You’ve invested all this time and money to acquire a customer. You can’t just let them slip through the cracks after making a single purchase. If you want to ensure the sustainability of your business, then you have to find ways to motivate customers to keep buying your products/services. This process in marketing is known as customer retention.
Many marketing teams make the mistake of not prioritizing customer retention. Upselling to an existing customer doesn’t have the same attraction as acquiring a new client. There’s something really uplifting about winning over a new client. Perhaps it’s easy to take existing customers for granted, and that the product/service will always keep them satisfied.
However, this is a misguided way of thinking that can have serious repercussions for a business.
Acquiring a new customer is more expensive than keeping an existing one, which means that a customer retention strategy should play a major role in a brand’s overall marketing strategy.
A famous Harvard Business Review report concluded that a mere 5% raise in customer retention can result in a 25% – 95% increase in revenue. An effective customer retention strategy makes your existing customers not only loyal to your business but it also turns them into repeat customers who happily promote your brand to others.
Keeping customers is a simpler and a more cost-effective way of increasing a company’s income stream. It’s crazy to ignore it. However, many marketing and sales departments aren’t familiar with the data and metrics needed to accurately evaluate customer retention. This could be a reason why not enough consideration is given to tracking retention rates.
Continue reading to learn more about customer retention and the different techniques you can use to strengthen business growth.
Why Pay Attention to Customer Retention
Before we get into the nitty-gritty of implementing customer retention strategies, let’s go over the importance of retaining existing customers. Customer retention tells you not just how well you get new customers, but also how successfully you’re able to satisfy them once they’ve made a purchase.
Focusing on keep existing customers costs 5 times less than acquiring new businesses.
Furthermore, your chances of selling to an existing customer are estimated to be 40% better than selling to a new customer. They know the value of your product/service and are accustomed to coming back time and time again.
Also note that your customers are ready to spend more than new leads, and are always willing to give new offerings a chance:
Finally, happy customers are a great source of referrals. They will passionately promote your business to their acquaintances, friends and family without charging you for it! It’s free powerful marketing.
Now that we’ve hammered home the importance of customer retention, let’s turn to learning how to calculate retention rates.
Calculate Retention Rates
Two major factors in determining the retention rate for a business are the number of newly acquired customers and the number of customers who won’t continue buying anymore.
The formula for calculating the customer retention rate is:
((The Number of Customers at End During a Certain Period – The Number of Customers Acquired During the Same Period) / The Number of Customers at the Beginning of the Period) X 100
The period of time can be a quarter or a year. Let’s see how this formula works with an example.
Assume that your business started with 10 customers and acquired 5 new customers and lost 1 in the first year. In this case, your customer retention rate is:
((14 – 5) / 10) x 100 = 90% retention
After you’ve calculated your rate, you should do an analysis of the customers who won’t continue purchasing from you (churned customers) and identify what links them all together. Maybe customers who work in certain industries or have a specific budget are more likely to churn.
This is also important for building customer avatars – the insight that you get from auditing your churned customers will help you build a more accurate picture of your ideal buyers. To learn more about building a customer avatar, click here (link to blog about customer avatars).
How to Maintain Relationships with Customers
Organizations that give proper attention to customer retention have a dedicated team overlooking this side of business typically referred to as customer success team.
These teams ensure that customers are satisfied with their relationship with a business and work with both customers and other teams that have a direct impact on retention. They most often work closely with customer service teams, to help optimize customers’ experience with the brand.
Let’s take a deeper look at various strategies and tools your business can use to improve customer retention.
Create Loyalty Programs
One of the most common ways to keep customers across many industries is to implement a loyalty program.
If customers get more than they paid for in terms of a points-based system, then you’ve reinforced your relationship with the buyer. They feel like they’re getting more for their money, making it more difficult for the competition to poach them.
The cosmetics brand Sephora shows how a simple points-based loyalty program that rewards customers each time they make a purchase works. Each dollar spent goes towards a point, which can be redeemed for cosmetic products. This is a simple and effective measure that keeps consumers shopping at Sephora for their cosmetic needs.
You can also reward customers for giving you feedback or sharing your content on social media to name only a couple. Loyalty programs are the go-to strategy for delighting existing customers, building loyalty and business growth.
Reciprocity is a Powerful Tool
In addition to a loyalty program, you should also use reciprocity to build loyalty. From a psychological standpoint, acts of thoughtfulness and compassion stir in us a sense of duty to repay the favor.
Marketers rely on two forms of reciprocity:
- Surprise reciprocity
- Trumpeted reciprocity
Both types are great for building brand loyalty.
A project completed ahead of schedule is an example of surprise reciprocity. Another example is gifting VIP tickets to an exclusive event. As the name suggests, an unexpected present or gesture lies at the heart of surprise reciprocity. A famous real life example is when the online retail company Zappos would upgrade a shipment to overnight delivery without informing the customer. The unexpected pleasant surprise was an amazing way of generating goodwill with the customers.
Trumpeted reciprocity is when a good deed is emphasized so that there’s no doubt in the customer’s mind that your business is going over and above to make them happy.
It doesn’t mean that you have to send them a report detailing your benevolent act. But it does have to garner attention. For example, Cheerios partnered with Vesey’s seeds to send people wildflower seeds is an example of trumpeted reciprocity:
Brands can improve customer retention by taking a page from the gaming industry. Applying a gamification strategy can provide consumers with a fun experience as they carry out certain actions.
Competition lies at the heart of a gamification strategy. Companies that use gamification rely on badges, medals or leaderboards that rank consumers. While it may sound a little gimmicky and childish, it’s nevertheless effective at generating customer engagement. This is because gamification addresses a universal human desire – the dopamine release associated with a sense of accomplishment.
Gamification harnesses this biological reality and is effective when the rewards are greater than the discomfort associate with spending money.
However, brands need to be careful when selecting what rewards to use. Choose rewards that reflect a sense of accomplishment or provide certain perks.
Dropbox illustrates the power of gamification perfectly. Their service is providing online storage space. Dropbox rewards its users if they are willing to do a few things for them. The free account comes with a few GB of space, but if someone wants to get their family members to use Dropbox, then the user’s storage space balloons to 16 GB.
Yelp is another great example. Initially, the company was in a pickle trying to figure out how to turn its users into reviewers. Since Yelp is a crowd-sourced review platform, they needed reviews to get people to read, but you couldn’t get reviews without users.
They turned to gamification for solution by introducing points and badges. Insightful reviewers who provided valuable content were rewarded with points. Once users earned a certain amount of points, they were rewarded with an “Elite” badge pinned on their profile for all to see.
The points weren’t just a vanity metric – the badge holders got free food and drinks, tickets to events and other perks to which other users weren’t entitled. This process turns users into regular reviews at over 65%!
Honesty during the Sales Process
Be upfront with potential customers during the sales process when both parties are figuring out if they are a good match. As a business, you should provide case studies and testimonials that showcase how you’ve worked with other customers and the goals you’ve reached.
Prospects must have a clear picture of what they can expect when doing business with you. This will ensure that their expectations are realistic which increases the likelihood that they’ll be satisfied with your product/service.
If you fail to effectively communicate what potential customers can expect from your brand, then you run the risk of upsetting them. For instance, they might be under the impression that they can achieve certain goals immediately, without having to wait or implement other initiatives.
Map out Where the Relationship is Heading
Professional relationships share many similarities with romantic ones. Potential customers want to know what the future of their relationship with your brand looks like. What’s the plan for the future?
Companies need to have plans for preventing relationships from becoming stale and uninspiring. Even if things are going swimmingly between the two parties, there’s always the risk that the customer can feel that relationship has fallen into a routine. Your customer retention team should communicate new projects and milestones that will keep customers excited about the current and upcoming steps of the relationship.
Provide a Personalized Experience
Personalization is a simple gesture that shows your customer that they aren’t just another account that needs to be converted.
Addressing a customer by name in an email containing content they like is a proven way of providing a personal touch that increases customer retention. Retention increases further if the email offers discounts or another type of reward.
This tactic entails collecting customer information, which you will then use to make offers tailored specifically for each customer.
On a related note, use email to reach out to your customers and show them ways that you can help them achieve their goals. Send them emails containing tutorials on your company’s latest product/service that will help them accomplish their tasks.
The idea is to build up your company’s legitimacy through valuable personalized content.
Pro-tip: The company’s CEO can send an email once every quarter discussing growth and various initiatives taken.
Ask For Feedback
Engaging with both satisfied and dissatisfied customers is a necessary part of any retention strategy. If there are customers who are writing negative reviews of your business, then you must engage with them as quickly as possible and try to find out the reasons why the customer doesn’t wish to continue doing business with you. This will help you to take measures that will stop others from leaving the company. Identify problems as soon as possible to prevent more customers from leaving. But you first have to understand the reason for dissatisfaction.
However, even in cases when the reviews are from happy customers, you should engage with them. A simple thank you message to a satisfied customer shows how much your business appreciates them and doesn’t take them for granted.
Pro-tip: Maintain a detailed record of previous communication with all of your customers. A customer service representative has access to the entire history of the relationship, which will them move the relationship further more efficiently.
Retention is Key
No business can afford to let customers just slip away. Once you’ve converted a prospect into a customer, you must implement retention strategies that will not only encourage them to continue doing business with you, but will also spur them on to spread your message.
These are some of the most common and effective techniques for retaining customers that will help you grow your business.