Customer retention is the process of maintaining customer loyalty by implementing strategies and initiatives to encourage repeat purchases and long-term relationships with a business, ultimately leading to increased customer satisfaction and sustainable business growth.
Customer retention is a critical aspect of business strategy that focuses on maintaining a strong and loyal customer base over time. It includes all efforts that businesses undergo to increase the likelihood of customers staying with the company for the long term. So, what are the ultimate goals of customer retention practices? To foster customer loyalty, enhance brand reputation, and drive sustainable business growth.
One of the key metrics used to measure customer retention is the churn rate, which indicates the percentage of customers who stop using a company's products or services within a specific period. A lower churn rate typically signifies higher customer loyalty and satisfaction.
Businesses employ various practices to improve customer retention, such as personalized marketing campaigns, excellent customer service, loyalty programs, and regular communication to engage customers and address their needs more effectively. By understanding their preferences, companies can create a positive customer experience that encourages repeat purchases and long-term commitment.
Customer retention strategies can vary widely and should be based on the unique needs of different businesses and industries. Here are a few examples of effective customer retention.
Many businesses offer personalized loyalty programs where customers earn points or rewards based on their purchase history. These programs incentivize repeat purchases and foster a sense of exclusivity among customers. They also demonstrate appreciation for customer loyalty, which can make a significant difference in customer retention.
Another key part of cultivating a positive experience that will keep customers coming back is offering exceptional customer service. Companies that go above and beyond to ensure satisfaction experience higher customer retention rates—and positive word-of-mouth referrals.
Many online platforms use sophisticated algorithms to provide personalized recommendations for everything from new music artists to gift ideas. This personalized approach enhances the user experience, which in turn increases engagement and contributes to long-term customer retention.
Brands can also create communities around their products by hosting related events or online forums. This sense of community fosters brand loyalty and encourages repeat purchases. It also strengthens the emotional connection between customers and the brand.
If you plan on improving your customer retention, you first need to be able to accurately gauge it. How effectively are you keeping the customers you have? How often are customers leaving to pursue other options? The following are several important metrics to track:
Customer retention rate is the measure of the quantity of customers that continue to do business with a company over a period of time. This may be calculated by establishing a set period of time (such as a three-month business quarter) and dividing the number of active/ongoing customers at the end of that time period by the total number of users at the beginning of the time period.
The opposite of retention rate, customer churn rate indicates the percentage of customers that have been lost over a specific period of time. Calculate this by taking the total number of lost customers at the end of a predetermined time period, and dividing it by your entire customer base.
Customer lifetime value represents the total revenue that a customer is expected to spend on products and services during their lifetime. This is calculated by averaging the value of a purchase multiplied by the number of times a customer will likely buy each year, multiplied by the length of the customer relationship measured in years.
This is a measurement of customers’ willingness to make a second purchase or use the product or service again. The repeat customer rate is calculated by dividing the number of customers who made more than one purchase by the number of unique customers.
This metric indicates how often customers return to purchase products or services in a set amount of time. Purchase frequency is a particularly important metric, as a significant portion of revenue comes from repeat customers. Find the purchase frequency by taking the number of orders in a specific period of time, and dividing it by the number of unique customers.
Average order value is an indicator of the average value of each individual order. This is calculated by dividing the yearly revenue by the number of orders that were processed, which gives an idea of how much money was gained from each order.
On the surface, the goal of business appears to be to sell a product or service to a customer. The completed sale tends to sit at the end of almost every sales-funnel model, and it is represented as the culmination of all customer touchpoints. But the reality is that businesses that focus only on that single sale seldom achieve success. The real measure of effectiveness lies beyond that first sale, in how well an organization can retain its current customers while attracting new ones.
The best customers are those who return repeatedly. They trust your business and are excited about the new offerings you make available. They share your brand with their friends and associates, and promote it across social media and review sites. In short, they demonstrate improved, ongoing value, and should be a major focus on your business strategy.
It has been said that customers prefer to do business with a friend. And while it may not be possible to build social relationships with every person who purchases from you, you can build positive business-customer relationships that inspire loyalty. A loyal customer returns to purchase or use a product or service many times, extending the value they bring to the company, and resisting competitor marketing efforts.
Guiding a prospect along the path from first contact to a completed sale can be an expensive endeavor. On the other hand, customers who have already made that journey and return to use a product or service again generally require less guidance and prompting. This means less of an investment from you and an increase in the return on investment (ROI). In other words, returning customers are less expensive to maintain—approximately five-times less expensive than new customers—and don’t require the same onboarding costs (source: Invesp).
Marketing is an ongoing expense for most businesses. But what if you could have your satisfied customers market your brand for you? A happy customer will naturally refer your business to their friends, family, and associates, and will share their positive experiences and feelings. Not only are referrals a more effective form of marketing than almost any other, but they also require essentially zero investment from you. Referrals can be an effective and inexpensive way to acquire new customers.
It is common business knowledge that it costs significantly less to keep an existing customer than it does to gain a new one. Helping prospective customers transition into paying customers involves marketing, sales, and sometimes even contracts—all with their own associated costs and time investments. Repeat customers demand only a fraction of the investment.
Understanding the major benefits of customer retention is crucial for businesses looking to strengthen their market position and drive sustainable growth. By focusing on retaining existing customers, companies can leverage these benefits for higher revenue and long-term customer loyalty.
Retaining existing customers tends to be more cost-effective than acquiring new ones. The expenses associated with marketing, advertising, and sales efforts to attract new customers can be considerably higher than the resources needed to maintain relationships with current customers.
Loyal customers are more likely to make repeat purchases over time since they have already experienced the value and quality of a company’s products or services. These positive experiences make them more inclined to continue doing business with the same provider.
Building trust and satisfaction with existing customers creates an ideal environment for upselling or cross-selling additional services. When there is already a relationship established, customers are more receptive to exploring complementary offerings. This leads to increased sales opportunities and revenue.
Happy customers often become brand advocates and refer new customers to the business. Positive word-of-mouth referrals can significantly contribute to customer acquisition at a lower cost, as potential customers are more likely to trust recommendations from friends and family.
The benefits of customer retention are nothing to ignore, which is why keeping your proven customers should always be a focus in your business strategy. However, different businesses at different development stages may need to focus more on retention. Here we look at the different points in the business lifecycle and what emphasis on customer retention you should have for each.
It’s difficult to retain customers when you haven’t actually gotten any yet. When you are just getting started, your primary focus should be on finding new leads and helping them become customers. That said, you can lay the groundwork for future retention by providing a positive experience, offering reliable support, and including onboarding programs. Work on growing your customer base, and show those new customers why they should continue doing business with you later on.
One you have earned a growing customer base, you can now gradually begin to introduce retention strategies. These may include email campaigns, loyalty programs, and customer feedback options. Encourage past customers to continue buying from you, but make sure that you are still heavily pursuing new leads as well.
As your business comes into its own and has carved out a space in your industry, continued growth becomes more difficult. This is where you will want to shift a large portion of your efforts from acquisition to retention. Retaining a significant percentage of customers while still bringing in some new business will help you continue to grow. The more established your business becomes, the more you should emphasize customer retention in your business strategy.
Nearly every action you take as you interact with customers will have an impact on overall customer retention. However, you may be able to boost retention by employing proven customer retention strategies. The following are several strategies that many businesses employ to help promote loyalty in their buyers.
Customer success is about understanding the goals of the customer and helping to achieve them. Providing resources, tools, and services that customers may use to reach their desired outcomes, particularly in a B2B setting, will help firmly establish your products and services as essential factors in the customers’ success.
A good support system effectively communicates with customers and provides them with the right proactive solutions. It can help customers throughout the buyer’s journey with communication and by quickly addressing customer issues. Live chat, help desk, contact centers, and self-service options offer various channels through which customers can seek support when needed. Personalized service, both for live support and self-service, helps customers avoid the frustration of generic support options, and promotes an ongoing customer relationship. Resolving problems while also demonstrating your commitment to the customer helps inspire loyalty.
Email contacts provide the opportunity to build a customer relationship before, during, and after the purchase. It is important that each email sends an impression that customers are valuable and can benefit from further business with your company. Also, keep in mind that messages don't have to be marketing/sales focused; they can instead provide maintenance tips, expert insights, product or service best practices, etc. Again, the important point is to promote customer success, and email may be an effective channel to help educate and inspire your customers.
Discounts are a great way to incentivize a second purchase, even if they need a small motivation to return to a shopping cart. Customers can feel that they are landing a good deal vs. having to pay full price, which can incentivize further purchases or a larger initial purchase.
Customers don’t always follow a straight line from prospect to customer. It’s important to gather data from the interaction along the customer journey, from beginning to end. Understanding how customers become aware of your business, whether they are following you on social media, or if they originate from referrals can help you develop a clearer picture of how they make their decisions. With that knowledge, you can create an accurate depiction of your customers’ journey, and develop tactics to help retain them at each stage.
A first impression is the most important point of contact for a customer. Ensure that the checkout and delivery process is smooth and efficient, as first-time and returning customers are likely to base their impressions on this process. Send out an email expressing gratitude for their business and asking for any feedback they may have, and provide helpful guides or resources for the product or service.
Customers must see a business or service as the solution to the problems they face. Often, this goes beyond just the specific issues that your product or service is designed to solve. Your perceived value—the customer’s evaluation of the overall advantages of doing business with you—will play a major role in determining whether they want to come back. Consider your value proposition. Does it address perceived value as well as actual value? Does it recognize and address the benefits that actually matter to your customers? If not, then it may need to be revised.
Often, a new customer who has already begun the purchase process will put up with certain obstacles, such as difficult checkout processes, annoying and unnecessary forms, confusing processes, unintuitive interface, etc. But once the purchase has been finalized, the customer will remember the friction points, and will be much less likely to return. Streamlining each of your customer-facing processes to reduce the amount of time, action, and information demanded from the customer will help encourage them to come back again and again.
A relationship can deteriorate if there isn’t frequent communication between parties. Provide opportunities for customers to check out blogs, connect with the organization on social media, and engage them with offers and additional services. In other words, don’t be content to simply sell them your products or services, and don’t wait for them to reach out to you.
An organization that educates a customer on products and services is more likely to see the purchase or repurchase of products and services. Consistently staying top-of-mind ensures that when customers talk about your industry, niche, or the problems your product solves, your business becomes an essential part of the conversation. Top-quality content can not only help educate your customers to better understand relevant issues, but can also give them valuable resources and insights to help them achieve their goals.
Although better suited to B2C than B2B, loyalty programs are an effective way to bring back customers who might not otherwise be convinced. Essentially, customers will feel more compelled to shop if they are rewarded for shopping. Provide something of value for current customers, and let them know that the more frequently they do business with you, the greater loyalty returns they can expect.
Asking for customer feedback allows customers to feel like their opinions are valid, and it provides insight into customers and their perception of how they think and feel about a product or service. Ranked feedback, such as answering how satisfied they are with your business on a scale of one to five, helps provide a basic idea of whether customers will return, but does little to address specific problems or hurdles. Asking for in-depth feedback, and providing customers with an easy channel for providing that feedback, will help you identify the issues that may be preventing customer retention.
If your customers are enjoying one product or service, or if they are demonstrating a need that can be further addressed with other services you offer, then be sure to let them know. Up-selling and cross-selling provide an opportunity to increase sales, and to plant a seed of interest that may bloom into return business. At the same time, sharing important information about related products demonstrates that you understand your customers' unique needs, and want to offer them a solution.
Are your current strategies effective? Maybe, but are they as effective as they could be? A/B testing allows you to create and follow up on multiple versions of strategies, webpages, content, advertisements, emails, and more, comparing the results and determining which options are the most effective. For example, if one version of your weekly email is resulting in more click throughs than another, then you will know to focus your energy on creating similar emails to the successful version.
Customer retention should be the responsibility of everyone in your organization, from the CEO on down. Still, having a specialized team capable of charting and promoting customer retention using a variety of metrics and strategies can be invaluable. Customer retention teams allow those who are less experienced in handling customers to delegate important tasks and processes to those who are more capable of connecting and building meaningful customer relationships.
ServiceNow's commitment to innovation extends to enhancing customer retention through Customer Service Management (CSM) solutions. By leveraging the ServiceNow CSM platform, businesses can streamline and improve their customer service processes for higher customer satisfaction and loyalty. With features like omnichannel support, intelligent routing, and proactive service monitoring, ServiceNow empowers organizations to deliver personalized and efficient customer experiences. This not only helps retain existing customers but also attracts new ones through positive word-of-mouth referrals. By integrating CSM with ServiceNow's comprehensive suite of tools for continual improvement and workflow management, businesses can create a seamless environment focused on enhancing customer relationships and driving long-term success. Check out ServiceNow CSM to experience the benefits yourself.