A Definition of Customer Retention
Customer retention refers to the activities and actions companies and organizations take to reduce the number of customer defections. Customer retention programs aim to help companies retain as many customers as possible, often through customer loyalty and brand loyalty initiatives. It is important to remember that customer retention begins with the first contact a customer has with a company and continues throughout the entire lifetime of the relationship.
Customer Retention Benefits
While most companies traditionally spend more money on customer acquisition because they view it as a quick and effective way of increasing revenue, customer retention often is faster and, on average, costs up to seven times less than customer acquisition. Selling to customers with whom you already have a relationship is often a more effective way of growing revenue because companies don’t need to attract, educate, and convert new ones.
Companies that shift their focus to customer retention often find it a more efficient process because they are marketing to customers who already have expressed an interest in the products and are engaged with the brand, making it easier to capitalize on their experiences with the company. Retention is a more sustainable business model that is key to sustainable growth. The proof is in the numbers: according to studies done by Bain & Company, increasing customer retention by 5% can lead to an increase in profits of 25% – 95%, and the likelihood of converting an existing customer into a repeat customer is 60% – 70%, while the probability of converting a new lead is 5% – 20%, at best.
How to Improve Customer Retention
Established companies and organizations need to focus on customer retention. Even more important, companies are finding that customer profitability tends to increase over the life of a retained customer, so employing customer retention strategies is a worthwhile use of company resources. We have compiled some of the more successful customer retention strategies and techniques and outlined them here, for your convenience:
- Set customer expectations – Set customer expectations early and a little lower than you can provide to eliminate uncertainty about your service level and ensure you always deliver on your promises.
- Become the customers’ trusted advisor – You need to be the expert in your field to gain customers’ trust and build customer loyalty.
- Use relationships to build trust – Build relationships with customers to foster trust. Do this through shared values and fostering customer relationships.
- Take a proactive approach to customer service – Implement anticipatory service so that you can eliminate problems before they occur.
- Use social media to build relationships – Use LinkedIn, Twitter, and Facebook to connect and communicate with customers and give them a space to share experiences with your company to become brand ambassadors.
- Go the extra mile – Going above and beyond will build strong relationships with customers and long-term loyalty by paying attention to their needs and issues.
- Make it personal – Personalized service improves customer experience and is something customers expect and demand. Make their experience personal to strengthen the bond with your brand.
- Predict your customer’s wants and needs through a next-best action marketing approach. See how the next-best action, combined with other features of our Intelligent Engagement Platform, can benefit your customer retention.
Rather than try to manage customer retention with a mishmash of customer retention strategies, many companies use customer retention software systems and targeted customer retention plans to improve customer retention. Some companies offer customer experience management solutions that enhance customer retention rates.
Measuring Customer Retention and Key Metrics
Attrition rate compliments retention rate. For example, a company with a 20% attrition rate has an 80% retention rate. Companies’ attrition rates can be defined by the percentage of customers the company has lost over a period.
Specifically, companies can determine retention rate by using a simple customer retention rate formula: Retention rate = ((CE-CN)/CS))100. CE = the number of customers at the end of the period, CN = the number of new customers acquired during the period, and CS = the number of customers at the start of the period. At first glance, the formula may look complicated, but it’s not too difficult once you start using it. For example, if you start the given period with 200 customers and lose 20 customers but gained 40 customers, at the end of the period, you have 220 customers. 220-40 = 180. 180/200 = 0.9, and 0.9 x 100 = 90. The retention rate for the given period was 90%. It is beneficial to track retention rates so companies can put their customer retention metrics into perspective and measure results over time.
The NGDATA Intelligent Engagement Platform, which goes beyond the capabilities of a standard CDP, is loaded with features to give users the insight and engagements they need to retain their customer base. See how our Intelligent Engagement Platform can help your business.
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