately, plenty of inspiration can be found in existing, real-world examples.
3. Regular Content Cycles
While even the most loyal of customers may not always be ready or interested in making purchases, there is another, non-material way to keep them invested in your company: providing content they care about. The difficulty of this varies depending on the nature of the business, but there is nearly always a way to offer educational, informative, or at least entertaining value.
Blogs, videos, e-books, social media posts, and webinars are all great methods of delivering content; and don’t forget about the time-tested channel of email marketing. Contrary to what some marketers claim, email is still going strong in 2018; with a massive 4400% ROI, it deserves a spotlight in a customer retention strategy.
From “insider looks” into the company, to special discounts and offers, to friendly cart reminders and custom product suggestions, there is endless room to create personalized, meaningful relationships with recipients through the platform.
The main goal is to provide a sense of exclusivity for existing customers, and organically combine sales offers and promotions with information that delights the reader. Above all, whether developing a social channel posting schedule or creating a lead nurturing email series, take the time to create a well-rounded content calendar.
4. Don’t Paint with a Broad Brush
You will often hear about segmentation in our blog articles, and for good reason. A segmentation strategy that incorporates the needs, behaviors and attitudes of customers past, present, and future can be crucial to understanding customers’ needs at any given point in time.
For example, an actionable segmentation strategy could involve dividing customers into lifecycle stages of newly acquired customers, currently active customers, and customers in a phase of churn. These can then further be segmented into categories like “about to churn,” “re-engaged,” “stagnating engagement,” etc. as necessary. From there, you can custom-fit approaches to addressing each segment’s unique needs.
A variety of analytics tools is available on the market to report on how well customers respond to particular re-engagement efforts, loyalty initiatives, even specific drip emails. Of course, raw data is only half of the battle; knowing how to how to build segments around your findings and where to focus your attention can be considerably more complex. Which brings us to our next strategy…
5. KPIs Hold the Key
Key Performance Indicators, or KPIs, provide actionable and relevant guidelines by which to gauge the success of a retention strategy and focus on the right areas for improvement. Of course, retention rate seems like the obvious priority, but there are a number of other, less apparent indicators which are often not given enough attention.
Some examples include:
- Response time-- how quickly you reach customers and interested parties, whether it be with an automated email or a live phone call (depending on the nature of the company)
- Average purchase frequency
- Average transaction value
- Rewards/loyalty program member ratio- the proportion of total customers that are enrolling in your loyalty programs
- Net member base growth/decline
- Email contact base growth/decay
- Top registration channels
- Re-activated members
Your KPIs may shift in relevance over time, and will need frequent re-examination to ensure that they are delivering the “bigger picture” you need to see.
6. Humanize Customer Conversations
67% of customers mention bad customer experiences as a reason for churn, but only 1 out of 26 will openly express dissatisfaction— with the others simply leaving quietly. And what provides a worse experience than a non-communicative, detached business focused solely on automation? In the digital age more than ever, customers like to feel that their feedback is being heard and their offers being extended by a human, not a machine.
Thankfully, this is one of the easier tips to implement. Use channels such as social media and email to connect and communicate with customers, creating a space to enter a conversation; in the case of B2B companies, create regular reports demonstrating the value your products/services have presented the client.
When needed, get in touch to resolve issues or check in to thank a customer for their commitment to the company. A simple note of appreciation can go a long way!
7. Testimonials: Honesty is the Best Policy
The idea that customers greatly value transparency has been affirmed time and time again. In addition, surveys have shown that including only positive reviews on a company’s site creates suspicion among readers, who conclude that they are inauthentic. For this reason, the simple act of encouraging feedback can play a powerful handing in helping to retain customers.
Opening the floodgates to receive and display the negative reviews with the positive ones may seem intimidating, but the practice provides a multitude of benefits, including building the trust of customers and prospects alike, making existing customers feel more engaged, and providing data directly from the source to help you more efficiently improve the customer experience going forward.