You spend a lot of time and money on initially attracting customers. So naturally it makes sense that instead of fighting for new customers with each new sale, you’re want to encourage customers you’ve already won over to become repeat buyers. And that’s where customer retention comes in.
Essentially, customer retention is your ability to motivate existing customers to become repeat buyers and avoid losing them to competitors. Depending on your business model, this might not just be a critical way to boost ROI and revenue, it may be vital to your business’s survival.
When you consider that Marketing Metrics found that selling a product to a prospective customer is only successful about 5-20% of the time, while selling to existing customers is 60-70% probable, it makes sense that investing in customer retention strategies could yield massive returns.
With our customer retention meaning out of the way and importance defined, let’s now take a look at some customer retention strategies.
Determine Your Customer Retention Rate
One of the most important data points that your business needs to calculate is the customer retention rate. This is simply just the percentage of existing customers who, over a period of time, remain your customers. This is key to understanding how effective your business is at retaining its customer base and will inform almost all of your customer retention solutions going forward.
In other words, it’s fundamental to increasing customer retention.
So how do you calculate the customer retention rate? It’s actually quite easy.
Customer Retention Rate Example
With the goal in mind of improving customer retention, we’ll need our customer retention rate.
To get that, we’ll need three numbers.
First, you need the customers at the start of a given period (example: 100).
Then, you need the number of customers at the end of the period (example: 110).
Finally, you need to know how many new customers were acquired in that period (example: 15).
You then take the number of customers at the end and remove the number of customers you acquired (example: 110-15 = 95).
Then you divide that number (95) by the number of customers you began with (100 – so 95/100).
This will give you the percentage of customers that remained. In our example, our average customer retention rate was .95, or 95%. You can then take this number and compare it to competitors. It’s important to note that you need to compare the average customer retention rate by industry, as your industry may just generally be more or less prone to customer attrition (loss of customers) compared to others. So there’s no universal ‘good customer retention rate’, and instead, it varies by industry.
With this number in hand, you can better determine how good your business is at customer satisfaction. And monitoring these changes month to month or quarter to quarter can help you calculate the effectiveness of a loyalty rewards program, customer service initiatives, product or service promotions/marketing programs, etc.
Leverage Metrics
The beauty of our modern economy is that we are awash in data – data that can be leveraged to generate insights and drive improvements to our business processes, which in turn can help generate revenue growth.
This principle is especially important when talking about customer retention. There exists a wealth of information that can be broken down and analyzed, which in turn can help you determine the next steps on how to improve customer retention.
Consider that Harvard Business Review Analytic Services survey showed that only 22% of companies have access to real-time metrics that inform decisions on customer experience.
With the benefits of customer retention well established at this point, it’s safe to say that companies that forego these metrics are putting themselves at risk of being outcompeted.
Everything from email open rates to success of marketing tactics and campaigns to buying patterns of current repeat customers can be analyzed, collated into data, and acted upon, helping to improve revenue and profitability via these customer retention KPIs.
See customer retention articles on customer retention software to better determine which customer retention model works best for your business.
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Develop and Deploy Loyalty Programs
One of the strongest customer retention tools available is a loyalty rewards program. With 75% of consumers saying they favour companies that offer a loyalty rewards program and the majority of American consumers belonging to at least one program, loyalty programs are becoming a key differentiating factor among competitors in almost every industry.
Loyalty programs are great at customer acquisition, retention, and expansion as they help your business differentiate itself from competitors upon first meeting a customer, while also encouraging long-term customer-seller relationships.
In other words, it’s a triple-win, in that it helps encourage new customers, keep existing ones, and helps to offer a key unique advantage to your business that competitors cannot match. There is no doubting the impact of customer loyalty programs on customer retention: More than 70% of consumers would recommend a brand if it has a good loyalty program.
Hone Your Customer Experience
If you’re looking into how to increase customer retention, invariably, it all comes back to the customer experience. Even the above strategies are all about finding ways to enhance how customers interact with your brand, improving the experience, thus leading to increased customer retention.
Companies that focus on customer experience have an average of 4-8% higher revenue than their competitors. Leaders in customer experience outperform laggards in their industries by roughly 80%.
There are many statistics that point to the importance of a positive customer experience, and how focusing on the customer experience can drive revenue growth.
So if you’re looking into how to increase customer retention, customer experience improvements like greater social media engagement or excellent customer service or shortening/simplifying the purchasing cycle are all means to achieve that goal.
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A Note on the Difference Between Customer Loyalty and Customer Retention
Before we close, we should make a distinction regarding customer retention vs. customer loyalty.
While the two may seem the same, they are in fact quite different, although they are ultimately focused on the same thing: boosting your business’s revenue.
We’ve already defined and shown the indicators of customer retention, but customer loyalty is more about the degree of your customers’ enthusiasm for your brand. Do they:
- Tell others about your brand
- Engage on social media about your brand
- Feel positively about your brand beyond satisfaction with your product or service
- Think about your brand first when they need what you offer
- And otherwise become advocates for your brand
Essentially, customer retention is about keeping existing customers, whereas inducing loyalty is about generating organic marketing and word-of-mouth goodwill.
There is immense value in customer loyalty and retention, and typically customer retention practices can often (when executed well) lead to more loyal customers as well.
But it’s important to know the difference, not least of which because when figuring out how to measure customer loyalty and retention, you need to distinguish between the two as your strategies for each can coincide and work in tandem but may also require tailored approaches.
One strategy that fulfills both objectives, for instance, of creating loyal customers and preventing attrition, is a loyalty rewards program.
Craft a Proven and Instantly Recognized Loyalty Program With AIR MILES Incentives
We can answer the question of ‘why is customer retention essential’ to growing your business, and we’ve identified several customer loyalty and retention strategies.
But if you really want to take your customer retention experience to the next level, contact us at AIR MILES Incentives instead, to learn about integrating an already-popular rewards program into your business.*
Creating and running your loyalty program can be a daunting and overwhelming experience. First, you’ll need to decide the type of program you want to implement, then figure out how the rewards system will work, sign up members, source and manage rewards, create a gamification strategy that keeps clients engaged, and finally advertise to ensure people know you have a program. All this takes both time and money to implement correctly and keep the program going.
Instead, you can save time, money, and avoid big challenges by adopting the AIR MILES® Reward Program. AIR MILES Incentives has made it possible for hundreds of eligible businesses across Canada to reward their customers for everyday purchases. Customers can then redeem their AIR MILES® Reward Miles from a wide selection of options that suit their individual preferences.
Obtain guidance from an experienced team member who can help you design reward incentives and integrate this established national reward program into your business effectively. With over 60 years of combined reward and loyalty program experience, you can have complete peace of mind that the AIR MILES Incentives team can help you reach your business objectives.
* Qualification required. Some conditions apply.