By definition, customer retention is a business’s ability to retain its customers by utilizing various strategies and providing customers with a great user experience.
We express it in the Customer retention rate, a percentage of customers who stick with a company over a specific period.
Unsurprisingly, the customer retention rate is directly related to the customer churn rate.
The lower the churn, the more loyal customers the business has.
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Businesses put a lot of effort into luring customers through marketing, social media, and brand activities.
Investing time, energy, and assets into retaining existing customers is more profitable than trying to find new ones.
In this sense, customer retention is, by definition, the ability of a business to keep clients as loyal customers and keep them from going to competitors.
Customer retention starts from the moment a customer reaches out to a business.
It continues throughout this entire customer-business relationship.
Successful retention efforts consider this whole lifecycle when calculating the number of customers who stay.
Customer retention is a key performance indicator (KPI) for many businesses since its short – and long-term success depends on its ability to maintain current customers.
Customer retention can quickly show if the company has quality products, good service, user relations, and good management software to handle all the data.
Why is Customer Retention Important?
The definition of customer retention is keeping your customers happy.
This is the core value of every business.
Customer retention is essential for companies because it is always cheaper to keep current customers than to acquire new ones.
Searching for new customers would require a lot of marketing research, implementation of new strategies and investment, and above all, time.
Even with all these efforts, it would not guarantee new customers.
Enhancing the customer experience and paying attention to their needs encourages lifetime brand loyalty and brings significant financial rewards to businesses.
Customer retention additionally lowers marketing costs through free mouth-to-mouth advertising, upsells products, gains feedback, and brings profit.
Customer Retention Strategies
When a business creates or retains good communication and relations with customers, those customers become loyal.
Loyal customers directly benefit the company because a happy and loyal customer means product satisfaction, increased customer retention, higher customer lifetime value, and more profit for the business.
Customer retention is also cost-effective since loyal customers are more likely to spread the word about a good product or service than any commercial.
Here are some helpful customer retention improvement strategies.
Improve User Journey and Customer Experience
A business should constantly improve user onboarding flow, roadmaps, project lists, etc.
If possible, every customer should get personalized interactions with the company.
This gives customers easier access to the services and products and a unique experience.
Use Social Media and Create Good Content
A business should use social media as a free tool to promote its products and services.
Social media is also a great way to keep customers informed and engaged with the business.
Good content and communication strengthen the customers’ connection with a company and improves customer retention.
Look for Feedback
A business should use client feedback to find weaknesses and constantly improve the business.
Companies can gather feedback through social media, data records, interaction, and more.
Gathering and managing feedback is one of the most important strategies and a part of customer retention software.
Start a Referral Program
Businesses must use automated emails, newsletters, and referral bonuses, to encourage inactive users to take action.
This way, customers feel engaged and can recommend the product to others if they like it.
A business can use referral links through which people would be able to create an account or purchase products.
In return, existing customers can get bonuses or discounts for referrals.
Incentivize Loyalty
Satisfied existing customers boost customer retention, make more purchases and spend more money within the business.
They return time after realizing the worth of a good or service.
A company should create a personalized customer loyalty program to attract and keep customers.
This program can include discounts, additional features, a loyalty club, etc.
Upsell to Existing Customers
Upselling to existing customers is essential for increasing revenue, but it can sometimes be dangerous.
A business must be careful not to annoy the customer and destroy overall customer loyalty.
Upgrading is a great choice – it is an unassertive way of selling something without looking greedy.
Deliver Fast Support
Every business should offer customer support 24/7.
Providing help at any time is how customers feel protected and valued by the company.
Invest in Employees
Every business should invest in employee training.
Consequently, companies should encourage employees to take courses that upgrade their knowledge.
In the long run, this can boost customer retention and customer acquisition.
Identify Customers That are Likely to Churn
Lastly, it is vital to recognize customers likely to cancel subscriptions beforehand and try changing their minds.
If customers are not actively engaging with the company, those are the ones who are more likely to churn.
Dunning management software must be implemented to prevent involuntary churn and boost customer retention.
How to Calculate the Customer Retention Rate?
There is a simple formula for calculating Customer Retention Rate (CRR).
To calculate CRR, three numbers are significant:
- the number of customers at the start of a period
- the number of customers at the end of a period
- the number of customers acquired during the period
Let’s say the number of customers at the start of the last year was 200.
In that year, the business lost 20 customers but gained 30 new customers.
The calculation of the customer retention rate goes as follows:
- The number of customers at the end of a period minus newly acquired customers
- divide the result by the number of customers at the start of a period
- multiply by 100
Customer Retention Rate (CRR) = ((210-30)/200) x 100 = 90%
What is a Good Customer Retention Rate?
A good customer retention rate is a sign a company is executing its monetization strategy well.
However, a low customer retention rate is a warning sign for any business because it shows low client satisfaction.
By definition, the goal for the customer retention rate is to come as close to 100 percent as possible.
The customer retention rate is the inverse of the customer churn rate, and if a company’s retention rate is 80 percent, then the churn rate is 20 percent, and vice versa.
A 15% customer retention rate is usually considered an alarmingly low retention rate.
Even though businesses should aim for as high a retention rate as possible, they typically try to hit at least 85%.
In some cases, even a 5% increase in retention rates can boost revenue to 95%.
Nevertheless, it all depends from business to business.
Rather than aiming for a specific figure, a company should only compare its retention rate to those of similar businesses and industries.
The customer retention rate in different industries (source – Hubspot):
- Retail: 63%
- Banking: 75%
- Telecom: 78%
- IT: 81%
- Insurance: 83%
- Professional services: 84%
- Media: 84%
Customer Retention Management
Maintaining ties with present customers to satisfy them long after they acquire the product or service is known as customer retention management.
By doing this, a business motivates these customers to stick with them.
Customer retention management also includes all the steps a business takes for an extended period to retain existing customers.
These steps usually include managing data records, feedback, customer engagement, and more.
The key to successful management is dedicated customer retention software since all this data can’t be handled manually.
Using a Subscription Management Software
Gaining consumers’ trust can take a lot of your time, effort, and possibly financial resources.
One factor for keeping or improving your customer retention rate is to offer users secure payments and user-friendly access to products.
A company should not waste time manually creating consolidated invoices and tracking paid and unpaid subscriptions.
With subscription management software, all these processes are automated.
This benefits business and customers because it saves time and offers additional security.
