“It’s cheaper to retain an existing customer than to attract new ones” is an adage as old as marketing itself and it’s given rise to a host of customer retention practices. But which practice helps a company retain customers effectively? That’s what we’re setting out to explore in this piece on retention best practices.
Customer retention and profitability
But before that, let’s look at some of the reasons you should dedicate time and effort to your retention strategy. Firstly, it can drastically impact your ROI (return on investment) and profits for the better. Just a five per cent increase in customer retention produces more than a 25% increase in profits.
Indeed, because retaining a customer is around five to 25 times cheaper than attracting a new one, it has bottom and top-line benefits. You won’t have to spend as much on marketing or sales, while continuing to upsell your existing customers. In other words, retention is the foundation for all sorts of business growth because loyal customers will buy more (and increase their customer lifetime value), recommend others, and help you improve your products and services.
The challenge of customer churn
High customer churn is a big problem for any business, but especially subscription-based ones like membership organizations and SaaS businesses. When your churn is too high, you will end up spending more and more to attract new customers, but never grow your profit margins as customers continue to leave. It’s also known as having a leaky bucket.
Some churn isn’t terrible for your business. On average, companies lose around 10-25% of their customer base each year. The average customer retention rate across all industries is around 75.5% but in media and professional services, this is higher at 84%. In SaaS, the average customer retention rate is around 50-68%.
Metrics worth knowing about
You might be wondering how to calculate your customer retention rate for a specific period of time. It’s worth knowing this, as calculating this at regular intervals (quarterly, semi-annually, or even monthly) will help you identify when your retention is doing well and when it might need a boost, or indicate an issue.
Customer retention rate
Customer retention can be worked out with the following formula:
[(Total customers at the end of the time period – New customers added during the time period)/ Existing customers at the start of the time period] x 100.
Customer churn rate
Another useful metric to begin tracking is your churn rate. This is calculated by:
[(The number of customers at the start of a time period – number of customers at the end of the time period)/ number of customers at the beginning of the time period] x 100.
Knowing your churn rate will tell you how many customers have decided to stop purchasing from your company or didn’t renew their subscriptions. It can be an indicator of a bigger issue that may impact your growth, such as dissatisfaction with your product or service, a bad customer service experience, or a competitor attracting them away. Again, reviewing this at regular intervals will enable you to take mitigating actions to stem the flow of customer attrition.
Customer Lifetime Value
Finally, understanding a customer’s lifetime value (CLV) will help you identify customers who will generate a lot of profit during their time with your brand (and therefore, who needs targeted action to retain them for longer).
The simple formula for CLV is as follows:
Customer Lifetime Value = Average Total Order Amount x Average Number of Purchases Per Year x Retention Rate.
How to retain more customers
Now onto customer retention best practices. Broadly, these can be separated into three distinct overarching tactics.
- Build strong customer relationships
- Create the right customer experience and environment
- Leverage their expertise and feedback
Let’s explore each area and the tactics that fall under them in more detail.
Building strong customer relationships
All relationships rely on a few things to work well. One of these is really knowing who you’re in a relationship with. The best customer relationships are created through thoughtful interactions that show a customer that they mean a lot to your business.
1. Know your customers
That’s why you need to start your customer retention strategy with some elementary work on understanding your customers. Ask yourself the following:
- How well does your business currently know your customers as individuals?
- What are their wants, needs, painpoints, and goals?
- How well is your product or service meeting their needs and aspirations?
- How do your customers want to interact with your brand?
- How are you currently interacting with your customers and are these communication channels working for you and them?
- How committed are your customers to your brand (would they move to a competitor in a heartbeat)?
Data from sales, marketing, and a customer community will provide you with some of these answers. But the best source is direct from customers, asking them via a community, focus group, informal chat or survey. Use the answers from this to inform parts of your retention strategy, such as informing what product features will improve the stickiness of your brand or where you can boost your customer experience to increase their loyalty.
2. Build trust with your customers
All relationships need trust, and for businesses, this is developed in a multi-faceted, multi-departmental way. Actually, it needs to be on everyone’s job description, because they may all play a role in representing your brand to a customer and contributing to their impression of your trustworthiness. Trust is so important to today’s businesses, that Edelman has dubbed it “the new brand equity”.
Customers must trust that you will deliver, through your products and services, and when they need support. Limit the number of bugs that occur in product upgrades and have a seamless and timely way to report and resolve any issues that do occur. Let customers know of any downtime that may occur due to maintenance or upgrades. Act on any customer complaints in a rapid manner, and escalate if needed so senior management knows of recurring issues that may impact trust and loyalty.
Simultaneously, brand trust can be built through consistent, open communications. This is where customer communities can prove helpful as they offer a natural way of interacting with customers. When discussions are occurring organically in a community, your customer support, marketing, and sales teams can become part of the conversation. Just make sure the discussions add value, instead of simply selling your products and services.
Get trust right and upselling will soon follow. 7 in 10 customers state that they will buy more from brands that they trust.
3. Communicate your brand vision and mission
Closely linked to trust are your mission and purpose. Consumers are increasingly aligning themselves with brands that stand for something that they also believe in. Indeed, 62% of consumers state that they consider a brand’s values and practices when making purchasing decisions.
Sharing a common purpose is a surefire way to build a lasting relationship. Patagonia regularly hits headlines for its stance on fighting the climate crisis. Meanwhile, B2B brand SAP defines its purpose as “a quest to help the world run better and improve people’s lives.”
4. Create the best first impression
Making the best first impression when a customer first joins your ranks, will help to convince them to remain with you for longer. Consider how your onboarding experience can complement your customer retention tactics by setting expectations early and communicating key things like your mission, vision, and the value customers will get from your brand. If you have a customer community, onboarding is the perfect moment to introduce them to the other customers and employees who are a part of it.
Think about your communications during this time and how they can help your new customer make the most from your product, and connect with your brand. You can offer them training or content to learn how to use your product in different ways. Or you might want to connect them with their peers so that they can chat about your product, their goals, and any challenges they might encounter along the way. You might want to engage customers with personalized tips over a period of days and weeks so the information doesn’t overwhelm them.
Creating the right customer experience
5. Provide personalized customer experiences
It’s time to get personal. Offering a personalized customer experience tells a customer that you really know them and care about their goals and needs. Share content that’s highly relevant to each customer. That might be a series of blogs that’ll help them get better at their jobs, or a discussion thread that answers one of their questions. Tailored communications increase the likelihood that they engage with your brand because they will discover something helpful and interesting to them. And as they engage more and more, their loyalty will grow and encourage them to stay.
Regular touchpoints will remind your customers about the value your products and services give them. This could be as simple as a monthly newsletter offering tips and tricks, a customer event to showcase the latest products and features, or an online community where people can engage in their own time with content and networking opportunities.
The community has helped us to drive 90% customer retention and net growth across our customer base!
Laura Bineviciute, Head of Content and Community at Data Leaders
6. Resolve customer complaints quickly
Customer service is a huge driver of retention… and churn with 82% of consumers stating they’ll stop doing business with a brand if they aren’t satisfied with its customer service. Look at your support processes and tools, and ask your existing customers if they’re up to scratch. Investing in something as straightforward as an FAQs page, a knowledge base, or a customer support community can help to boost your service and help customers resolve issues quickly.
7. Connect people to others
As humans, we’re built for connection. Brands can tap into this intrinsic need to meet like-minded people by setting up trusted, private spaces for customers to network. This might take the form of an exclusive customer event or it could be a brand-owned, online community. And if someone sees that your brand provides them with a space to build their professional network and reputation, it makes it a lot harder to wave goodbye to you come renewal time.
Moreover, your customers may end up recommending more of your products and services to other customers. Word of mouth is a powerful marketing tool and it’s unlocked when you have many customer advocates.
It has enabled us to offer a digital space where we may be able to build an engaged community 365/24/7, going beyond our annual two-day event.
The Organization for Economic Co-operation and Development (OECD)
8. Upsell and cross-sell to them
The more people buy into your brand, the more invested they become and the more likely they are to stay and recommend your products to others. Selling more products or add-ons to your customers is only possible when customer satisfaction is high (and that relies on everything I’ve listed above!). Yet, when you retain more customers, you’ll find that they will buy from you more often and spend more, compared to new customers. In fact, 65% of the average company’s revenue comes from its existing customers. Why? Retained customers already know about your company and aren’t wondering if they are making a good purchase decision.
Leverage customer expertise and feedback
Your customers can be a wealth of knowledge for your business. Tapping into their insights and opinions will help them feel valued, especially if they see that they are having an impact on your business direction and product strategy.
9. Gather customer feedback (and action it)
One of the easiest ways to leverage your customers is to collect customer feedback. Timely, accurate customer feedback will tell you exactly how your customers feel about your products and services, and help you spot any areas that may be impacting retention. A customer feedback loop, where you collect, analyse, and share customer feedback inside your organisation, will help you action your findings.
There are many ways to collect customer feedback including surveys, beta testing, Net Promoter Score®, customer communities, and focus groups.
10. Create customer advisory boards
Customer advisory boards are a powerful way to engage customers and strengthen your relationship, while delivering value on both sides. Usually consisting of senior decision makers in your customer organizations, these forums give the opportunity for customers to share important insights, weigh in on aspects of your strategy and product development, and discuss their priorities and challenges.
11. Inform products and services
Your customers can also impact your product development. This might be directly, through asking them about their needs, goals, and product features they’d like to see. Or it might be indirectly, through listening to sentiment on social media or looking for trends in comments in a community. This will allow you to shape your products and services to meet your customers’ exact needs — making it more likely they’ll pick you over a competitor.
This approach also enables you to remain on top of their needs as they evolve. So your business remains relevant to them for many years.
Bring it all together in one platform
The best thing you can do is bring all of your retention tactics together into one platform, from your communications to your feedback and networking.
Having a single platform puts everyone on the same page. Your customers know where to go to engage with your brand and your employees have a place where they can consistently work to retain more customers. Communities can offer a wealth of first party data to help you better meet customer needs, and this will inform things like a customer retention strategy and product development.