Customers are the fuel that keep your business running. Without a strong focus on customer retention, you could quickly start losing customers to the competition. That’s why it’s so important to focus on customer retention within your company.
A lot of companies make the mistake of spending 80% of their time on acquiring new customers and just 20% on retaining them. We actually believe it should be the other way around, because it costs 5x more to acquire a new customer than it does to retain an existing one.
And that, ladies and gentlemen, is why we put this guide together for you. But before we get into the “how”, let’s look at the “what” and the “why”.
What Is Customer Retention?
Before you jump into different tactics to keep clients, you need to know what customer retention really means. At its core, this practice involves keeping customers from leaving your company and switching to a competitor. By preventing that from happening, you’re retaining them – hence the name customer retention But this isn’t a one-time thing you do to maintain your customer base: It’s something that should begin the day you acquire a customer and continue throughout your relationship with them — if you want to keep them as a customer, that is.
Why Is Customer Retention Important?
No one likes the idea of losing customers. However, failing to keep customers will hurt much more than just your ego: It will also affect your bottom line. Here are just a few stats that show how important customer retention is for your business, according to the book “Managing for Quality and Performance Excellence” and Harvard Business School:
- 65 percent of a company’s business comes from existing customers
- Improving retention rates by 5 percent can increase profits by 95 percent
- It costs 5 times more to find new customers than to keep current ones
— Ernan Roman (@ernanroman) December 30, 2016
It really can’t be overstated how important your current customers are to your business. With the typical company losing 15 percent of its customers each year, you need to start taking steps to keep from being part of that statistic.
How To Measure Customer Retention
Before you can tell how well you retain clients, you need to be able to track your Customer Retention Rate (CRR). You can track the rate on a monthly, quarterly or annual basis depending on what works best for your business. The goal is to see how many clients you kept during that time period, compared to how many you had at the start of it. To calculate your Customer Retention Rate, you need to know the number of customers you had at the end of a period (E), new customers acquired during that period (N) and the number of customers you had at the start of the period (S) Then, plug those numbers into this equation:
[(E-N)/S] x 100 = Customer Retention Rate
Now, let’s break that down with an example (because, math). Say you start the month with 1,000 clients and have 1,100 by the end of the month: You lost 25 customers and gained 125 Here’s what that would look like:
[(1100-125)/1000] x 100 = 97.5
So, you would have a 97.5 percent customer retention rate, which is great. A CRR above 85 percent is what you’re aiming for – but the higher the better, of course.
How To Improve Your Customer Retention Rate
Once you have numbers to monitor, you can start incorporating some tried-and-true customer retention strategies to get your CRR closer to 100 percent — which is the ultimate goal.
“Make a customer, not a sale.” —Shep Hyken, customer service expert and bestselling author
To help you get started improving your CRR, we’ve compiled the absolute best customer retention tactics to keep your customers sticking around longer. We’ve organized them into 4 themed chapters, as follows:
Crafting A Delightful Customer Experience
These strategies will help you get better at customer experience management, which is the process you can use to oversee and track all interactions with a customer during their relationship. This involves the strategy of building around the needs of individual customers and making sure you’re taking fast action on any problems that arise.
Online Customer Service Strategies That Work
All customers expect incredible online customer service today, but where should you start and how can you give them an experience that’s better than what your competitors can offer?
How To Improve Brand Loyalty
So-called experts will tell you that brand loyalty is an outdated concept and that customers will leave you at the drop of a hat. No so, if you understand how to build a brand that makes customers loyal and keeps them dependent on you and your products.
Customer Engagement Strategies That Boost Revenue
Just because someone is a customer, it doesn’t mean you should stop engaging with them. Getting them on board as a customer is just the first milestone. There’s a lot we can do to keep engagement and retention up for years to come.