Customer retention is the ability of a company to retain its customers over time.
You’ve likely heard rumor of statistics around customer retention: Namely that it costs far more to find new customers than it does to keep existing customers loyal to you.
It does make sense. When a customer already knows, loves, and uses your brand it’s easy to keep them loyal through your marketing efforts.
However; when you’re on the hunt for new customers, you spend money on things like advertising, direct mail, and email campaigns. Not to mention the amount of time you (or someone on your team) spend to write and design all of it—in addition to creating numerous content marketing pieces.
- Only 18% of businesses focus on customer retention.
- Only about 42% of companies can accurately measure the lifetime value of their customers.
- The probability of selling to a new customer is only between 5% to 20%.
So, if your business isn’t focused on the retention of customers, perhaps it should be.
The customer retention formula
Every business needs to know where their retention rates begin. Without this knowledge, a business can’t make goals to improve their numbers and grow their loyalty base.
Luckily, as with most marketing measurements, there is a formula that you can follow regarding the retention of customers:
(# Customers at End of Period — # Customers Acquired During Period) / # Customers at Start of Period] x 100
Consider that you begin the year with 10 customers. You gain 3 new ones in the first quarter and have 2 customers not return (also called customer churn rate).
[ (11 – 3) / 10 ) ] x 100 = 80% retention
Once you have determined your retention rate, analyze what the numbers mean for your business.
- Do you have a high loyalty rate?
- Do you know why that is or can you only make educated guesses?
- Are there any trends among the customers that churn which could lead to improvements in your retention efforts?
Consider that when you make improvements to your retention rates by as little as 5% you could see anywhere between 25% and 95% increase in your overall profits.
But while customer retention may seem like common sense, the truth is that many businesses simply forget to do it. Instead, they make the mistake of thinking that as long as they deliver a high-quality product or service, customers will automatically continue to use them.
This may be the case for some customers—but others require a little more attention. Businesses must remember that there is always a competitor watching for ways in which they can draw your customers away—and this applies to any industry.
In 2020, industries with the highest churn rate included:
- Cable: 25%
- Financial/credit: 25%
- General retail: 24%
- Online retail: 22%
- Telecom/wireless: 21%
- Travel: 18%
- Big Box Electronics: 11%
Improving the retention of customers
Each customer will have a varying need. It’s true that everyone who purchases your product or service has a similar pain point. But it’s understanding what brought each customer to that pain point which will help you with your customer retention efforts.
Nonetheless, you’re likely wondering exactly HOW to retain customers.
- Do you call them?
- Send emails?
- Create a loyalty program?
The answer is, all of the above! Or none of the above. What works for your business, your staff, and your time/budget constraints?
Get creative with your customer retention efforts! Here are a few ideas to help you get started.
1. Build relationships
Is there is a customer coming back to you week after week or month after month to purchase again? If so, what do you know about him/her? From name to birthday to the name of their spouse or their pet, learning small details about your customers (and remembering them) shows that you care. Try sending a simple “thanks for your business” card through the mail or something meaningful for their next birthday.
2. Create a loyalty program
Does it seem like every business has one these days? That’s because most do! And why not? With the availability of tech, creating a simple but effective loyalty program is easier than ever. From a simple birthday reward to money back for purchases, a loyalty program does more than make your customers happy. It can also support your company in various goals like increasing the number of visits to your website or encouraging additional purchases.
3. Engage through social media
You don’t need a lot of social media channels for your business. But like it or not, this form of marketing is here to stay. And it’s a great way to not only keep customers engaged with your brand but also stay on top of their needs and how those needs are evolving.
4. Personalize your communications
Segmenting your contact lists can lead to improved retention as well as lower overall sales and marketing costs. After all, if you’re sending a highly-targeted message to a very specific group of people, they’re more likely to take notice. You won’t have the right content for each customer group immediately—and the content each group enjoys will likely change over their lifecycle as a customer. Nonetheless, using a customer’s name, changing up subject lines, and even using telling stories to different groups of customers will all have a meaningful impact.
5. Request feedback
Sometimes, feedback can be a tough pill to swallow. But by asking your existing customers where you shine—and where you could stand to improve—you’re telling them that their opinion matters to you. And that you want to do better for them. Both are things that demonstrate self-awareness and can help build loyalty.
6. Support a Common Cause
Today, more than any other time in history, people are searching for common ground. So, when you want to boost customer retention, look for ways to support your existing customers through causes they care about. Do they want to help cultivate a better world? Show how their purchases reduce their overall carbon footprint or support family-owned farms. Do they support animal welfare? Create a drive for your local humane society or offer to match donations dollar for dollar over a span of time every year.
7. Give them a call
How many times has a company you’ve done business with called to check in or ask how things are going? It’s a rare thing to pick up the phone and call your customers for no reason other than to say hello and make sure they’re happy—which is why it’s so effective for customer retention. The point of these calls should never be to make a sale. However, if you want to close with an ask, you can always request referrals.
Track your customer retention efforts
Now that you know what customer retention is and some ways you can get started, you might be asking yourself another question.
How do I keep track of all of these customer retention efforts?
It’s quite simple, actually: Use a Customer Relationship Management (CRM) software system.
A CRM software program can help you organize and manage your existing customers more effectively than memory alone. Keep notes about their full name, their birthday, the name of their child, their favorite vacation spot, and much more.
You can also use a CRM to track customer data as it pertains to your business. In doing so, you make it easier to analyze and discover new insights like:
- How often you connect with your leads
- What their average spend is on your products or services
- What time of year the most purchases get made
- Your most popular/profitable promotion
Undoubtedly, customer retention takes effort. However, it takes far less effort to keep your existing customers than to find new ones. And at Data Axle Genie, we can help you with your customer retention efforts. In fact, we offer a variety of turnkey marketing solutions designed to keep you forefront in the minds of your most loyal customers.