How to Improve Customer Retention

Customer retention is an important aspect in established businesses. It will affect the business trust and profit, ultimately being the deciding factor in the success of the business. In this article, we will explore all you need to know about customer retention, and the top 10 strategies you can implement in your business for better customer retention.

What Is Customer Retention?

Customer retention is where the customers who have engaged with your business previously, come again as repeating customers instead of going to your competitors. Having a high customer retention indicates your product or services matches the needs and provides satisfaction to the customer.

Why Customer Retention Matters

There are many reasons why customer retention matters for a business. Try taking a look at a newly established business without any existing customers. The amount of funding they need to direct into marketing, and the effort needed to increase exposure of their business to potential customers are significant.

Having a repeating customer, or a steady customer, can help cut down on these costs and effort. This would be highly beneficial to the business as they can direct their resources and focus away from huge and costly marketing campaigns.

Here are some other reasons why customer service retention matter for business success:

• Increased Revenue: Repeating customers tend to spend more as they already trusted your brand.
• Improved Profitability: Higher customer retention rates lead to increased profitability due to less resources needed for marketing.
• Easier Exposure: Repeating customers are most likely satisfied and will be more likely to recommend your brand to others.
• Competitive Advantage: A strong customer retention strategy can strengthen your business standing from your competitors.

Key Metrics In Customer Retention

When you’re assessing your customer retention, use the following formula:

Customer Retention Rate

Customer Retention Rate shows the percentage of customers who stay loyal to your business over a specific period of time. You can calculate your Customer Retention Rate using this formula :

Customer Retention Rate = (Total customers at the end of the period – Total new customers acquired during the period) / Total customers at the beginning of the period

For example, if you started the period with 100 customers, gained 40 new customers, and ended the period with 90 customers, your customer retention rate would be :

(90 – 40) / 100 = 50%

Customer Churn Rate

It is also best to know the Customer Churn Rate, the percentage of customers who stopped doing business with you over a specific period, using this formula : 

Customer Churn Rate = (Total customers lost during the period) / (Total customers at the beginning of the period)

For example, if you lost 20 customers from the initial 100 customers, your churn rate would be : 

(20) / 100 = 20%

While a 100 percent retention rate and 0 customer churn may seem like the ultimate goal, that could only happen in theory. Realistically, the retention rate benchmark varies by industry. It ranges from around 70 percent for healthcare and up to 80 percent for professional services.

Customer Lifetime Value

Customer Lifetime Value estimates the total revenue you can expect from a customer throughout their lifetime. While this value is not directly related to customer retention, it helps to show the amount of revenue you can expect for a specific customer retention rate. You can calculate it using this formula:

Customer Lifetime Value = (Average purchase amount x Average purchases) x Customer Retention Rate

For example, if you receive an average or RM100 average order amount with 24 purchases over their retention period, and a 50% retention rate : 

(RM100 x 24) x 0.5 = RM1200

This means that, on average, each customer is expected to generate RM1200 in revenue over their lifetime with your business. 

10 Customers Retention Strategies

Here are 10 effective customers retention strategies you can implement into your business : 

1. Build Trust 

Building trust with your customer is important in order to increase retention. One of the ways you can build trust is by being transparent with your customer. You can start by sharing information openly and honestly, being reliable, and delivering on your promises. You will also need to be ethical in your day-to-day practices, and be consistent in providing great customer experience.

By focusing on these areas, you will be able to develop a strong sense of trust with your customers. For example, communicating a product recall shows accountability and honesty, while providing a consistently high quality service showcases reliability. When customers experience this consistently, they are far more likely to remain loyal, make repeat purchases, and even recommend your business to others.

2. Implement a Customer Loyalty Program

By rewarding customers with points, discounts, or even special benefits when they’re being loyal to your brand, you will encourage them to continue doing business with you. You can create tiered rewards to offer different levels of benefits based on customer’s total spending or engagement. This can involve offering various incentives like points systems where you earn points for every purchase, exclusive discounts for members, or even free products after reaching a certain spending threshold.

For example, a coffee shop might offer a free drink after a customer purchases ten cups of coffee from them. These rewards motivate customers to return to your brand rather than choosing a competitor. This will encourage new customers to engage you, and repeat customers to keep coming back.

3. Show Customer Appreciation

Showing gratitude and appreciation to your customer for their loyalty can strengthen relationships and encourage them to stay with your business. You can send them a tailored gift or discount for special occasions like on their birthday, or after a certain period of time since they first did business with you.

For example, a business might send a special discount coupon for 20% off to a customer on their birthday, or a subscription service could include a free extra item in a subscriber’s package on their first anniversary. These personalized touches show that you value their relationship with your brand.

4. Become Part Of Their Lifestyle

While some brands exist as a standalone product, some others are able to blend into the customer’s daily lives as part of their lifestyle. This is achieved by integrating the product to fit into the customer’s sense of style, or by having an ecosystem which compliments their daily needs and usage. You can see this in a few smart home products, creating a whole ecosystem for their brand and integrating into customer’s lifestyles. 

Beyond added functionality, becoming part of a lifestyle also involves nurturing a sense of belonging. Brands that build strong online communities or actively support values that resonate with their customers can create a deeper connection. For example, a computer part brand that holds competitions and events can become more than just a provider of the peripherals, they become a part of their customer’s lifestyle and social circle. This integration leads to stronger customer loyalty and makes the brand a natural, consistent choice.

5. Differentiate Your Business

Making your brand stand out from your competitors can help attract and retain customers. You can achieve this by identifying your unique selling points, highlighting the strengths of your brand or products, and offering exclusive features that are not available elsewhere.

For example, a coffee shop might differentiate itself by including a unique roasting process or beans that aren’t available elsewhere. Highlighting these strengths clearly in your marketing and customer interactions allows potential and existing customers to understand the value you offer compared to other competitors in the market. This method is called Breakaway Methodologies which you can find out about more here.

6. Provide Convenience

Everyone loves simplicity and ease. You can leverage this by providing convenience to your customer, making it easy for them to do business with you. Achieve this by simplifying the purchasing process, such as offering a streamlined online checkout with guest options or having self-checkout lanes in physical stores. 

You can also provide a flexible payment method including credit cards, e-wallets like TouchnGo, and even buy-now-pay-later options to cater to wider customer preferences. You can go further by offering multiple delivery or pickup options such as standard, express, and even same-day delivery, giving customers more control and flexibility for their orders. Doing this can help improve their satisfaction and loyalty to your business.

7. Provide Proper Customer Support

Having excellent customer support is essential in retaining customers. Be responsive to any inquiries or complaints from your customer, for example by promptly replying to enquiry emails or calls shows you value their time. 

Similarly important is showing proper empathy by acknowledging their frustrations and understanding their perspective, such as saying “I understand how frustrating that must be” when a customer reports an issue. Provide accurate and informative assistance to them so you will be able to resolve the issues effectively. It is also best to have multiple channels for the customer to reach out to you such as phone, email, live chat, and even social media.

8. Listen To Feedback

Actively seek and respond to any feedback from the customer in order to tackle any potential issue and keep improving your service or products. You can gather feedback by conducting surveys, reviews, and monitoring brand mentions in social media. By analyzing these data, you can identify any issues promptly, allowing you to address problems and improve products or services accordingly, such as releasing an immediate update to fix the problematic feature. You can also identify possible trends, allowing you to be a market leader when the trend peaks.

9. Provide Positive Employee Experience

Happy employees will be more than likely to provide exceptional service to your customer. You can achieve this by creating a positive work environment, recognize and reward employee contributions, and respond to their feedback.

For example, you can offer flexible work arrangements or invest in employee training programs to enhance their skills and job satisfaction. Another way is by conducting regular employee surveys to collect and allow you to effectively act upon employee feedback.

10. Keep It Interesting

Keep the customer excited by continuously innovating and offering new experiences. Read into the current trends and find out how you can implement this into your product, services, or features. By consistently adapting, you can prevent your brand from becoming stagnant and maintain customer interest.

You can also offer limited-time products or promotions to create a sense of anticipation among the customers. For example, a coffee shop might offer a special pumpkin spice latte only in October. These strategies would not only cause immediate excitement but also ensure your brand remains on your customer’s mind.

Conclusion

There are many other strategies and approaches you can take in improving your customer retention. It is best to analyze and find out which one suits your business the most. A properly implemented customer retention strategy will strengthen your relationship with the customers and drive your business to a long term success.