In today’s competitive business landscape, acquiring new customers is only half the battle. The real challenge, however, is to retain those customers and build lasting relationships. Simply put, customer retention is trying to keep more customers for a longer period so they spend more over their lifetime.
It’s the process of achieving repeat purchases from existing customers over time through retention strategies, tactics, and tools. It is not just about keeping customers coming back but also converting them into brand evangelists.
In this ultimate guide to customer retention, we’ll explore the strategies and tactics that can help you keep your customers engaged, satisfied, and coming back for more.
What is Customer Retention?
The cost of acquiring a new customer is five to seven times more expensive than the cost of retaining existing ones. As per a study conducted by MyCustomer, returning loyal customers spend an average of 67% more than new customers.
As per leading studies, a five% improvement in customer retention improves profit by 25 to 95%. A study by Smile.io found that if a brand can make a customer purchase for the second or third time, they can lock in loyalty.
How Do You Measure Your Customer Retention Rate?
Measuring a customer retention rate will give you insights into the ratio of brand loyal customers: whether they increased or decreased.
- To determine your retention rate, first, identify the time frame you want to study
- Number of the customer at the end of a certain period – (E)
- Number of new customers obtained during that period – (N)
- Number of customers at the beginning of that period – (S)
This formula will give you the exact number of retained customers. It is a good practice to measure CRR periodically. This practice will help you to get details on if you need to improve or change something to your offerings.
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5 Strategies to Improve Customer Retention
When it comes to retaining customers and ensuring they keep coming back to your business, you need a solid plan in place. This plan is what we refer to as a customer retention strategy. Here are some effective strategies:
- Customer satisfaction
- Customer referrals
- Customer loyalty
- Consistent and engaging communication
1. Customer satisfaction
Did you know that for every increase in customer satisfaction customer retention rate rises by 5%? A blog post titled “Here’s Why Customer Retention is So Important for ROI” published by HubSpot in March 2022 reveals this stat. Customer satisfaction plays an extremely crucial role in not only retaining customers but also in increasing their lifetime value. Just think of it, When customers are satisfied with your products or services will they go anywhere else? Conversely, if a majority of your customers keep on returning to your stores would they do it if they are dissatisfied with your brand? So, it’s all about ensuring customers leave with smiles on their faces.
2. Customer referrals
Would it surprise you to know that 86% of loyal customers are more likely to recommend their favourite brand to their friends and family? No. Not just that as per recent stats, almost two-thirds of them will write a positive online review after a good experience. That’s the power of customer retention! What can be more rewarding than your existing customers praising your brand in front of their friends, family, and acquaintances? That’s precisely what customer retention does. It enables your brand not only to create a strong position in the market but also to attract many new customers through existing customers.
3. Customer loyalty
It’s about turning customers into fans and brand evangelists who not only come back but also refer others and sing your praises. Loyalty marketing strategies come into play here, designed to retain customers through enticing incentives. These incentives can take various forms, such as referral programs, rewards, and loyalty schemes. By offering these perks, businesses aim to keep customers engaged and motivated to stick around.
A study conducted by McKinsey & Co revealed that three-fourths of customers say they’re more likely to buy from brands that personalize. Another research by Segment found seven out of every ten respondents appreciate customization as long as it’s based on the data they’ve shared with the business. These two stats make one thing extremely clear. Customization plays a vital role in customer retention. Customization can range from recommending products based on past purchases to sending personalized offers and messages. Its strategies involve using data and insights to tailor the customer experience.
5. Consistent and engaging communication
Did you know that in terms of factors that impact customer retention, nine out of every ten companies admit excellent customer communication is indispensable? Consistent and engaging communication is a cornerstone of customer retention as it helps you stay top-of-mind with your customers. Keeping your customers informed and engaged with your brand can significantly impact their loyalty. Effective communication channels allow you to share valuable content, offer exclusive promotions, and solicit feedback. Effective communication strategies include personalized messages, regular social media updates, and email newsletters.
Customer retention Examples
When it comes to customer retention tools, there are many that brands and businesses of all types and sizes can leverage. Here are six such tools:
1. Provide Exceptional Customer Service
Providing top-notch customer service is the ultimate customer retention tactic. How your customers feel before, during, and after interacting with your e-commerce business is a telling indicator of whether they’ll return for future purchases. Creating extraordinary moments, often referred to as “magic moments,” is a strategy aimed at enhancing customer satisfaction and encouraging referrals.
An excellent example of a company excelling in this regard is Hush Blankets, which offers a remarkable 100-night guarantee on its weighted blankets. This commitment to customer satisfaction has not only made Hush a top-rated brand but has also cultivated a loyal community of customers.
2. Discounts and Coupons
Customers love a good deal, especially when they’re returning for repeat purchases. Offering discounts on subsequent purchases is a clever tactic to boost customer satisfaction and loyalty. By providing loyal customers with discounts, you increase the perceived value they get from their purchases.
For instance, the classic “ ” card is a widely used retention program globally. Another effective approach is granting long-term customers of one year or more a 5 to 10% discount on all their orders. These incentives not only make customers feel appreciated but also keep them coming back for more.
Suggested Read: How to Run Loyalty Programs Without Offering Discounts
3. Customer Retention and Rewards Programs
Your top customers hold the key to your business’s growth. New research reveals that the top 10% of loyal customers spend twice as much per order as the remaining 90%, and the top 1% spends two and half times more per order.
To retain these valuable customers, many businesses implement rewards programs. These programs incentivize customers through various means, from direct rewards to points or credits that can be redeemed for discounts, status-based perks, experiential rewards, charitable donations, and more.
Personalizing the customer experience is a potent tool to increase customer satisfaction by tailoring interactions to individual preferences. This not only enhances satisfaction but can also boost loyalty. Customer loyalty programs often provide valuable first-party data that can inform personalization efforts.
Unwind Studio, a needlepoint and art brand, takes personalization to the next level by crafting highly personalized products. This approach not only increases satisfaction but also fosters customer retention. Unwind Studio Founder Cristina Cerqueira notes that their loyalty program has been instrumental in retaining customers and growing organically.
Gamification injects fun into the customer experience and purchase process, making it more enjoyable and engaging. Elements like leaderboards, badges, status, and points are used to reward engagement. While these rewards are typically non-redeemable, they add intrinsic value to the customer experience.
For instance, Bonobos hid images throughout their e-commerce site, rewarding visitors with $25 credit for finding them. This gamified approach enhances customer satisfaction and keeps them engaged with your brand.
Suggested read: Gamification in Loyalty Programs: Why It’s So Important?
6. Customer Feedback Surveys
Customer surveys are valuable tools for increasing customer satisfaction. By seeking feedback from customers, either post-purchase or in exchange for incentives like discounts or loyalty points, you gain insights into areas where improvements are needed.
These surveys offer actionable results and provide a forward-looking perspective on customer loyalty. They complement traditional loyalty metrics, which typically provide a backwards-looking view of loyalty.
Start your Loyalty Program Today
Customer retention is the lifeblood of every successful business. By understanding the importance of retaining your existing customer base and implementing the strategies outlined in this ultimate guide, you can create a loyal customer following that not only sustains your business but also contributes to its growth.
At LoyaltyXpert, we have helped a wide range of businesses retain their customers by providing our high-quality loyalty solutions. If you want to know how our loyalty platform and solutions can help your business retain your most valuable customers, contact us today to book a free demo.