Everything You Need To Know About Customer Retention
Per the name of this blog – customer retention is our topic of the day.
We’ve discussed it before, but in case someone’s missed it, today, we’ll cover some important details about customer retention.
By the end, you should know all the ins and outs of it and why it’s such an essential component of any successful business.
First off – What is customer retention?
Customer retention is being able to keep (retain) customers over a prolonged period of time. The goal is for your customers to continue purchasing your products and services instead of switching to competitors.
The higher your customer retention rate (CRR), the better.
A high CRR is a good indication that your business is doing well in terms of product and service quality, customer satisfaction, customer engagement, and customer loyalty.
You can implement various tactics to ensure your business has a high customer retention rate. Scroll down to learn about them and more!
How To Measure Your Customer Retention?
Let’s say you start with 100 customers, lose 20 over time, but gain 15 new ones. In this scenario, your customer retention rate (CRR) equals 80%.
When calculating CRR, your focus should be on how many of the original 100 customers have stayed over time. In the above scenario, 80 stayed and 20 left, leaving us with an 80% retention rate.
For the technical folks, here’s an actual formula:
CRR = [(E – N) / S] x 100
E: The number of customers at the end of a time period.
N: The number of new customers acquired during that time period.
S: The number of customers at the beginning of the time period.
So, let’s plug in the numbers from the example above.
CRR = [(95 – 15) / 100] x 100
CRR = 80%
Steps to calculate your customer retention rate:
- Define Your Time Period: a month, a quarter of a year, or a full year.
- Gather Your Data: The number of customers at the start (S), at the end (E), and the number of new customers that joined during the time period (N).
- Plug The Numbers Into The Formula: CRR = [(E – N) / S] x 100
Tip: Use consistent time periods and utilize customer relationship management (CRM) software for accuracy.
How Does Customer Retention Affect Business Growth?
Customer retention is one of the main factors for cost efficiency, organic expansion, and consistent revenue. So, it’s safe to say customer retention has a massive impact on business growth.
- Lowers Costs: Keeping existing customers is much cheaper than acquiring new ones. Customer retention decreases marketing, advertising, and onboarding expenses.
Loyal customers don’t need as much convincing as new ones. They already trust your brand and know what to expect from it. This allows you to focus on other things like course and other product development, customer support, and overall growth. - Boosts Revenue: Loyal customers are more likely to buy and invest in the new products and services you release.
You can predict that your existing customers will keep buying, which improves your revenue stability and provides a predictable income stream. - Drives Word-Of-Mouth: Customers come back when they are happy and satisfied. When customers are happy and satisfied, they are more likely to recommend your brand to others, which results in word-of-mouth marketing.
Word-of-mouth marketing is organic, which boosts your overall return on investment (ROI) and fuels scalable growth. - Builds Competitive Advantage: Having a high retention rate means your brand offers irreplaceable value and is trustworthy.
This can give you peace of mind when it comes to competitors – they will have to work harder and, potentially, even spend more to reach and exceed your level of customer satisfaction.
Why Do Customers Leave?
Customers may leave for a number of reasons, which often revolve around pricing, value, and negative experiences. However, sometimes, it has nothing to do with you or your brand – life happens.
- Lack Of Value: When the ratio of price and value doesn’t make sense, customers tend to abandon your brand.
Subscription-based businesses, especially those charging month-to-month, can be most affected by this. A person might review their monthly spending and decide that they don’t use your service enough to justify the monthly charge.
Another reason could be that your product or service does not offer enough value for the amount you’re charging (to some individuals).
Therefore, it is crucial that your brand offers top-notch everything – from information and education to content, communication, support, and a reasonable price-to-value ratio. - Poor Customer Service: Poor support, slow responses, abandoned and unresolved issues, and lack of respect and decency towards your clients or customers can drive people away from your brand right into the open hands of competitors.
- Low-Quality Products / Services: You should always deliver what you promised and more (when possible). Your products and services should be worth your customers’ money and time.
If your coaching calls recite a free YouTube video or if the software you promote is slow, buggy, and requires jumping through hoops and loops to install and use – your customers won’t stay.
Your brand should offer consistent quality for everyone at any given time, not just at the beginning. Consistency matters. - Complicated Process: When your product, service, or any process feels complicated and causes frustration, you risk losing both new and returning customers.
Everything, including cancellation procedures, support requests, and day-to-day processes that your brand has, needs to be seamless and user-friendly. - No Personal Connection: Generic, transaction-focused, and impersonal interactions are likely to push people away and do not foster any grounds for their return.
- Better Alternatives: Competitors with more features, lower prices, a better reputation, and a higher service quality can attract and win over customers.
Ensure that your brand matches the exact needs of your clients and over-delivers value when possible. - Personal Reasons: Sometimes, it’s not you. Life happens, and people’s financial situations, mindset, and health can all be reasons for them canceling their subscriptions and pausing memberships.
Sometimes, there is nothing you can do to change your customer’s mind. They might be dealing with something you have no clue about.
However, before you entirely give up on them, invest some time in figuring out what caused their decision and whether you can convince them to stay.
You can send them a personal email, text, call, send them a survey, or offer them an exclusive discount or something free to motivate them to stay.
How To Increase Customer Retention?
Increasing your customer retention rate is all about keeping your customers happy and engaged. Let’s explore some of the best practices to do that:
- Leverage Personalization: Use data like previous purchase history, personal details, interests, and preferences to tailor offers, recommendations, and communication with each individual customer.
You can send personalized emails that acknowledge important dates, like birthdays or holidays, and offer rewards, discounts, and other personalized exclusive offers. - Deliver Exceptional Customer Service: Ensure that the best customer support is delivered. Respond quickly, resolve situations and problems effectively, and have a chatbot that can answer and address common questions and issues.
If you manage your own community, you can have a dedicated chat for help and support, where people can help each other find solutions or reach out to you or your team for help.
You can also add a section to your website with tutorials, common issues, and instructions for people to access on their own time. - Encourage Feedback: Send out surveys, run polls on your social media, and encourage feedback in communities. This makes your customers feel important.
However, receiving feedback and taking no action defeats its purpose. It is essential to consider your customers’ suggestions, acknowledge them, and act on them.
This will make your customers feel valued, heard, and understood, which will boost your connection with them and improve brand loyalty. - Maintain Your Product / Service Quality: A good motto to follow is underpromise and overdeliver.
Ensure that your product or service offers consistent quality throughout the life span of your business. The quality of what you offer should only go up, never down. - Simplify Customer Journey: Ensure that all of your new and existing customers’ processes are easy and seamless.
This includes sign-ups, checkouts, cancellations, form fill-outs, website navigation, and clear policies. - Build A Loyalty Program: Incentivize and reward returning customers for staying. Make your loyalty program easy to join and engaging enough to participate in.
Loyalty Programs And Customer Retention
First off – what is a loyalty program?
A loyalty program is a system businesses use to reward customers for continuous engagement and repeat purchases. It is essentially a way for businesses to encourage, incentivize, and acquire customer loyalty through special offers, discounts, points, exclusive offers, and freebies.
These incentives help people feel appreciated and connected to the brand, making them more likely to stick around.
How does a loyalty program drive customer retention?
- Rewards For Repeat Purchases: By offering people incentives like discounts, points, and free things for coming back, you give them a reason to stay.
- Increases Perceived Value: Loyalty programs make customers feel as though they are getting more value for their money.
For example, earning points toward an exclusive reward or being able to apply a discount earned towards the next purchase makes the transaction more “worth it.” - Creates A Connection: People like feeling connected to the brands they do business with. Exclusive perks like early access or VIP status make people feel special, not just transactional.
- Reduces Competitor Appeal: The rewards that loyalty programs provide, in a way, serve as insurance that your customers will not leave your business for a competitor.
When people are close to receiving and redeeming a reward, they are less likely to switch. The more rewards you offer them while they are your client – the longer that insurance policy will serve you.
Closing Remarks
Customer retention is one of the most crucial factors of success for any business, and info product businesses are no exception. Any business needs a loyal customer base – the higher your customer retention rate (CRR) is, the better.
A good CRR indicates that your business provides good service and product quality and keeps customers happy and engaged.
Customers may leave for a number of different reasons, including some that you cannot control. Don’t let this discourage you; instead, analyze why your customers leave and make improvements accordingly.
On that note, subscribe to Vavoza Insider and stay tuned for more marketing topics.
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– Steph
