What Is Customer Retention? (Definition, Importance, And Strategies)

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In almost any organization, your customers are the most important thing you should focus on. Generally, all activities and strategies center around gaining and retaining customers in order to have a sustainable business. Retaining customers is a key part of any business strategy as it results in a greater ROI and costs significantly less.

Key Takeaways:

• Customer retention refers to the variety of activities a business performs in order to keep customers for the long term to turn them into loyal customers.

• Retaining a customer has a lower cost compared to customer acquisition.

• Existing customers are proven to provide 65% of a company’s business, and by simply improving your retention by 5%, you have the potential to increase your profits from 25-95%.

What Is Customer Retention?

Customer retention refers to the variety of activities a business performs in order to keep customers for the long term to turn them into loyal customers. It’s essentially a metric used to measure customer loyalty and the overall success of any tactics that were implemented to help with retention.

These tactics can vary across sales and marketing initiatives but essentially improve customer experiences to ensure they stay on as a loyal buyer. In order to calculate your customer retention rate, divide the total number of customers from new customers by the number of customers acquired at the beginning of the time period.

Why Is Customer Retention Important?

Your existing customers shouldn’t be forgotten just because they’ve purchased something from you. In fact, they should be nurtured and cared for, just like you would do for a new lead or contact in your sales database. Customer retention also helps you understand how loyal and satisfied your customers are and how strong your customer service is, among other benefits.

• Costs less. Retaining a customer has a lower cost compared to customer acquisition. Unfortunately, many companies spend more relying on customer acquisition rather than tending to their existing customers.

• Increased average order value. Customers who return to your business to purchase will likely be willing to spend more money as time goes on. Loyal customers trust your business more and will be willing to spend more with you than your competitors.

• Increased profits. Your bottom line will be positively impacted when you take care of your existing customers. Existing customers are proven to provide 65% of a company’s business, and by simply improving your retention by 5%, you have the potential to increase your profits from 25-95%.

• Brand champions. Loyal customers who love your business will share positive experiences and become brand champions to attract new business. Many individuals who are first-time buyers will look to peers or reviews to back up their choice, which means your loyal customers are your most impactful marketing tool.

How to Retain Customers

There are a variety of ways to retain customers, including different strategies and methods. As with many marketing initiatives, some customer retention takes trial and error, but it’s important to try different things to see where they can impact the buying process. Here are some strategies you can implement to retain customers.

• Onboarding. When your customer makes their first purchase, the company should leave a memorable impression. A good onboarding process includes excellent customer service and well-timed email triggers, follow-up messaging, self-service resources, or any appropriate celebratory messaging.

• Personalized experience. All customers are different and, depending on the business, may be looking for a unique experience. Try to avoid a blanket solution for all customers and do your best to personalize their experience. This will entice them to remain loyal to your company.

• Build trust over time. Trust doesn’t happen right away, and the same goes for customers who shop at businesses. If you can consistently deliver on your brand promise, your customers will learn to trust you over time and perceive your brand and organization as trustworthy — making them more likely to buy from you in the future.

• Gather feedback. You can’t know everything, so gathering feedback from your customers is incredibly important. Develop a system for feedback like a Net Promoter Score or asking customers to participate in a survey. Look for trends in customer behavior and use that to enhance the customer experience.

• Maintain consistent communication. It’s your responsibility as a brand to maintain communication with your customers. You should be consistent with your communication and even create a calendar to manage your engagements. This makes it easy to launch promotional offers or to re-engage with an unresponsive customer.

• Customer education programs. If you have a technical product, a customer education program can demonstrate the long-term investment you have in them. Creating a self-serve knowledge base provides your customers with value beyond your product, keeping them loyal and engaged.

• Take accountability. Nobody is perfect, not even brands, so mistakes will inevitably happen. Whether it be an outage, a data breach, or something else, be sure you apologize and take accountability for your responsibility in the scenario. This increases trust and helps customers feel taken care of.

• Make it easy. There’s nothing worse than making it difficult for your customers to buy something. Implement convenience strategies in your purchasing process, such as an e-commerce website, phone apps that enable online ordering, or emailed receipts. Make your products and services accessible to your customer base.

• Consider social proof. Feedback from existing customers is the best way to capitalize on social proof. It’s a great form of advertising and reminding your existing customers why you’re so great in the first place. Customer testimonials can do wonders for your retention strategy.

• Thank your customers. Your customers keep you in business, so what better way to show you appreciate them than thank them? This can come in different forms, including gifts, discounts, or simply a thank you note. This is an effective way to make customers feel appreciated.

• Provide incentives. If a customer is ready to cancel or stop buying from your company, consider incentives to deter them from leaving. Incentives could be discounts or other offers to entice the customer to stay. You can also consider following up with a phone call or a personalized email.

• Establish a community. For many industries, developing and maintaining a customer community can be incredibly beneficial in attracting new customers and educating and retaining existing ones. Communities allow your customers to interact with one another and allow the business to gather feedback directly from their buyers.

There are plenty of ways to retain your customers, but there aren’t any shortcuts. Take your time developing relationships with your customers, and your effort will pay off in the end.

Customer Retention FAQ

1. How do you improve customer retention?

   You can improve customer retention through a smooth onboarding process, closing loops on customer feedback, keeping your products or services top of mind, and rewarding loyal customers.

2. What is a customer retention strategy?

   A customer retention strategy is a plan that reduces customer turnover and creates loyal customers through different initiatives.

3. Why is customer retention so important?

   Customer retention is important because the cost of gaining a new customer is much higher than retaining existing customers.

Author

Caitlin Mazur

Caitlin Mazur is a freelance writer at Zippia where she has written 140+ articles that have reached over 1 mil viewers as of June 2023. Caitlin is passionate about helping Zippia’s readers land the jobs of their dreams by offering content that discusses job-seeking advice based on experience and extensive research.