Though bringing in new leads is important, you probably know by now that the key to real growth is more than just bringing in new customers – you need to retain your existing customers. According to research by Bain & Company, profits can be increased anywhere from 25 to 95% by increasing customer retention rate by just 5%. Acquiring a new customer can also be up to 25 times more expensive than retaining an existing one. On top of that, repeat buyers can make up to 40% of a business’ revenue.
Basically, mastering the art of increasing customer retention can guarantee increased revenue.
Today, we’ll help you calculate your current customer retention rate, and provide strategies for improving it.
How to Calculate Customer Retention Rate
Calculating customer retention rate (CRR) is fairly simple. Your customer retention rate is just the percentage of customers you’ve kept at the end of the period, relative to the number you had at the start of the period. This number does not count new customers. Basically, it’s the reverse of customer churn.
You need three numbers to calculate customer retention:
- Customer at the end of a period (E)
- New customers acquired during that period (N)
- Customers at the start of that period (S)
The number we’re interested in is the remaining customers at the end of the period, not counting new customers acquired. Customers remaining can be calculated by subtracting N from E. The percentage can then be calculated by dividing that number by total customers at the start of the period, multiplied by 100.
Customer Retention Rate = ((E-N)/S)*100
Though it’s a simple calculation, it holds a lot of value. You could argue that it’s okay to lose a few customers along the way, as revenue and the bottom line matter far more. However, there is a cost to acquiring new customers. In order to grow, you need to make up for each customer you lose, as well as find new customers to grow your base. Increasing customer retention actually saves you money in the long run.
CRR can also give an indication of how loyal your customers are. By extension, it can also give you an idea of how good your customer service is.
By benchmarking and tracking your CRR, you can find ways to improve these areas.
What This Means for You
In a perfect world, your business would have a CRR of 100% – meaning you never lose a customer. Unfortunately, that’s highly improbable. You should really aim for a CRR of at least 85%. Obviously though, this will vary from business to business, so it’s important to track your own rate and try to make improvements on it each month.
Once you’ve calculated your CRR, you could even consider doing an audit of the customers you’ve lost to determine any similarities in their reasons for leaving, or discern a pattern in the types of customers who churn. You could even add qualifying questions to your sales process or adapt your buyer personas to reflect the attributes of returning customers.
This is an important distinction to make, as well. Though they are quite intertwined, customer retention and customer loyalty are quite different.
Customer Loyalty vs. Customer Retention
Unlike customer retention, customer loyalty is a measure of how satisfied your customers are with their experience of your brand, and how likely they are to share that experience with others. This takes customer retention a step further – analyzing your customer satisfaction and how it relates to repeat sales.
Customer loyalty is an important metric to measure, because it tells you how delighted your customers are with their purchasing experience. Customer retention doesn’t give you the same information, because just because your customers keep buying from you, doesn’t necessarily mean that you have a good product. It may even be that it just doesn’t work all the time, or that it has a short expiration date – or maybe your customers just haven’t found a better competitor.
Whatever the case, measuring customer loyalty as well as retention gives you a more complete picture of how satisfied your customers are.
Additionally, customer loyalty provides many opportunities for upsell. In this way, loyal customers are your business’ most valuable asset. They are closely aligned with your brand’s value, and they often buy more frequently than other customers.
Strategies for Increasing Customer Retention
1. Stay ahead of churn rates.
The first step to increasing customer retention is to know your churn rate. Your churn rate will tell you exactly how many customers have stopped buying from you. Once you know your churn rate, you can begin to anticipate changes in your bottom line. This will guide you in boosting your retention. You’ll also be able to see whether or not your retention strategies or working by monitoring changes in your churn rate.
2. Use CRM software.
By utilising customer relationship management (CRM) software, you can increase your customer retention by tracking customer behaviour over time. It can inform you about purchase patterns and product usage, as well as when they stop purchasing from you. CRM software also allows you to track any customer service interactions so that you can understand what their problems are. These key variables can act as warning signals.
Once you have a good idea of customer behavior patterns, you’ll find critical points where they’re not buying from you. This way, you can have a clear direction for your customer retention strategies. You’ll also be able to tell whether you’re on the right track with your efforts.
CRM software supports customer retention in many ways:
- Plotting the customer’s journey.
- Enabling personalization.
- Providing a centralized database of customer information.
- Storing details like purchase history, feedback and returns.
- Monitoring customer interactions with your support team.
- Showing real-time data.
This data can inform you of when customers are at risk of churning, allowing you to communicate with them and hopefully win them back.
3. Leverage email marketing.
Once you know exactly when and why your customers are leaving, you’ll be able to target them with marketing emails. You can integrate your email marketing with your CRM to send targeted emails to customers who are at risk of churning, offering them discounts, free trials or other perks.
With email marketing, you can follow up with any of your customers who have asked for support. You can request feedback, ask them to leave reviews or collect other information which may be useful. With an email marketing program in place, you can respond to any customer questions rapidly – almost instantly, if you have things set up correctly. Just create templates and workflows which send certain emails when triggered.
4. Add personalization.
CRM and email marketing systems make it easy to personalise all of your customer communication. This gives the impression that your business handles each interaction personally. CRM systems also store data about customer preferences, support history and purchase data.
To increase customer retention using personalisation, you can launch an email marketing campaign to send timely and personalized content when a customer completes a certain trigger action. Most users are more likely to pay attention to content which has been personalised with their name at least.
Personalising your interactions creates an incentive for your customer provides an incentive for your customers to remain with your business. They feel as though your business cares about them, and encourages further relationship building.
5. Create customer loyalty programs.
With a customer loyalty program, you can reward the customers that frequently purchase from you. This gives them an incentive to continue. It also serves to show them that your business is paying attention. With your CRM system, you can identify your top customers, which gives you an idea of who you need to prioritise. You can also create specialised loyalty programs for specific customer groups, rewarding your best customers with the most benefits.
Another option is to gamify your loyalty program. This tactic is seen most often with airlines, who add miles to a customer’s account. You can reward your customers with badges, points and other means of recognition. You should offer exclusive benefits and discounts when customers reach certain levels.
6. Build an online community.
Online brand communities bring businesses and customers closer together. They create benefits in many ways:
- Creating a space for customers to discuss your brand, products or industry exclusively.
- Users can ask questions and answer other members’ queries.
- Creating rich discussions.
- You can share events, contests and other content to improve engagement.
- Facilitating user-generated-content.
- Increasing brand loyalty.
- Reducing expenses for word-of-mouth marketing.
An easy way to create an online brand community is to make use of membership site software – especially if you’re using WordPress. You could also create a group on Facebook or LinkedIn. Both are good options for fostering discussions.
A good example of the power of community building can be seen in WordPress itself. Their growth can be attributed in great part to the enthusiastic WordPress community. By hosting many community events, such as the WordCamp event, which sold nearly 40 000 tickets across nearly 50 countries, WordPress keeps their community engaged.
Creating and engaging with an online community is a powerful way to engage your customers. This allows for dramatic increases in customer retention.
7. Improve customer support.
Excellent customer support makes a huge difference to your business’s success. To improve, you can take advantage of artificial intelligence tools like chatbots to augment your customer support. These chatbots can handle minor inquiries, and can help reduce the time taken to meet such concerns.
Even information like tracking updates, delivery details, reservations, and more don’t need human intervention. Chatbots can also save time when users need information that can be extracted from a database.
This way, live customer support agents can give their focus to more critical issues. By allowing them to give attention to problems that matter, you can offer faster support, saving time and resources.
A chatbot strategy can also improve your customer support and influence a customer’s decision to stay with your business.
Increasing customer retention is all about keeping your customers happy, this can lead to greater loyalty and improved retention rates.
You can make it more convenient for them to stay with you than to buy from a competitor. Successful businesses are the ones that recognize that customers form the backbone of their business.