Chasing new customers is exciting and critical for your business success. But to achieve sustainable growth, you must figure out how to keep customers on board. After all, what’s the point of acquiring new customers if your existing ones are quietly slipping out of the back door?
Businesses focusing on customer retention can build a devoted following that brings consistent sales. Unsurprisingly, as much as 65% of a company’s revenue comes from existing customers. In this guide, we discuss:
- What is client retention, and why it’s important
- The client retention metrics you should track
- Tried-and-tested client retention strategies you should be using in your business
What is Client Retention?
Client retention is the ability of a business to keep existing customers happy and satisfied so they can become repeat buyers.
Typically, this process requires you to offer exceptional support and personalized experience in a way that fulfills a client’s expectations. Ultimately, the client not only becomes a repeat buyer but also turns into a brand advocate by recommending your business to others.
Why is it Important?
Customer retention isn’t just another metric. It has a direct impact on your company’s bottom line. Check out some of the benefits of retaining customers:
Cost Efficiency
Research shows that acquiring a new customer costs as much as five times more than retaining an existing one. When a customer already knows your brand, you don’t need to spend much money or effort to get them to buy from you. In contrast, getting new customers is often a resource-intensive process that involves advertising, marketing, and outreach efforts.
Increased Revenue
Did you know that a 5% growth in customer retention can boost your business revenue by 25%-95%?
Indeed, loyal clients tend to buy more over time and are less sensitive to price changes. Besides, they are more likely to recommend your products or services to others, resulting in a wider customer base and more profits.
More Opportunities for Cross-Selling and Upselling
To retain existing customers, you first need to understand their needs, preferences, and usage patterns. This gives you an opportunity to introduce new features, upgrades, premium offerings, or complementary products. And because the customers already trust your business.
Customer Retention Metrics to Track
How do you tell whether your customer retention efforts are working? By monitoring and measuring them! Below are some of the key customer retention metrics to track:
Client Retention Rate (CRR)
This metric measures your company’s ability to retain customers over a designated period. To calculate the CRR, you first need to identify these three figures:
- Customers at the start of a period (S)
- Customers at the end of that period (E)
- New customers during that period (N)
This is how you calculate the customer retention rate:
CRR= ((customers at the end of period – New customers during that period) / customers at the start of period) X 100
Let’s say you started your year with 300 clients. Over the year, you gained 100 new clients and lost 50. The CRR would be ((350 – 100) / 300) x 100 = 83%
Customer Churn Rate (CCR)
CCR measures how many customers stop doing business with your brand during a given period. If the churn rate is high, it means you aren’t retaining customers. This could result from poor customer service, product or service quality issues, or better competitive offerings, among other reasons.
The formula for calculating the churn rate is as follows:
CCR = (Numbers of customers lost / Number of customers at the start of a period) x 100
Customer Lifetime Value (CLV)
CLV refers to the total revenue an individual customer brings during their entire relationship with your company. Normally, the longer a customer does business with you, the higher their lifetime value is.
To determine the CLV, you first have to calculate the customer value:
Customer Value = Average Purchase Value x Average Number of Purchases
Then you can calculate Customer Lifetime Value:
CLV = Customer Value x Average Customer Lifespan
Where:
- Average Order Value is the average value of a purchase
- Purchase Frequency Rate is the average number of times the customer buys each year
- Average Customer Lifetime is the average length (in years) of the customer relationship
Repeat Customer Rate
The repeat customer rate is the percentage of customers who buy from you after their initial purchase. Higher rates indicate your customer retention strategies are working.
To calculate the repeat customer rate, you divide the number of repeat customers by the total number of customers and then multiply it by 100.
(Repeat customers / Total number of customers) X 100
Client Retention Strategies You Should Be Using
Alright, now you know what client retention means and the metrics to track. So, let’s dive into the best customer retention strategies for 2024 and beyond.
Have Excellent Customer Service
Delivering exceptional customer service increases the probability that a customer will make a repurchase or renewal by 82%. Start by training your customer service team to handle issues and inquiries with empathy and efficiency. Additionally, equip the team with customer service tools to monitor and analyze customer data and provide personalized services. Here are other ways to ensure excellent customer service:
- Install live chat for instant support
- Use chatbots to answer repetitive queries and provide 24/7 support
- Ensure there are minimal wait times for responses
- Check in on your customers proactively
- Ensure your contact methods and hours of service are clearly posted and visible
Spotify has built a reputation for being attentive and responsive to customer concerns. Through a help site, community support, call line, and social media support, the company promptly addresses any issues related to technical difficulties, account problems, and subscription inquiries.
Use a Customer Loyalty Program
Customer loyalty programs are powerful tools for building customer loyalty and increasing retention rates. By offering incentives to your loyal customers, you encourage them to continue doing business with you over and over again. Rewards you can offer in your loyalty program include:
- Gift vouchers
- Free company merchandise
- Discount coupons
- Free shipping
- Free items with certain purchases
The Starbucks Rewards Program is a good example of how this customer retention method works. The coffee giant offers points to its customers for every purchase. The customers can redeem the points for free drinks or snacks. This loyalty program encourages existing customers to keep coming back.
Use a Referral Program
Referral programs work by encouraging your existing customers to promote your brand. They do this in exchange for discounts, cash, free merch, loyalty points, or other special offers.
When used well, referral programs can help you retain existing clients and acquire new ones. Your existing clients stay because of all the additional benefits they get for advocating your brand, while new clients get on board because of the recommendations they receive from people they trust.
Dropbox has a referral program where users can earn extra storage by inviting their friends to try the cloud storage platform. When the referred customer creates a new account, the referrer can get from 500 MB to 32 GB, depending on the referral’s plan. The more people you refer, the more storage space you get.
Acknowledge Your Mistakes (And Fix Them Fast)
No matter how good you are at running your business, mistakes happen. Whether you’ve failed to meet a deadline, made incorrect product or service deliveries, overlooked a regulatory requirement, or something else, a mistake can make customers lose trust in your brand and dent your reputation.
In the event of a mistake or customer dispute, don’t act defensively. Instead, listen carefully to the customer and acknowledge your mistakes. Then, move quickly to correct the mistake, ensuring the customer is satisfied with your response. This lets customers know you care about their well-being and are committed to doing better.
In 2020, the CEO of Zoom, Eric Yuan apologized publicly for their platform’s privacy and security vulnerabilities. Yuan said he was deeply sorry for their failure to meet the community’s and their own expectations and promised they were working hard to address the shortcomings. While the controversy hit the video conferencing platform hard, Yuan showed good leadership by publicly admitting their mistakes and apologizing to users.
Offer Support on More Than One Platform
Offering multichannel customer support allows you to reach your customers where they are. It puts customers at the center of your campaigns by allowing them to interact with your brand on their platform of choice. This creates a better customer experience and can prompt your clientele to stick with you for a long time.
Zappos, an online shoe and clothing retailer, has become a household name in the US. Part of the company’s success can be attributed to its exemplary multichannel customer support. From social media platforms like X to text and 24/7 call support, the company uses various channels for communication. Each channel has a knowledgeable support agent to handle customers’ questions or complaints.
Personalize Your Customer’s Experience
According to McKinsey, 71% of consumers expect personalized customer experience from the brands they do business with. With this in mind, you can’t afford to offer one-size-fits-all solutions to your customers. Rather, you need to personalize the experience for each customer. This can take many forms, including:
- Sending individualized product recommendations
- Customizing the onboarding experience
- Segmenting your marketing emails based on different customer groups
- Using the customer’s name when sending the company newsletter
Netflix analyzes viewing habits, genre preferences, and ratings to personalize content recommendations for individual users. As a result, users get to watch movies and TV shows they love and enjoy, leading to better user engagement and retention.
Stand Out From Your Competitors
To retain customers, you must be difficult to replace. Identify what sets your business apart from the competition and highlight these unique value propositions.
Whether it’s an exclusive product, unmatched customer service, lifetime warranty, or exclusive membership benefits, be clear about what makes your brand different and use that information in your marketing campaigns.
When your customers think they can’t get an offering like yours anywhere else, they are motivated to stay.
Build Strong Relationships with Your Clients
Customer retention grows when there is mutual understanding and shared trust between a brand and its customers. And that deep level of trust and understanding comes from cultivating solid relationships.
So, how do you build these relationships? As soon as a prospect enters your sales funnel, ensure there is active two-way communication and show a commitment to solving their needs and problems. Do not only communicate when you want the person to buy from you.
Other things you can do to develop strong relationships include:
- Doing regular check-ins through email or in-product surveys
- Organizing user conferences and local meetups
- Recognizing important milestones in the customer’s journey, such as anniversaries or achievements
One company that has managed to maintain strong relationships through regular communication is Southwest Airlines. The airline keeps customers informed and engaged with timely and clear updates through various channels like emails and the airline app. As a result, the company has gained a reputation for friendliness, transparency, and customer focus, fostering loyalty and repeat business.
Build a Strong Community Based on Your Brand
Create communities where customers can connect, ask questions, share experiences, and support each other. You can achieve this by building online forums, discussion boards, or social media groups. Host workshops, product launches, or meets-and-greets to bring your customers together and create a sense of togetherness.
Through these communities, members learn more about your products or services. It also creates a sense of belonging, which can increase customer loyalty and retention.
Collect and Utilize Customer Feedback
Collecting feedback is the best way to know what customers love (and don’t love) about your brand. That’s why you need a customer feedback loop with steps for collecting, analyzing, and acting on the feedback you receive.
Avenues you can use to collect customer feedback include surveys, opinion polls, social media channels, email inquiries, feedback forms on your website, and customer service interactions. Once you’ve gathered enough data, analyze it and use the insights to improve customer experience and retention.
Airbnb gathers feedback from hosts and guests through reviews, ratings, and post-stay surveys. The company then uses the feedback to identify areas for improvement and resolves issues promptly.
Offer Excellent Education for Your Customers
Sharing educative content with your customers highlights your usefulness, keeps them engaged, and establishes you as an expert in your field. You can educate your customers by writing blog posts, creating videos, providing tutorials and courses, hosting webinars, or even organizing physical training sessions.
An example here is HubSpot Academy, which offers free courses on a wide range of topics, such as sales, marketing, and customer service. By signing up for these courses, you expand your knowledge and learn how to use different HubSpot tools, keeping you engaged on the platform.
Have a Website That’s Easy to Navigate
A user-friendly website makes it easier for users to find what they are looking for, make purchases, and interact with your brand. This creates a positive experience and increases the likelihood of the user returning.
For example, Disney’s website has a responsive design that offers an excellent user experience. Upon visiting the site, you can easily access the company’s verticals, such as the Disney online store, Disney’s Vacation Planner, and a massive catalog of entertainment. With the help of the vacation planner, you can also easily plan a trip to any of Disney’s parks and attractions.
Make Customers Feel Good About Doing Business With You
Depending on the industry you’re in, there are certain things you can do to make customers feel good about doing business with you. Suppose a share of your revenue goes to the American Heart Association to fund research on cardiovascular diseases. Or you actively partner with animal rescue organizations to sponsor pet adoption events. If your customers learn about this, they will feel good about being associated with you.
For example, Tesla has a massive appeal among environmentally conscious consumers. The electric car company supports the fight against climate change by offering a sustainable alternative to gas-powered vehicles.
A Strategic Client Retention Partner
Customer retention is key for long-term growth, profitability, and sustainability. By implementing the client retention strategies above, you can build a loyal and satisfied client base that will remain on board for many years to come.
If you want to talk to an expert about the best strategy for your business, schedule a strategy session with Sure Oak and we will be glad to help you.
