The difficult part is to create a super product or service, market it, and then get your first customer. Once a business starts getting customers, it naturally wants to retain them. But remember, there is always competition out there. The competitors are trying to get the same customers. So it’s a challenge to retain the customers.
What is customer retention? It refers to the ability of a business to retain its customers. In other words, it is the ability to earn customer loyalty so that the same people make repeat purchases. Customer retention shows the goodwill of the business and how satisfied the customers are with your brand and business. It is a key indicator of business success.
Why Is It So Critical For Business?
The cost of getting a new customer is always much more that retaining an existing person. Also, a retained customer is more likely to engage with the business and be its ambassador. A happy customer will recommend the product or service and bring in new customers. This means, the person will work much like an advertising executive or a sales person.
This is why it is so important to focus on retention. A business simply cannot afford to focus merely on expanding the base to gain new ones, which always costs more money.
Customer retention is important for various reasons –
- Retaining a customer is five times cheaper than getting a new one.
- Customer retention improves brand loyalty and the chance of word-of-mouth recommendations.
- A business has a 60% to 70% better chance of selling to an existing customer.
- Existing customers may spend up to 30% more on a new service or product compared to a first-time consumer.
- Long-term customers provide valuable feedback and data, which helps the business form future strategies and campaigns.
- A business that retains its customers has a better Lifetime Customer Value or LCV and earns greater profits.
Calculating the Customer Retention Rate
Customer Retention Rate or the CRR refers to the percentage of customers a business is able to retain over time. This takes into account various factors like new customers and those who have stopped purchasing or those who have canceled the subscription. The CRR shows how good a business is in customer retention. You can calculate the CRR with this formula –
CRR = [Number of customers at the end of a period – Number of customers acquired during this period/Number of customers at the start of the period]
Let us assume that there were 900 customers in January. During this month, the business lost 100 customers and got 280 new customers.
So, the CRR will be (900 + 280 – 100) = 1080
(1080-280)/900) x 100 = 88.9%
Of course, the retention rate will be different for each industry. But if you are consistently showing an increase, then your business is improving.
How to Retain Customers
A business with a high CRR will certainly be able to improve its ROI. Here are some good ways of improving your customer retention rate –
- Offer personalized service – Make your interactions personalized and tailored. This will make them feel important and valued. To do this, you have to make your customer service department more efficient. Direct emails and phone calls to the right representative. Reduce the turnaround time for issues and responses. If you are sending an email, always address the person by his/her name. Ask how you can help him/her find better value for money. As per HubSpot research, 93 percent of customers will buy from businesses that offer excellent customer service.
- Build trust – They are likely to come back to you if your business is trustworthy. Be consistent with what you promise and only promise what you can deliver.
- Reward the advocates of your brand – Word-of-mouth recommendations are very powerful. They often work better than all those television commercials and internet advertisements. If a customer is extremely happy, the person may recommend your business to his/her friends and family. This person is your brand advocate. You must reward the person for the support. You can offer a special discount.
- Address customer feedback – Listen to what they are saying. Take notes. Thank positive feedbacks and address the concerns. Make a genuine effort to fix the problems. You may even run surveys from time to time to ask for feedback. They will know that you really want to hear what they are thinking and value their opinion. By collecting feedback, you can also open a dialogue and engage with them. Many sectors are already using big data for business success.
- Upsell and cross-sell – Cross-selling refers making them buy a related product. For example, you can sell headphones with a mobile device. Upselling is the art of making them buy something that is more expensive. Making them purchase a more expensive item of clothing instead of the one originally chosen. Both these strategies will work, but for this, you need to first bond better with your customers and build trust.
- Use social media – Facebook, LinkedIn, and Twitter can all help you reach out to the customers and build trust and relationships. You can also use these platforms to address queries and concerns. This guide will show you how to reassure customers after a crisis.
Customer retention is a key factor for business success. Any serious business will value this immensely. Feedback will improve your product/service and business. It will minimize customer dissatisfaction, eventually helping you improve your CRR. Not only will you earn more revenue, you will also be able to reduce the cost of sales. A high CRR is certain to improve the ROI for your business.
