Let’s say there are two businesses, each with 1,000 existing customers. Each year, the first business, say company A, loses 100 of customers, while company B loses 200. If both companies can acquire 200 customers a year, and everything else being equal, company A will grow 10% each year, while company B will be stagnant.
Here, the customer retention rate of company A is 90%, while company B is 80%. This 10% difference, at first glance, might seems small, but the effect will compound over time. Company A will double its growth in 7 years, while company B will remain stagnant unless it can improve retention rate.
With that illustration, we can see how important customer retention rate is, even more when we understand how retaining existing customers is significantly cheaper than acquiring new ones.
In this guide, we will discuss all the ins and outs of customer retention rate, and especially the effective strategies to improve your retention rate.
Let us begin by discussing the concept of customer retention rate itself.
What Actually Is Customer Retention Rate?
To put it simply, customer retention rate is the percentage of existing customers that stay with your brand (and keep making repeat ) over a specific period of time. We should understand that acquiring new customers and keeping them abroad are two totally different things. So, here customer retention rate is properly measuring the latter, with the aim to optimize or even improve it.
A low customer retention rate means you can’t keep your customers from making repeat purchases (or in different business models, renewing their subscriptions). As we have mentioned, acquiring new customers is significantly more expensive than retaining existing ones, and so it will affect your revenue -and profit margin- in the long run.
Maintaining and Improving Retention Rate: Effective Customer Retention Strategies
There can be many different approaches in improving customer retention, some tactics or methods will work in a specific business model over the others.
So, for the rest of this guide, we will discuss these effective customer retention tactics, how to implement them, and their specific pros and cons.
1. Change your mindset: a sale is just the beginning
The thing is, so many marketers and salespeople are actually good at making the initial sale. Yet, so many of them thought that the sale is the finish line, and then went to ignore the customer to chase new sales.
We certainly can’t blame this thought process. In the eyes of marketers and salespeople, which are often commissioned based on sales, convincing a new customer to purchase -at least in their minds- is quicker than waiting for an existing customer to make a repeat purchase.
So, to optimize retention, first we must address this mindset.
Actually, this stage where the buyer just made a purchase is really important in encouraging retention: if you can show them how you really care through your actions, you can build trust and relationship. So, at the very least, thank them for making the purchase, and provide them with your absolute best customer service.
Schedule a drip campaign (link) to sell, and sell to them again with at the right time.
2. Show your brand values
Research suggested that 64% of the sample that included 7,000 U.S. customers mentioned having shared values as the primary reason for their loyalty toward a brand.
So, first, stand for an authentic value. It doesn’t always have to be a social cause, although admittedly it’s the easier to implement and the most effective. Consider Zappos with the core value of delivering happiness that has attracted so many customers over the years.
So, if you are an SaaS company, you might want to have a mission about making digital marketing easier and more fun for everyone. It’s not always necessary to have a huge mission about making the world a better place. If you can, great, if not, start with smaller things.
The best approach about this is to understand your customers, and find out the values they often associate with.
3. Optimize positive social proof
In this digital world that is increasingly about social media, social proofs like positive reviews and testimonials are extremely important not only in convincing existing customer to make another purchase, but also in acquiring new customers.
So, encourage your existing customers to leave a positive review. You might want to offer incentives, like probably a discount or freebie when they leave a positive review, blog comment, or like your content on social media.
Another approach we can use here is to use influencers (link). Find the right influencers that are well-trusted in your industry, build relationships, and ask them to endorse your brand.
4. Meeting customer expectations
Customer service is not solely about answering customer questions and complaints as well as attending inquiries, it’s also about meeting customer expectations, giving them something to look forward to.
Some customers expect fast responses to complaints and inquiries, some others expect simple purchasing processes or the ability to track orders in real time.
Yet, it can be hard to satisfy a totally new audience. This is where the importance of truly knowing your customers comes in. Know their needs, problems, and behavior.
One of the best ways to meet customer expectations is to keep your promises and be transparent. So, keep your promises realistic, and always fulfill them. This is true for every stages of the business.
For example, if you are not honest about value proposition, your customers will regret making a purchase, and obviously they won’t make another purchase from you. If you promise to solve your customer’s technical problems within 24 hours and don’t fulfill, it will seriously hurt this customer’s retention.
So, promise what you can do, set expectations you can meet. This is not saying you should be idle and static, always aim to improve your business to better serve your customers.
5. Establish trust
People only buy products or services from brands they can trust, even more when it’s about making repeated purchases. Yet, with so many brands available through the exposure of the internet and social media, it is increasingly hard to get their trusts.
So, it is extremely important to continuously attempt to promote this trust, and the first thing you need to do is to again, truly understand your audience’s behaviors and needs and provide value.
In this saturated marketplace, the easiest (but not saying it’s easy) and the most effective way to gain customer’s trusts is through inbound marketing (link), establishing your credibility as the thought leader or expert of your industry.
Inbound marketing is not only useful in continuously educating existing customers to maximize their retention, but it can be a very effective lead generation device. In fact, inbound marketing is effective in all stages of the customer’s journey.
While inbound marketing can be a pretty broad subject on its own, essentially there are only three key steps involved:
- Content Development
The core of inbound marketing is consistently developing high-quality, relevant, and valuable content pieces. Remember, that content can come in many different forms, and you can re-use each of them through content leveraging.
- SEO and Content Promotion
Your content will only be useful when it’s visible to your audience, so you will need to promote it through various marketing channels. Social media and influencer marketing is effective in promoting content.
Arguably, however, the most effective content promotion tactic is to have it ranked on at least the first page of Google search results. In short, SEO.
- Lead Capture Form
You have to effectively convert content readers or viewers into prospects. The most common practice is to offer gated, valuable content in exchange for the user’s contact information. So, you can offer white paper, ebook, or even webinar and ask them to give their email addresses.
6. Optimize your customer service
Delivering great customer service is obviously very effective in maximizing customer retention. Yet, how will we define ‘great’?
Here, we should define clear, quantifiable KPIs of your customer service. This way, you can figure out the areas where you are lacking, and improve it, as well as maximizing your strengths.
Here are some important KPIs to track regarding customer service and engagement:
- Conversion Rate
This KPI measures the rate of responses and conversions you get after a live chat, have a phone call conversation, or a quick email engagement. For example, how many of the outreach emails are opened, and what percentage of these efforts lead to actual sales.
- Response Time
Fairly obvious, how quickly you contact prospects and customers with a live chat, email, or sales call. Time is a very important factor in driving conversions. If you are too slow, the conversion rate will be much lower. You might want to check out this guide on how to improve response time.
Keep track on the last time you engage with customers through live chat, phone call, or email outreach. Also, take notes of the outcome of each conversation to figure out the average behavioral pattern.
- Drop Rate
Measure how often your audience unsubscribe from your email list.
Monitor your progress, find gaps, and adjust your approaches when necessary.
7. Collect honest customer feedback
Collecting honest user feedback is extremely valuable to assess the current state of your business. It is quite often we didn’t realize our own mistake before our audience did, and so getting an outside opinion is essential.
Yet, getting honest feedback is sometimes easier said than done, but mainly you can get it through surveys, in-person interviews, and monitoring social channels. Email surveys are actually quite effective, as a study by Fluid Survey University suggested that the response rate for email surveys is above 28%, a pretty high number.
Also, giving your customers a chance to express their opinion can be effective in maximizing retention, because here you show them that you do care about their opinion and you want to deliver better value.
Obviously, not all customers will give positive feedback, and here you should always be patient in hearing negative feedback, and maintain good interaction. Again, as we have discussed above, only offer promises you can deliver.
Thankfully, there are now many marketing automation tools (link) that can help you automate this process. Make full use of these tools to save your time, money, and resources to maximize ROI.
8. Measure Customer LTV (Lifetime Value)
Customer’s lifetime value (LTV or CLV) is the projected revenue from a single customer over their relationship with your brand. Maximizing customer retention is in essence, prolonging their relationships with you, so it will bring a direct increase on LTV.
For example, if you are a SaaS company selling a software subscription worth $100 a month, a customer who subscribes for 3 years will have an LTV of $3,600. If you can optimize this customer’s retention so he/she stays for another year, this number will increase into $4,800. If you can encourage him/her to upgrade into the premium plan worth $200, you will get even more, and so on.
Calculating LTV can vary greatly depending on many different factors, and especially your business model. For starters, you can use customerlifetimevalue.co for a basic LTV calculation.
Properly measuring your LTV means you can better optimize your marketing budget: if you know how much money they will bring to the table, you’ll know how much you can spend, and in which areas.
These eight strategies we have shared above are simply some of the most effective available to maximize customer retention rate. Yet, by no means they are the only available ones. Keep experimenting with all the different strategies, while you can use these ones we have shared above as the foundation.
As we have mentioned, the secret in maximizing retention is truly understanding your audience: their behaviors, needs, problems, and delivering value to address these needs.