Every business has a customer base that they've worked hard to attract and retain through a combination of marketing, social media and brand strategies. You invested a lot of time and effort (and probably money) to gain those customers' trust, so it makes sense that you want to keep them. That’s where a strong focus on customer retention comes in handy.
To improve customer retention, you have to look at your entire customer experience. Your customer experience encapsulates everything the customer thinks and feels when they first encounter your brand. If you create a seamless experience that makes customers happy every step the way, you'll have a much better chance at retaining them. However, if your business falls short of customer expectations, you risk losing those customers before you even have a chance to make things right.
Let’s look at what customer retention is, why it matters and some strategies that can help you improve customer retention.
Customer retention definition
Customer retention refers to a company's ability to turn customers into repeat buyers and prevent them from switching to a competitor. As a performance metric, it helps provide context around how well a business is keeping its existing customers satisfied with their product and the overall quality of service.
Understandably, customer retention is influenced by the customer experience, which includes anything that impacts a customer’s perception and feelings about a company. Customer-facing interactions, such as support ticket resolution or how a brand communicates its values, are just a few of the elements that can affect a buyer’s relationship with a brand.
Different from customer acquisition or lead generation, customer retention focuses solely on customers who have already completed a transaction with the brand, such as those who’ve signed up for a service or purchased a product.
But retaining customers is about more than just transactions—it’s about relationships. Research shows that customers view their relationships with brands as similar to their relationships with their friends. By focusing on the relationships you have with your existing customers, the right retention strategies can turn retained customers into loyal customers, meaning they will continue to choose your brand even when presented with other options. These long-term relationships are key to creating the kind of brand loyalty that will help you weather the ups and downs of the market.
Read on to see how implementing customer retention strategies is not only good for your customers but also good for your business.
The importance of customer retention
Keeping your current customers happy is generally more cost-effective than acquiring new, first-time customers. Retained customers can be easier to convert than first-time buyers because they already have a foundation of trust with the company if they’ve purchased from them previously. New customers, however, often require more convincing when it comes to that initial sale. In fact, according to the Harvard Business Review, acquiring a new customer can be anywhere from five to 25 times more expensive than retaining an existing one.
Plus, if you’re successful at fostering customer loyalty, your customers may also provide free word-of-mouth marketing to their friends and family that can move the needle even further for your brand. Read more about how to cultivate customer loyalty for long-term success.
How to measure customer retention rate
When evaluating retention efforts, there are two main metrics companies use to understand the quality of the customer service they’re providing, retention rate and churn rate. Your customer retention rate is a reflection of the number of previous customers who remained loyal to your business over a period of time. Related, your customer churn rate is the percentage of customers lost during a period of time.
To determine your customer retention rate, choose a period of time you want to measure and then identify the following:
- Number of customers at the start of a given time period (S)
- Number of customers at the end of that time period (E)
- Number of new customers added over the duration of that period (N)
Then, you can calculate your customer retention rate (X) with the following formula:
Customer retention formula
((E - N) / S) * 100 = X
If you have low retention rates or high churn rates, these could be signs that indicate something isn’t going well with the customer experience. But don't panic because we have some tips that can help you turn the churn around.
6 best practices to retain customers:
1. Respond to customer support queries faster
Data shows that speedy first reply times result in higher customer satisfaction. Even if that reply is just a short message letting the customer know their question was received with an estimate for the projected time to resolution, these notifications let customers know you’re actively working toward a solution.
2. Deliver personalized support interactions with context
Customers feel frustrated when they have to explain an issue over and over. Make sure that your support agents are equipped with the tools they need to elevate the conversation and provide a more personalized support experience that will make them feel good about coming back.
3. Establish better customer service workflows
Helping your agents can help your customers too. Simple customer service workflows, fueled by the right forms and conditional form fields, help sort customer support tickets so that they can be handled by the best possible department and/or company representative right away. This means a better and faster support experience for your customers.
4. Offer omnichannel support to reach customers where they are
Omnichannel support keeps things moving with no extra effort needed from the customer. Instead of limiting your support channels to one or two select methods, give customers the freedom to choose the channel they like best, whether that’s phone, live chat, email or social media. Omnichannel support is likely to increase customer loyalty because you're decreasing the effort it takes to reach your support team.
5. Gather customer feedback on an ongoing basis
Give customers a voice via surveys or by gathering feedback from customer service team members on an ongoing basis. Customer feedback is one of the most valuable tools you have to increase retention and reduce churn, but you likely won’t get much insight unless you ask your customers directly.
6. Incentivize loyalty
Incentives include a loyalty program, discount code or special offer to motivate customers to continue buying from your business. While these tactics promise immediate results for your business, you should also strive to serve your customers by creating a good customer experience and living by your corporate values. Together, these efforts can help turn repeat customers into loyal customers.
Retaining customers and building customer loyalty doesn’t happen overnight. It will take time and effort to grow your relationship with your customers and earn their trust. One of the best ways you can earn their trust is by providing an exceptional customer experience from start to finish. Go above and beyond in your customer service, make their lives easier and maybe even have a little fun along the way.