With the costs of marketing, it is usually more expensive to find a new customer than it is to get an existing customer to buy from you again. But getting a new customer is a lot easier and quicker, which is why customer retention strategies often get overlooked. When used properly, customer retention tactics will mean better and longer-lasting relationships with customers and overall increased revenue.
So how do you increase customer retention? And what benefits can customer retention strategies have for your company?
What Does Customer Retention Mean?
Customer retention is what happens when you encourage someone who has already bought from you to buy again. It means that you actively encourage a customer who might otherwise only use your product or service once, to keep coming back. It is key to brand loyalty, customer satisfaction, and your topline revenue.
While it is always important for a company to attract new customers, the value of existing clients should never be overlooked. When a customer is happy with the service that they have received, they bring repeat custom to a business and are more likely to recommend your products or services to their friends, families, and colleagues.
Companies who want to be successful in the long-term will ensure that they have strong customer retention strategies in place and will continuously work to monitor the effect of those strategies.
What is Customer Acquisition and Retention?
There are two terms that you should understand and have strategies for in your business: customer retention and customer acquisition.
Customer Acquisition: This is the process of gaining new customers through networking, marketing campaigns or organic growth.
Customer Retention: This is the number of customers who repeatedly use a company for it’s products or services.
Why is Customer Retention Important?
While customer acquisition is undoubtedly important as it shows that a company is growing and reaching a wider audience, it is vital not to undervalue the importance of retention when it comes to long-term sustainability.
Many companies will find that by putting effort and attention to their customer retention strategies, they will find an overall upward trend in all areas. One fact to consider is that Marketing Metrics found that it is much easier to sell a product to an existing customer rather than a new one. Infact, the probability of selling to a returning customer is 60-70% compared to just 5-20% for a new client. For most businesses, the bulk of their annual revenue will come from returning customers, with statistics also showing that, on average, an existing customer will spend more on each purchase when compared to a new customer.
How do you Measure Customer Retention?
Whether you are looking at customer retention over a week, a month or even a whole year, it can be calculated easily using three important pieces of information:
- The number of customers at the start of the time period
- The number of customers at the end of the time period
- The number of new customers during the time period
Once you have this information, it is a relatively simple equation to then find customer retention as a percentage.
- Subtract the number of new customers from the number of customers at the start of the time period
- Divide this number by the number of customers at the start of the time period
- Multiply this number by 100
A company had 1500 customers at the start of their chosen time period.
By the end, they had 2200 customers, 900 of which were new.
So, the calculation would be:
2200 minus 900 = 1300
1300 divided by 1500 = 0.86
0.86 multiplied by 100 = 86%
Therefore, the customer retention rate was 86% for the company’s chosen time period.
Before you implement any customer retention strategy, you should have a report or monitoring procedure in place so that you can track your success.
How to Improve Customer Retention?
There are many things that a company can do to improve its customer retention rate with specific retention strategies.
Once you have implemented a system for monitoring the numbers of new and existing customers and have begun to gather feedback from those previous customers who have chosen to leave your company, there are a few things that you can do as part of your new customer retention strategy.
The good thing about retention strategies is that you can pick and choose the ones that suit you best and cater to the issues which you most need to focus on. There is no one-size-fits-all solution when it comes to customer retention. Each company is different and needs to be approached as such, even though there may be some issues that are common across multiple businesses.
7 Ways to Increase your Customer Retention
1. Reduce Obstacles for Returning Customers
Ask yourself what obstacles customers face when ordering and shopping with you. This may help to identify problems that you weren’t aware of that are obstacles for customers. For example, feedback might indicate the frustration customers feel if they continuously need to enter their payment information or preferences during checkout. So you should plan to create a smoother checkout process with login options, retained payment information or preferences. This will make things easier for the customer and therefore make them more likely to buy again.
2. Interact on Social Media
It is impossible to avoid social media these days. So having a good presence on a variety of social platforms will give you the perfect opportunity to interact and talk to your audience. By doing this, your customers feel more involved and listened to.
A key part of customer retention is based on building relationships and this is where social media can really prove its worth. Reply to comments, ask customers for their preferences using polls, share posts that customers have tagged you in. All of these strategies help customers to feel seen and valued.
3. Use a Loyalty Scheme
Whether it is points that have a monetary value, exclusive offers, or early access to new products, having a loyalty scheme is a huge selling point when it comes to gaining new customers and keeping them.
For example, a coffee shop could offer a free cup of coffee after 10 have been bought. McDonald’s does this successfully. Or an online retailer could give members early access to their sale ranges, which is a retention campaign Levi’s began running in June 2021.
Any kind of loyalty scheme which gives customers a benefit from choosing your company will increase retention rates and brand loyalty.
4. What are Your Competitors Doing?
A key part of understanding what it is that your customers want is to see what your competitors are doing. If they seem to have better customer loyalty or retention rates, have a look at how they do things. Use their website, try out their customer newsletter and find out how their customer service works. All of these things will give you an insight as to what you can do better within your own company.
5. Consider Using Mystery Shoppers
Mystery shoppers can give you an insight as to what your customer’s experience is like from start to finish. By using mystery shoppers, you can ask them to focus on specific areas which you know need attention and the feedback given can be used to guide future actions. You may even find that the experience a mystery shopper has may bring further areas of improvement to light.
6. Create the Option for Customers to Have Their Own Account
Not all customers will want this option, but offering customers the opportunity to create and sign in to an account can make it easier to implement other retention measures such as loyalty schemes and retain payment information. An account can also help customers to keep track of orders and other relevant information as well as allowing easier access to customer service options.
7. Ask for Customer Feedback
It is important to find out why customers choose to leave. Asking for feedback from those who choose to no longer be customers, can help to point to areas that need improvement. This could be customer service, issues with loyalty schemes, or something else entirely. This feedback from people who were previously customers is invaluable as it can pinpoint areas that don’t provide the kind of experience that you want for your customers. Having feedback from customers as well as the appropriate data at your fingertips will make choosing a retention strategy much easier as you will be able to pinpoint which areas are most in need of attention.
It is just as valuable to gather information from current customers too. Following up after a customer just after they have placed an order or used service can help provide insight as to what they liked and, more importantly, what they feel needs to be better. It can also help to give companies an idea as to what it is that makes customers keep choosing your products or services.
Feedback forms don’t need to be a long and complicated process, in fact, it is probably better to keep them as short as possible as customers will be more likely to complete them. A simple form with questions and multiple choice answers along with a comments box will give you enough information to analyse customer experiences.