Understanding The Importance of Customer Retention Rates
The ability to encourage long-term customer relationships can yield great value to brands across any industry. Customer retention is a sign of a great Customer Experience, because it proves that the value you are providing is worth coming back to. Additionally, brands that shift their focus towards retention and away from acquisition can save money and increase profitability. Learn more about the value of customer retention rates by reading Michael Brenner’s piece for PostFunnel.com. You can access the piece by clicking here, or by reading below:
This piece was originally published by PostFunnel on July 19, 2017.
“Your customer retention rate (CRR) is a metric that reveals whether your marketing and customer care efforts are bleeding dollars or fortifying your business.
Customer retention isn’t just about seeing how good of a job your marketing and sales teams are doing. When you track this number, you know when you’ll need to make vital changes or switch gears to reach your sales and growth objectives.
It costs as much as seven times more to acquire a new customer than it does to retain an old one. Not only is more time, money and effort required to convert and convince someone new to make a purchase or sign up for your services – it is your existing customers who are way more likely to keep your business going and growing in the future.
Your current customers (aka your business’s lifeblood) are 50% more likely to try a new product. They’re going to spend 31%more, on average, than the typical new customer.
The Magic Formula for Long-Term Business Success
There is one primary formula to measure customer retention. Essentially, what you are looking at is the number of customers you still have at the end of a period relative to the number you had when that period started.
The formula is CRR = ((E-N)/S)) X 100, with the following values:
E = the number of customers you have at the end of the week/month/year or other duration
N = the number of new customers your business made a sale to or acquired in some other way during a given period
S = the number of customers you had at the start of the period
The Wisdom of Customer Retention
Tracking the percentage of customers you keep monthly, annually, or for other durations such as every week – or even over multiple years if you want a broader picture – is one of the most useful ways to determine if your company is going to thrive in the future.
You can determine:
- How likely it is that you’ll be able to keep each new customer you gain
- How long you’ll be able to retain each customer if you continue with your existing strategies
- How much your company may grow in the future
With this insight, you are better prepared to plan for the future and more equipped to make strategic business decisions and take advantage of opportunities that may arise.
On the other hand, you’ll also be able to recognize when a problem is likely to emerge. When your CRR drops below your benchmark or when it dips below industry averages it may be due to:
- A problem with your product or service
- A customer service situation which is making your customers unhappy
- A competitor or competitors who may have jumped ahead in market share thanks to a newfound competitive advantage, such as better technology, an improved buying experience, or product improvement
With this knowledge, you’ll know when to act before disaster strikes in the form of profit loss or reputation damage.
Big Steps You Can Take to Boost Your Customer Retention Rate
Boosting your customer retention rate by as little as 5% can increase your profits anywhere from 25% to 95%. That’s nothing less than monumental. Many of us have heard these stats before but without a clear plan, we simply fall short of achieving this dream.
But if you are willing to roll up your sleeves, here’s how you can make it happen.
Use In-depth Personalization
Personalization techniques to boost your customer retention go beyond setting up your marketing software to address your email contact list with their first name. Go through and create ways to make every customer touch point personalized – where it is relevant for your particular business.
For example, do your landing and product pages vary depending on your website traffic’s referring source? How can you improve your offerings based on the way a user interacts with your site? Are your retention campaigns tailored to the individual customer based on data insights and segmentation?
When it comes to refining your personalization strategies, A/B testing, customer feedback surveys, and your marketing and sales software are your brand’s greatest allies. Leverage them for all they are worth.
Use Positive Social Proof
Social proof is one of marketing’s most intriguing psychological phenomena and a powerful tool for increasing customer retention rates. The theory was popularized by psychologist Robert Cialdini, Ph.D., who wrote extensively on the subject, including the book, Influence: The Psychology of Persuasion.
The social proof theory states that people who are not sure what the proper behavior is in a situation will look to what other people are doing to find a solution.
Everything from customer testimonials, reviews and ratings to simple, subtle tactics like highlighting the ‘most popular product/service/subscription level’ help settle the idea in your customers’ minds that your organization is a worthwhile brand to buy from.
Know Your Buyer Personas Better Than Your Best Friend
You need to understand what your ideal customers need, what they are looking for, and how you can solve their problems – better than anyone else.
This means understanding how much they are comfortable spending, where the current products and services are falling short, what they need for a more efficient customer experience, or what brand style and personality are they most comfortable with.
Where do you find this information to create spot-on buyer personas?
- Customer quizzes, surveys, interviews, and ratings
- Research what your market is saying on social media
- A/B testing
- Your own sales data
When you have a clear idea of what your ideal buyers are after, it is easier to tailor your products and marketing towards them. The more you meet the needs of your customers, the longer they will stick around.
Make Every Day Customer Delight Day
Well, not necessarily every day. We all need space from even our favorite brands. But, customer delight should be a major priority in your overall marketing strategy.
Do you consistently offer value to your customers? The occasional sale isn’t going to cut it. We’re living in a customer-centric world where the leading brands dish out plenty of relevant, worthwhile goodies.
- Informational webinars on how to get more out of a product or service – this is especially effective for software services and tech gadgets
- Consistent newsletters that offer advice, tips, and how-to’s
- Helpful eBooks that your customers can download for free on your website and maybe a 10% discount for them to enjoy on their next purchase as well
The more you give, as long as your delight strategies are relevant and useful, the more you’re going to get back from your loyal customers.
Don’t Neglect Your CRR
Your CRR is like a business insurance policy. Staying on top of your customer retention rate can be the most effective way to both ensure a promising future and to prevent a surprise downfall – as long as you take action when it changes. After all, your metrics are only as powerful as your response to them.”
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