What is customer retention, and why does it matter to your business?
Countless companies invest heavily in attracting new customers through marketing and sales strategies. However, while filling your pipeline with new leads is important, it’s crucial not to overlook the importance of retaining your existing customers.
The more revenue you can generate from long-term loyal customers, the less you’ll need to invest in attracting new leads. While selling to a new customer is difficult, you have a 60-70% chance to convert an existing customer. What’s more, your loyal customers will form the backbone of your referral and advocacy programs, boosting your ability to find new customers.
So how do you improve your retention rate?
What is Customer Retention and Customer Retention Management?
Let’s start with the basics. Customer retention is a metric businesses use to measure the loyalty of their customers over time, and their ability to earn repeat clients.
In an ideal world, companies would be able to retain repeat customers 100% of the time. However, average retention rates vary by industry. Most small businesses retain around 20% of their customers. However, by investing in the right strategies for customer satisfaction and engagement, you can grow this number, and your potential revenue.
Customer retention management strategies are the actions you take to encourage your customers to stay loyal to your business. They can involve everything from making sure you’re focusing on the right audience with your customer acquisition strategy, to enhancing customer experience.
The core components of customer retention management generally include:
- Customer acquisition: Targeting and onboarding the wrong customers instantly harms your ability to retain buyers. During the acquisition process, sales and marketing teams need to ensure they’re connecting with the right target audience, with the best chances of loyalty.
- Customer retention: After you’ve acquired the right customers, the next step is to ensure you’re giving them reasons to stay with your business. Offering a great product or service isn’t enough. You’ll also need to commit to engaging loyal customers, offering amazing customer service, and learning about your audience.
- Customer lifecycle management: CLM requires businesses to examine the various touchpoints they have with buyers throughout the customer lifetime. If you know the stages in the buyer journey, you can invest in strategies to improve every step of the experience.
- Customer development: Customer development strategies focus on how you can activate your existing customers. Creating loyalty programs, referral programs, and even educational strategies to boost customer success is important here.
Customer Retention Analysis: Measuring Retention
The first step in developing a good customer retention management plan, and boosting your retention rates, is understanding your customers. Customer retention analysis involves using various metrics and strategies to learn about your customers behavior, and their reasons for churning.
Ecommerce brands, SaaS company leaders, and other businesses use everything from cohort analysis to state-of-the-art analytical tools for retention analysis. Most of the time, an effective strategy will involve calculating a few key metrics, such as:
- Customer retention rate: This is the number of customers who stay loyal to your business over a specific period of time. You’ll calculate the number of customers you have at the start and end of a given period, and how many of those customers are repeat buyers.
- Churn rate: The churn rate of your business looks at the number of active users who leave your service during a specific period. High churn rates indicate something is going wrong with your product, service, or customer experience strategy.
- Customer lifetime value: CLV looks at the total revenue you can expect to earn from a customer during their lifetime. The longer a customer remains loyal to a company, the higher their lifetime value will be.
- Repeat customer rate: Essential for SaaS companies, a repeat customer rate looks at all the customers who make two or more purchases within your business. This helps you to determine how often you encourage customers to buy from you again.
- Engagement rate: Your engagement rate looks at how many users you currently have who are actively engaging with your product or service. This can be important to your retention strategy, as it shows you which customers are more likely to churn.
Customer Retention Strategies to Boost Retention
Ultimately, the key to improving customer retention rates is improving the customer experience. 77% of customers say they’re more likely to stay loyal to businesses who deliver great experiences. Additionally, 72% of customers say they’d pay more for a guaranteed good experience.
So, how do you deliver a good experience?
Step 1: Create a strong onboarding experience
Creating a fantastic customer experience and improving customer retention rate starts with introducing customers to your business in the best way possible. When a customer makes their first purchase, companies have an excellent opportunity to make a lasting first impression.
Rather than teaching sales professionals to ignore customers after they get a sale, pass those converted customers over to a success team. The success team can guide the customer through the process of setting up or using their new product or service. They can also provide consistent education and guidance, and follow up with leads to address any problems they might have.
Step 2: Personalize the customer experience
99% of marketers say personalization helps them to improve their relationships with customers. Every customer has their own distinct needs, and tailoring your strategy to the requirements of each “segment” you target will help you to retain customers for longer.
Rather than creating one-size-fits-all solutions for customers, create strategies for success that cater to all different preferences. Make sure you can connect with customers on their channel of choice, from email to social media. Research your segments and deliver customized content to them when they need it, based on their interests and goals.
Step 3: Build trust
It’s easy to assume that customers trust your business after they purchase something from you. However, this isn’t always the case. Building trust takes time, and it requires business leaders to invest in constantly supporting and engaging their customers.
Commit to connecting with customers and consistently building rapport, even after you close a deal. Learn from your target audience, and make sure you’re delivering on the brand promise you make. It’s also worth investing in transparency. Sharing honest insights with your customers will make you appear more credible and reliable.
Step 4: Implement a feedback loop
It isn’t easy to improve customer retention if you don’t know what causes your customers to churn. To ensure you’re delivering the experiences and services your customers need, you need to collect as much feedback as possible. Request reviews and testimonials, send out regular surveys, and connect with your customers as often as you can.
Implementing a feedback loop will help you to deliver better customer experiences, build stronger products and improve your onboarding strategy. It’s also an excellent way to gather information for metrics like Net Promoter Score, or Customer Satisfaction rate.
Step 5: Maintain communications
Many customers churn because they believe companies lose interest in them after they make a purchase. Even if your customers aren’t reaching out to you with questions and concerns, your team should be proactive in communicating with them.
Adopt a communication calendar to manage all of your customer engagements, ensuring your team follows up regularly with your target audience. Your communication calendar will also ensure you’re reaching out to customers at the right time with upsell and cross-sell opportunities.
Step 6: Increase your value
Your value as a business shouldn’t be linked entirely to the products you offer, but also the support and services you can provide. Implement a customer education program, so you can empower customers to get more out of your solutions. You can create your own knowledge base, host webinars, share blogs, and even post guides and articles.
Consider offering your loyal customers access to additional services whenever they might need them. For instance, you could provide access to account managers, technical teams, and community forums where people can connect with other users.
Step 7: Incentivize loyalty
It’s much easier to retain customers who feel they benefit from being loyal to your brand. Showing customers you appreciate their business, with rewards, gifts, and special offers, is a great way to increase customer satisfaction and retention rates.
Create loyalty programs that deliver unique benefits to customers who purchase from you regularly. You could give special discount codes to your VIP customers, or host events for repeat customers. You might offer some of your customers early-access benefits to new features, or provide them with special offers they can take advantage of.
Step 8: Create a referral program
As mentioned above, an important part of customer retention management is finding ways to activate and engage your loyal customers. Your existing customers can be excellent advocates for your brand, helping to draw in new customers and opportunities.
Referral programs allow you to encourage your existing audience to drive new people to your business with rewards. You can offer cash incentives, access to discounts or free merch, or even provide store credit to people who drive referrals. Some companies even ask their loyal customers to become affiliates, and pay them a commission for referrals.
Investing in Customer Retention
Filling your sales pipeline with plenty of new leads is important, but it’s essential to ensure you’re giving the right attention and care to existing customers too. Your loyal customers not only purchase more products from your brand, but they also help your business to grow.
The customer retention strategies above should help you to boost your number of loyal customers, and take some of the pressure off your customer acquisition teams.
Want to learn more about customer retention, customer satisfaction and sales strategies? Join the Hard Skill Exchange today to be part of a growing community of sales experts.
