There is a lot of value in retaining customers. This is why enterprises dedicate so much energy and resources to keep their existing customers, along with acquiring new ones. Organizations that fail to recognize the importance of customer retention pay a hefty price in terms of lost revenue and profit margins. Studies of SaaS companies have shown that amongst the levers of acquisition, retention, and monetization, the acquisition has the lowest growth rate. The study also found that monetization and retention have a higher impact on revenue than acquisition. Econsultancy reports that 82% of all companies they surveyed agreed that customer retention cost significantly less to execute than customer acquisition.
Customer retention is extremely important for ROI, customer loyalty, and overall business growth. It truly pays to foster long-term relationships and trust with your existing customers. Retained customers are known to gain value over time. According to an Annex Cloud report, a customer tends to spend 67% more by their third year of buying from a business, than their first six months.
What is customer retention?
Customer retention is the process of engaging the existing customers over a period of time, such that they continue buying products or services from a business. It’s a company’s ability to retain its customers and lower churn rates. Customer retention processes are centered around strategies such as continuous engagement with customers, updating features with the newest innovation, and improvement in product design.
Why is customer retention important?
Customer retention is very important because it defines how good a company is at acquiring new customers, but also how well it can retain its existing customers for a longer period of time. Customer acquisition can be very expensive. This cost is caused by the amount of time and resources required to find, target, and successfully sell a product or service to a new customer. Statistics indicate that, depending on the industry, it can cost anywhere between 5-25 times more to acquire new customers than acquiring new ones. Additionally, Harvard Business Review research shows that a 5% increase in retention rates can increase profits by up to 95%. Hence, it’s imperative for businesses to focus on retention efforts to save resources and feed the bottom line.
Return customers also tend to buy more often (at 50% more likely) and spend more (at 33% more) compared to new customers. Retention helps to increase customer lifetime value and enhances customer loyalty. A higher CLTV means lower spend on customer acquisition and higher gain on the lifetime value of the customer. Loyal and satisfied customers tend to bring in more revenue for businesses by referring their products and services to friends, families, and acquaintances, thus acting as a brand advocate in a way. Voluntary referrals by loyal customers are the most cost-effective advertising any business can have. Offline word-of-mouth impression drives sales at least 5 times more than paid impressions. This is because a staggering 92% of consumers trust recommendations from friends and family, more than any other form of marketing. So when retention becomes a focus, acquisition happens naturally.
How to calculate CRR?
To calculate customer retention rate (CRR), you must first determine the time period to be measured, which could be a month, a quarter, or a year. Next, you need to calculate the total number of customers you had at the start of the time period. Then, you need to determine the total number of customers you had at the end of the time period. This whole equation is to be divided by the number of customers at the start of the period.
CRR = Customers at the end of time period – New Customers
———————————————————————————– x 100
Customers at the start of the time period
How to improve customer retention?
Companies face a lot of stiff competition when they are trying to grab the attention of prospective customers. Hence first impressions are vital. The onboarding process must be thoroughly thought out, so that it can build trust with customers, and also highlight the benefits of the product or service, to alleviate customers’ problems. Creating a cohesive onboarding plan can infinitely improve the performance of the entire sales funnel. Tools such as email campaigns and chatbots can enhance customer experience and thereby build a good first impression.
Customer loyalty programs
Customer loyalty programs are a great way to enhance retention rates. According to research, 79% of customers are likely to continue doing business with a brand that has a loyalty program. Also, 73% of them are more likely to recommend brands with good loyalty programs to their friends and family. Creating an in-house customer loyalty program that offers customers store credit, free products, exclusive sales and more, can effectively improve CRR.
Offer personalized product recommendations
Customers love customization. They expect a certain level of personalisation when they do business with a brand. In fact, 91% of consumers are more likely to shop with brands that provide personalized offers and recommendations. Tracking a customer’s past browsing history can help businesses to offer products tailored to their preferences. Platforms like Autopilot and Shopify can ease the process of personalized marketing by automatically tracking and segmenting customers on the basis of key data points such as product page views, add to cart, and purchases.
Celebrate user milestones
Sending customers milestones emails or messages is a great way to engage them. Such initiatives give customers a sense of achievement and incentivize them to continue purchasing. A higher level of engagement leads to more loyalty, thereby reducing churn rates.
Get customer feedback
It’s important to talk to your loyal customers and gather their feedback. Also, it makes customers feel like they are valued and being heard by businesses they support. Customer feedback is essential to improve the overall customer experience. Better customer experience will automatically engage more customers, and reduce the likelihood of them churning. Companies use Net Promoter Score (NPS) as a metric to measure brand loyalty. Knowing where you stand with your customers in terms of loyalty can help marketers to optimize their marketing strategy and improve retention. It’s vital not just to collect feedback, but also to act on them. This will ultimately help you to create a user-driven product or service.
Follow-up with inactive customers
It’s important to outreach your inactive customers and invigorate them with a new engagement. Companies can use push notifications to win back inactive customers. Push notifications have a much higher opt-in rate than email, averaging about 7-10% of unique visitors depending on the industry. Companies can use this opportunity to upsell with additional features to attract their lost customers.
Create a win-back plan
It’s much more cost-effective to win back a former customer than to acquire a new one. On average 79% of online shopping carts are abandoned, with the majority of potential shoppers that visit your online store don’t finish their journey. Reaching out to such prospects with abandoned cart campaigns can help convert them into customers. With the help of marketing tools, automated emails can be set up to remind prospects about their abandoned cart.
Being thoughtful of your existing customers can add great value to your company and improve profit margins. There is enough evidence to back the benefits of customer retention. For sustainable business growth, customer retention must be a priority. At Alkye, we offer our clients’ customer experience, email marketing, and other digital marketing services that can help them improve their customer retention and drive profitability.