Customer Retention: All You Should Know

Customer retention is one of the most important metrics for the long-term success of a business and a great way to gain loyal customers. While it's always good to seek new customers to try your product or service, it's important that you simultaneously focus on your customer retention rate. Despite the importance of retaining customers, many businesses fail to properly develop a strategy for customer retention or simply overlook its importance when it comes to keeping existing customers around. Some businesses think it's the production/services department's job to retain customers. Others think the best way to deal with customer retention is by implementing new marketing strategies and increasing the marketing budget.

In this article, we explain the definition of customer retention and why these “alternatives” don't work. We also explain why you should always focus on customer retention directly or hire call center services if you don't have experienced professionals on board. Of course, we will also delve into a customer retention strategy and outline various strategies that can help your company find long-term success.

What Is Customer Retention?

Before we delve into how to increase customer retention, let's start with a basic definition. Customer retention is a metric that businesses can use to determine customer loyalty and to better understand customer expectations. How well your company can keep repeat customers coming back for more helps you to better identify how many loyal customers you have over a long-term period.

Developing long-standing customer relationships usually begins with customer acquisition, but to measure customer retention, companies must look at all subsequent interactions that they have with their customers. As soon as you've identified your customer retention rate, your company can leverage these customer retention metrics to analyze various aspects of the overall customer experience and determine customer success.

So why is customer retention important? As most business owners know, the cost of acquiring a customer is significantly higher than the cost of retaining existing customers. Retained customers are also more likely to participate in a customer loyalty program, act on word-of-mouth marketing or become brand ambassadors.

When companies focus on increasing customer retention rates over expanding their customer base, it helps to keep costs low and minimizes the risk of losing out on repeat customers. When it comes to growing your number of customers, you'll want to focus on both customer retention in addition to customer acquisition and give them a fair balance to help drive your business.

How Can You Calculate Your Customer Retention Rate?

Before you can boost customer retention, you first need to understand how to calculate the retention rate of your current customers. The formula to calculate this rate is straightforward. You'll need to divide the total number of customers that you have from new customers by the total number of customers acquired at the beginning of a particular time period. For many companies, this means looking at time periods such as one month, one quarter, one fiscal year, etc. By implementing retention strategies that work, you'll be able to help your current customers remain invested in your product or service.

(Total number of customers at the end of the period - new customers acquired)/(Customers at the start of a period) = customer retention rate

Another factor to keep in mind is that this formula requires that you have a good understanding of what your customer churn rate is. Once you've figured out the rate, you'll want to keep monitoring these metrics for refreshed data. This data can help inform your customer service team and gives them guidance on how to continue to provide exceptional customer service.

Customer Retention Examples

As you can see, customer retention matters in many aspects of your business. Sometimes, the easiest way to pinpoint the retention strategies that work is to look at some customer retention examples to illustrate how customer retention programs can help positively impact your business. Below, we've outlined some curated examples from well-known brands to demonstrate different ideas of how to encourage customers to continue to be loyal to your brand.

Example 1: Launch a Loyalty Program Such as REI

Repeat purchases and driving customer loyalty is one of the most impactful ways of improving customer retention. Why not give your customers additional motivation to stay loyal to your brand? Although these programs come in a variety of shapes and sizes, all of them have the same common goal of incentivizing satisfied customers to continue to make repeat purchases. One great example of a company with a high customer retention rate is REI's Co-op membership program.

This outdoor equipment retailer has both physical storefronts in addition to an eCommerce platform to drive sales. As soon as a potential customer walks into a store or visits the company's website, they will be asked to add an REI membership to their purchase. Although many loyalty programs are free of charge, REI takes a slightly different approach. Although they ask customers to pay a fee, it is often worth it to those who will continue to purchase from them. For example, they give customers back a percentage of the money that they spend each year in the form of store credit. This means that the more you spend shopping at REI throughout any given year, the more money you'll receive at the end of the year to complete additional purchases.

They also increase customer lifetime value by providing exclusive discounts and offers on their gear from top outdoor brands. In addition, they pair this with tried-and-true email marketing that reminds their customers about their existing rewards balance, coupons that are about to expire, etc. This helps to reduce the churn rate of customers and reminds them to keep coming back to avoid missing out on these perks.

As you can imagine, this helps REI increase retention and keeps customers invested in shopping at REI over other similar stores. This is just one way that encouraging customers to continue shopping with you is an example of great customer service in a cost-effective manner.

Example 2: The Creation of Interactive Educational Content Such as IKEA

Another way to increase customer retention is by expanding your horizons beyond customer support and also factoring in customer success. Customer retention strategies like this help stay ahead of customer complaints and reduce the stress on your customer service team. To help attract new customers while keeping existing customers happy, IKEA makes it easy on their customers by focusing on the educational aspect of their brand.

Nearly everyone is familiar with this Scandinavian brand for its low-cost furniture and accessories. They make it even easier to gain repeat customers by focusing on helping them choose pieces that will fit into their room in addition to helpful tips on assembly once the furniture is ready to be built. The website has interactive design tools that can help drive customer satisfaction, helping them visualize how an item looks in a particular space and allowing them to get a better idea of the amount of space that it will take up.

In addition to written instructions, IKEA provides video tutorials on YouTube and other platforms to appeal to visual learners. If needed, they collect customer feedback on particular items and address common questions to lower the barriers to entry, ultimately increasing their customer base.

Example 3: Collect Feedback From Existing Customers As Nordstrom Does

How can you attract new customers if you aren't sure how your current customers feel about your overall brand, your products, or your customer service? One of the easiest and most cost-effective ways of doing so is by directly asking your customers for feedback.

The majority of companies are already sending emails to their customers to ask them for ratings on a scale of 0-10 about their buying experience. Although this is a solid strategy, it might not delve into enough detail about how to minimize your customer churn rate.

Retail chain Nordstrom goes above and beyond to collect customer feedback in a variety of touchpoints. In addition to soliciting user reviews of products, it also prompts users to complete feedback surveys as they're browsing the site. This means that the customer is able to provide their opinions simply as they're browsing the site, helping the company to better understand strengths and weaknesses throughout the customer journey.

While this feedback is invaluable, it needs to be acted on in order to increase the customer retention rate. They also utilize a data science team to help evaluate the data behind this feedback and spread this direct feedback to their employees. Nordstrom understands that this customer retention strategy is important for not only executives but for everyone within the organization. The better informed the employees at all levels, the more successful this customer retention strategy is.

Why Is It Important for Your Business?

The above should demonstrate that customer retention is important, but if you still have doubts about how to keep loyal customers around, we've outlined some specific bullets that clearly demonstrate why customer retention matters:

• Lower overall cost when compared to customer acquisition: According to Econsultancy, 82% of companies note that the route of customer retention is significantly cheaper compared with the cost of acquiring a customer. Despite this, many companies spend more money on acquisition costs instead of tending to the customers that they already have.
• Increased bottom line: By taking care of your customers over a long period of time, not only does show excellent customer service but also helps to increase your profits. Even increasing your customer retention by as little as 5% can help increase your profits anywhere from 25-95%. In addition, existing customers provide 65% of business for a company.
• Increased average order value (AOV): Not only can you appeal to your most loyal customers through retention strategies that work, but you can also increase how much these shoppers are spending with your business. According to research, existing users that are loyal to your brand can spend up to 23% more than new customers gained.
• Create loyal brand ambassadors: One of the most noteworthy perks of tending to your loyal customers is that they're more willing to share their positive experiences with other people in their network. This can help increase the volume of repeat customer purchases through word-of-mouth advertising. This tactic also helps build trust on behalf of your company.

How to Retain Customers

From brushing up your customer onboarding process to striving to reward customers for their initial purchase, there are many tactics that you can implement to remind customers that your brand is preferred over your competitors. Since we already know that customer satisfaction is important, let's look into customer retention strategies that can help your business.

Excellent Customer Retention Strategies That Work

1. Take a Stand for Something

Did you know that customers don't often feel as though they have relationships with the brands from which they purchase? You can differentiate yourself from other similar companies by striving to create meaningful relationships with your customers. In fact, 64% of surveyed customers in a study conducted by the Corporate Executive Board noted that shared values are the primary reason for their relationship. If your company doesn't stand for anything, you won't be able to make meaningful connections with them. Make sure that you highlight your brand values and highlight them outwardly on your website, on your social media platforms, and through your customer interactions. By doing so, you'll be able to retain customers that share the same values.

2. Capitalize on Your Product's Momentum

In some cases, you might have exciting product updates that are occurring to your product. While internally you might be giddy about these changes and feel the momentum building, are you doing what it takes to share this momentum with your customers? Another customer retention strategy is to take the time to share your work with your customers and drum-up excitement that might otherwise go unnoticed. For example, maybe your website has a new live chat feature that you want to showcase or your best-selling product has a new feature that you want to showcase. This helps to build momentum that might not have been noticed by your customers.

3. Always Collect Customer Surveys

As with the Nordstrom example, collecting feedback from your customers is one of the most straightforward ways to diagnose problems and pinpoint areas of improvement. Continuously reach out to your customers via surveys to get candid feedback to see where you can improve the customer experience and deliver a better quality product or service for your customers. You'll be surprised to see how positively customers react when you ask them for their opinion. It shows them that you value their feedback and that you're going the extra mile to keep them around.

4. Educate In Addition to Selling

You don't want your customers to fend for themselves after they show interest in your brand. You'll want to offer resources to make it straightforward to learn about your product or service. There are many ways that you can do so:

• Offer one-on-one sessions with your customer support team on sales or hire an onboarding specialist.
• Set up in-product onboarding with various tutorials and tips to make new customers feel confident in your product or service.
• Establish an online academy of training resources for customers that prefer to use self-service training as opposed to one-on-one guidance.

5. Communicate with Your Customers Consistently

Customer retention strategies including consistent communication with your customers are key to keeping them around. Even communicating via email and social media can help keep your customers informed of what's going on within your company. Regardless of how you communicate with your customers, always be consistent and find opportunities for personalization.

How a Contact Center Can Help with Customer Returning Rate Increases

Many businesses don't understand the positive impact that call centers can have on customer retention strategies. Here are only some benefits of using a call center to help increase your customer retention rate:

• The call center staff will really listen to the customer and what their needs are.
• They are patient and know how to handle customer inquiries in a calm, professional, and polite manner.
• They know how to offer the customer what they want.
• They know how to deal with angry customers and can help guide them to a better place during the conversation so they feel heard and understood.
• Rather than letting the customer leave, they can offer tailored solutions to increase the retention rate.

How to Improve Customer Retention with Hit Rate Solutions

So, should you focus on customer retention? If you've been following us so far, the answer is clearly “Yes". At Hit Rate Solutions, we help businesses retain customers with our call center services Philippines, California, Florida, call center services Ontario, and other countries all over the world. Want to focus on customer retention properly? Hire our call center services now!