I.A Definition of Customer Retention
Customer Retention is the actual companies’ effort to reduce customer defections.
That means that a lot of companies today try to retain as many customers as possible, and this is part of their brand and customer loyalty initiatives, as well as customer retention programs.
Customer Retention begins with the very first customer contact to your company and goes through the entire lifetime of the relationship with you. In this sense, your best customers don’t buy just one product or service from you. They instead come back to you for more of what you are selling and that’s great customer experience.
Customer retention increases your customer lifetime value and revenue. This, on the other hand, helps you build very good relationships with your customers. It is important to mention that it is different from lead generation and customer acquisition because you have converted your customers at least once.
You should not be just another website or store on the market, but you give customers value for money and good service so that customers feel they can trust you.
OK, you have already sold a product to your customers, now what? It is now time to see what to do next with your customers.
Let’s see how you can build customer retention with customer relationship building strategies.
II.Customer Retention Benefits
A lot of companies still spend more money on customer acquisition because they find that to be a quick and very effective way to increase profits. However, they have to be aware that customer retention costs up to 7 times less than acquisition. I will show you now some great benefits of customer retention.
2.1 It costs much less than customer acquisition
As mentioned, customer retention costs are up to 7 times less than customer acquisition. So, it is a great long term strategy to focus on that.
2.2 Loyal customers are more profitable
According to results from market research, engaged customers buy 90% more frequently and spend 60% more per purchase. However, you should not take customer loyalty for granted. Some of the customers, in this case, could be more sensitive to a price increase, so you should be careful with that. I mean lifetime revenue should actually be considered as the end goal over a long period of time, not just the daily revenue.
2.3 You brand could stand out
You should consider a unique retention proposition, not only a unique acquisition proposition. Customers are overwhelmed with different brands and information and would be willing to remember those with better engagement propositions.
2.4 You can earn more word of mouth referrals
People are still most influenced by referrals from family, friends and other known people. Despite that, a lot of customers feel good to share their brand preferences online.
2.5 More feedback from engaged customers
Feedback is crucial in maybe all aspects of your business. According to many loyalty statistics people, who have complained and had their issue resolved, are 80% less likely to decrease their purchases.
2.6 Customers will explore your Brand more
When a brand has proven to be good with products and services, customers are 6 times more likely to try a new product. That’s a sign of a great customer experience.
2.7 Loyal Customers will welcome your Marketing
Loyal customers are 4 times more willing to say that they appreciate when a brand reaches out to them. They are also 7 times more likely to respond to the company’s promotional offers.
2.8 You have room to try new things
Once you have established loyal customers, you can expand your brand. It could be a new product line or service or a new way of communication. As long as you keep the good pace and values for your customers, they will be willing and even eager to see your improvements.
2.9 It is better for the employees and team members
Customer retention is basically a relationship-building initiative, that keeps customers coming back to your company. A good relationship makes life easier for all parties, as they are mutually beneficial. Sales, on the other hand, could be quite transactional and impersonal unless one includes the special customer touch.
III. Measuring Customer Retention and Key Metrics
In order to measure customer retention you actually need to measure customer loyalty, because this is what keeps customers coming back to your company. When you make customers loyal, they will have greater Live Time Value (LTV), which would generate longer revenue for your business. There are a number of metrics related to measuring customer loyalty, which I will describe now.
3.1 Customer Retention Rate (CRR) formula
The customer retention rate is a great place to start measuring customer loyalty. This reflects the percentage of customers, who remained loyal during a specific time period. It actually represents a quantitative measure of a qualitative attribute. If this retention is low, it means that you have fewer customers, and when it is high it means that more customers are loyal to your business.
The Customer Retention Rate formula is:
Customer retention formula – CRR = ((E-N)/S) X 100
E – Number of customers at the end of the period
N – Number of new customers during the period
S – Number of customers at the beginning of the period
3.2 Customer Churn Rate
Customer Churn Rate (CCR) represents the opposite of the Customer Retention Rate. It is the lost customers during a specific period. In this sense, a low (CCR) indicates high customer loyalty, because there are fewer customers lost. If however, CRR is high, it will indicate that there were more customers lost and lower customer loyalty. The formula is as follows:
Churn Rate = Numbers of customers lost in a period, divided by the number of customers at the beginning
To get the percentage, you can divide the customers lost by the number of customers at the beginning, and then multiply by 100.
3.3 Customer Lifetime Value (CLV)
This metric is maybe one of the most important to measure, but it is a little confusing. It shows you how much your customers are spending during their life cycles. To calculate it, you can multiply the amount of money an average customer spends over a year by the average customer lifespan. This gives you the revenue you could expect an average customer to generate for your company over the relationship with you.
3.4 Repeat Customer Rate
This represents the percentage of customers that made more than one purchase. To calculate it you need to divide the number of customers with multiple purchases over a time period, by the number of total customers for the same period. You can then multiply by 100 to get the percentage.
3.5 Upselling Ratio
This is a measure of customers, who have added unrelated products to their purchases, against the ones who have bought only one product. It is calculated by dividing the multi-purchase customers by the ones who have made only one purchase.
There are of course some other metrics for loyalty programs like participation rate, redemption rate, active engagement rate, but I will not go into many details now so that we can keep the main topic.
IV. The Importance of Customer Retention for an Online Business
You know already that it is easier to retain customers than acquiring them. Well, a lot of recent statistics have shown that and it is actually true. It also makes it less expensive to retain existing customers and acquire new prospects because the existing ones already know you.
In regards to that, your current customers will be willing to spend around 30% more, than new ones.
According to Small Business Trends and many other sources, the probability of selling to an existing customer is between 60% and 70%, while the probability of selling to a new prospect is between 5% and 20%. You can see how important it is to put a lot of focus on customer retention.
V. How to Calculate Your Customer Retention Rate
Here we will focus only on calculating the customer retention rate and I will give you a simple example so that you can understand it better. Let’s first start with the formula again.
Customer retention formula – CRR = ((E-N)/S) X 100
- E – Number of customers at the end of the period
- N – Number of gained customers during the period
- S – Number of customers at the beginning of the period
You can make this calculation for a week, a month, a year or any other period you wish. Let’s say that you have 100 customers and you lose 10, but you gain 20 for a specific time period. So, at the end of the period, you will have 110 customers.
This with the simple math from the formula means the following:
- 110 – 20 = 90
- 90/100 = 0.9
- 0.9×100 = 90%
In this example, your retention rate equals 90 percent, which is a good result. You should, however, remember that this depends a lot on your industry and your goals.
VI. Increasing Customer Retention – Strategies and Techniques
I will show you here some of the most successful Customer Retention strategies and techniques you can use for your marketing strategy. I will also show you what we at Live Chat Alternative have found as the best solution to the mentioned points.
6.1 Setting Customer Expectations
It is very important to set up your customer expectations early and a little lower than you can fulfill. In this case, you can eliminate uncertainties about your service and keep promises.
6.2 Become a trusted advisor to your customers
In order to gain customer trust and loyalty, you need to become an expert in your field. In this way, they will believe in what you are doing and this will build a great relationship with them.
6.3 Building trust
You can use customer relationships to build trust and great customer experience.
6.4 Be proactive
Create a proactive approach to your customer service. Implement a service that will help you eliminate problems or issues before they occur.
6.5 Use Social Media for building relationships
There are a lot of great social networks you can use to build relationships with your customers and increase profits. Facebook, Instagram, Linkedin, Twitter, Pinterest, and Youtube are great examples of networks, where you can allow your customers to share the experience with your company.
6.6 Try to be personal
Customers demand a more personalized experience and if you focus on that, you can build not only a good relationship but also trust in your brand over a long period of time.
6.7 Use Live Chat Alternative software
We here at Live Chat Alternative have provided a solution, which you can use to be personal with your customers, build trust and build a great customer relationship. You can easily do all this, because you have the chance now to be reached by many customers from digital devices, right on your phone.
Conclusion
As you have read in this article, customer retention is different from customer acquisition and lead generation, as its main goal is different. In order to achieve that you have to build really good relationships with your customers to make them loyal buyers.
It is, however, worth focusing on that, because customer retention is cheaper than acquiring new customers and gives you the best opportunities for sales and customer experience.
I revealed the main customer retention benefits and the steps you can use to achieve this great benefit for your business. In this relation, I have also mentioned many different techniques and strategies you can use to identify and build a better relationship with customers.
Just remember that customer retention is the result of customer satisfaction and loyalty, which are the core elements of customer retention, which allows you to create customer retention programs.
You are also aware of the metrics and how you can calculate the exact percentage of customer retention. I tried to clarify them and also put focus on maybe one of the other most important metrics, which is Customer Lifetime Value (CLV).
Customer Relationship and Trust are the leading concepts for customers to become interested and engaged with your company. In order to engage them, however, you have to be very careful with their needs and value proposition.
If you follow the steps in this article to retain customers, you can gain a lot of positive word of mouth and overcome many competitors on the market.
Finally, I appreciate your time in reading this article and wish you all the best with your short term and long term marketing strategy for customer retention.
