One of the most common challenges that businesses face regardless of their size, is retaining existing customers. In this fast-paced business world, this task is easier said than done.
So given the fierce competition, what do you think is the best way to retain customers? Surely, you need to innovate and come up with unique strategies. As they say, the easiest way to grow your business is to not lose your existing customers.
As the millennial generation adopts a whole new set of purchasing habits, it becomes undeniably important to capture their patterns and build customer retention strategies around them. But before moving on to strategies, let’s understand customer retention in detail.
What is Customer Retention?
- Customer retention is the ability of a business to ensure that consumers remain loyal to their products and services in a specified duration.
- It involves engaging existing customers to continue transacting with your business.
- You need to undertake actions to increase the number of repeat purchases, consequently increasing the profitability of each customer as well.
(Please note that retention is very different from customer acquisition or lead generation because you have already converted them, at least once.)
The best customer retention strategies are those that help you build lasting relationships resulting in loyal customers. Later on, these are the same customers who spread the word in their circle of influence and take your brand image to a new level.
The strategies that we are referring to allow you to provide and extract more value from your existing customer base. Let’s understand why these customer retention strategies are so important.
Why is it Important to Retain Customers?
Every business under the sun spends a lot of time, effort, and money on acquiring new customers. Because of these continuous efforts and the investment that goes behind the acquisition, retaining valuable customers becomes undoubtedly important.
Additionally, customer retention is directly related to profit margins and hence, gains a lot of traction by business leaders. After all, it makes complete sense to gain more customers than you already have, right?
Therefore, unless businesses want to have a revolving door model, they have to focus on retention.
Who Stands to Benefit from Customer Retention?
Enough has been said about the importance of customer service in the business arena. We know that it’s more expensive to acquire customers than to retain them. However, this doesn’t answer our core question: who stands to benefit from customer retention?
The answer is both you and the customer. You save up on acquisition costs and clients benefit from an already-established relationship where they can get contextual service.
Although cost-cutting is a valid reason to retain customers, it shouldn’t be the only one. Customer retention should have customers at heart. Remember, when customers benefit, that’s when your business flourishes in the long haul.
How is it Fruitful in the Long Run?
With the pandemic bringing in a historical shift in buyer priorities, customer retention is grabbing more attention than acquisition. This shift is mostly due to unlimited customer choices and limited attention spans.
According to a study by Adobe, for every 1% increase in customer retention rate, there is a subsequent 10% increase in revenue. This implies that if a company is able to retain 10% of its customers, they can double their revenues.
Numbers don’t lie. It is pretty clear that customer retention is the next big thing.
Bottom line—customer retention is not about keeping a handful of extra customers always in your kitty. It is more about treating fewer customers, the right way.
One great thing about the era we live in is that people are very vocal about their opinions and views. Therefore, they will tell 10 other people about their experience with any brand. This word-of-mouth marketing can take a brand’s image to the next level and increase its popularity amongst the customers—and vice versa.
Smart businesses identify this customer trait and act accordingly. Let’s look at how those organisations are benefitting by focusing on customer retention.
(a) More Revenue
Well, this one is quite obvious, isn’t it? It is one thing to grow your customer base in number and another to grow in value. When you treat customers in a way that makes it easy for them to refer you to their friends and family, that’s when your sales opportunity increases.
So, to reiterate: more customers means more revenue.
(b) Better Customer Relationships
Customers are usually not impressed by your loyalty programs or offers; they are rather wooed if you make them feel heard and understood. Retention focuses on after-sales follow-up and keeping in touch with the customer even post-purchase.
As moralistic as it sounds, selfless attitude towards customers is what will take you down the success path.
(c) Decrease Customer Churn
Customer churn refers to the loss of clients or customer attrition. Controlling the churn rate is vital to ensure continued profitability and more sales opportunities.
When businesses divert their resources towards retaining existing consumers, they experience lower turnover. Engage them better and decrease churn by focusing on customer retention.
(d) Better Feedback
A loyal clientele will be your best sounding board to improve business policies and strategies. Unlike a dissatisfied customer who might call you out in their social media posts, a loyal one will identify flaws and let you know where and how to improve.
Listen to your customers whenever they reach out but an even better strategy would be simply to keep in touch and observe. Customer retention gives you the opportunity to be always close to your customers and hence, always a step closer to improvement.
If you show clients that you value them and are a good listener, they’ll want you to succeed as much as you do—and they will even tell you how!
What happens when Businesses Neglect Customer Retention
“Every company’s greatest assets are its customers; because without customers, there is no company.” —Michael LeBoeuf, American business author.
Customer loyalty is earned by constant efforts. Focus on retaining existing customers rather than only acquiring new ones. In the latter case, you end up spending more and earning less because there’s only a 5-20% chance that a new customer will buy from you, as opposed to 60-70% chance in case of repeat customers.
Furthermore, returning customers tend to spend more because they trust they’ll get value from your services, and hence, they participate in positive word-of-mouth. Some metrics that matter:
Customer Retention Rate
It is the rate at which a company continues to transact within a specified time period. It basically is the percentage of a company’s loyal customers for a given period of time.
Existing customers in a time period (S), total customers in that time period (E) and the number of new customers added (N) are required to calculate customer retention rate.
Formula used: ((E-N/S)*100)
Repeat Customer Rate
This is the mainstay of customer retention. It measures the percentage of customers willing to make a repeat purchase. The higher the metric, the more willing customers are to return to your brand.
Formula used: Number of customers who purchased more than once/ Number of unique customers
This metric measures how often customers are coming back for a repeat purchase. This is extremely important when you realise that 40% of the revenue comes from repeated purchases.
Formula used: Number of orders placed/ Number of unique customers
Average Order Value
To calculate the worth of purchases, you need this metric. It shows the monetary value added by customers to your business with each transaction.
Formula used: Total revenue earned/ Number of orders placed
Customer value is the bigger picture of customer retention. It is the final piece of the puzzle because it measures the worth of every customer. The ultimate goal of customer retention is to maximise customer value.
Formula used: Purchase frequency * Average order value
Strategies to Boost these Metrics:
(1) Set Clear Goals
Before you even start out with designing retention strategies, you need to lay down clear goals as to why you’re investing in the first place. Needless to say, these goals should be feasible enough to hit for.
This step gives you a concrete foundation to start with and maximise the value of your customer base in the long run.
(2) Working on Free Trials and Customer Accounts
Sources of customer details like customer accounts and sign-up pages prove to be double-edged swords. On one hand, they come in handy for repeat purchases and accessing order history. But on the other, it can be too big of a commitment for a new customer.
Therefore, try to balance these aspects by effectively implementing the sign-ups after the client’s first purchase.
(3) Improving Customer Support
Support teams are in maximum contact with the customers at all times. Therefore, as a business leader, you should work towards training and improving customer service delivery.
Remember that a positive experience will only add up to make your customers engage better and stay longer with you. Having a toll free number for customer care or chat options gives your customers a platform to reach out from anywhere in the world at any time.
These support conversations can prove to be a great way to build that connection and make your customers feel valued.
(4) Improve Customer Interaction and Engagement Tactics
Relationships—both personal and professional—depend on how much you water them. Communication is the only way one can foster trustworthy relationships.
The same goes for your relationship with the customer. If you neglect follow-ups and don’t keep in touch with them, they won’t even think about your latest blog or checking up with you on social media.
Part of this aspect depends upon staying on customers’ minds through effective digital marketing.
(5) Invest in Loyalty Programs
This is an old-school technique, but loyalty programs can have a great impact on customer retention. When your consumers are being incentivised to shop, they will definitely be compelled to do more of it.
However, you don’t need to have a fancy loyalty program. Just something for the set of customers who “level up”. Make sure you offer something that adds value in their lives.
Retain Customers for Faster Growth
If you decide today to retain all your existing customers, mind you, it will not happen overnight. However, with enough strategies to up your sleeves, you can create maximum value from your existing customer base.
After all, they are the best asset your business has right now.
Focusing on this group of audience and improving their experience as opposed to acquiring new customers is a more cost-effective and rewarding way to boost revenue generation.