Customer Retention

Customer retention is the practice of keeping existing customers. You can retain customers by leveling up your customer service strategy or implementing a customer loyalty program, to name some examples.

Customer retention is important because it costs more to gain new customers than it does to keep the ones you have [1]. It can also be more difficult to sell products or services to a new customer than it is to sell to current customers. While the probability of selling to existing customers is 60 to 70%, it is only 5 to 20% for prospects, according to Forbes [2]. 

Even if customer acquisition weren’t more expensive or challenging, there are good reasons to focus your efforts on retention instead. Repeat customers tend to buy more from a company over time, or more expensive versions of the items they usually buy if they belong to a loyalty program [3]. Repeat customers are also more likely to refer friends and family to your business.

Customer retention is about keeping customers; customer loyalty is about keeping customers satisfied. Let’s say you walk to the same coffee shop every day. It’s not great, but it’s closest to home. If another coffee shop opened next door that roasts fair trade beans and pays their employees a living wage, and those are qualities you value, you might start going there instead.

Customer loyalty is concerned with those factors that cause someone to choose your business over another. Its end goal is customer retention, but with some extra consideration toward customer experience and how the customer feels about supporting your business.

Customer service refers to a company’s interactions with customers before, during, and after the purchase of a product or service. It’s provided with the intention of enhancing customer experience, improving the customer relationship, and encouraging repeat purchases. Customer service’s goal is retaining customers, but usually with more focus on the product or service sold.

That said–customer service leaders are taking a closer look at leveraging service interactions to provide more value to customers and, as a result, boost customer retention. In fact, 69% view service’s role in driving retention as more or a lot more important than three years ago [4]. 

As customer service strategies shift to prioritize value, customers are expected to not only remain customers, but advocate for the businesses they feel loyal to.

Effective customer retention strategies prioritize customer satisfaction, ensure repeat purchases, and build brand loyalty. They are informed by shopping trends, customer behavior, customer data, and/or insights from customer surveys. They are also sustainable, meaning you can use them as your business continues to grow.

Providing great customer service can be a retention strategy. However, customer service strategies tend to focus more on policies surrounding purchases or returns, or making customer service agents available to customers who have questions or concerns about their purchase. The goal is still to retain customers, but usually with more focus on the product or service sold.

To be clear, a flexible return policy is a great way to ensure repeat purchases. But customer service tactics are shifting in favor of loyalty outcomes such as retention, growth, and advocacy. Gartner analysis of thousands of service interactions showed that customers who find value in their service interactions are far more likely to stay customers—even if they’re considering shopping elsewhere, and regardless of whether the barriers to switching are high or low [4].

As customer service leaders pivot their strategies to more value-centered tactics, you can expect to see service agents do more of the following in an effort to boost customer retention:

• Validate customer purchase decisions. Reassure the customer that their purchase decision was a smart one.

• Anticipate customer needs. Predict what features your customer may find valuable in the future based on their current needs.

• Help customers achieve a goal. Outline the product features a customer should use based on their goal for partnering with you.

• Educate customers on better uses. Rather than focusing on how customers have been using the product incorrectly, teach them how best to use it.

• Advise customers on new uses. Introduce the customer to newly introduced or untapped product features [4].

A well-maintained customer loyalty program can be a very effective way to retain customers. To start, it can nurture relationships with customers, and may provide psychological benefits as well when repeat purchases result in positive reinforcement, such as a free item or a discount.

When it comes to deciding which type of loyalty program is best for your business, it’s best to abide by industry standards. Consider these examples:

• Points programs are often used by casual dining restaurants and coffee shops that reward loyal customers with a free food item or drink once they hit a certain number of points.

• Tiered programs, a type of point-based system where rewards increase the more the customer spends, are a good choice for businesses that prioritize long-term customer relationships, such as automotive services and travel and hospitality.

• Value-based programs, where rewards are aligned with customer values, work well for businesses that have a lot of competition (i.e. clothing retail or grocery stores) since the added incentive may offer a competitive edge.

• Premium programs, where customers pay a fee to receive exclusive benefits (i.e. Amazon Prime), are a good choice if you can ensure a strong return on investment for your customers without costing your business too much money.

• Referral programs should be considered if you offer a service that thrives on customer testimonials, such as a moving company or clothing alterations.

• Customized customer outreach,such as product recommendations based on order history.

• Post-purchase communications,for example, order tracking updates and customer satisfaction surveys.

• Live customer support,including chatbots.

• Support for value-driven causes, such as charitable giving and sustainability initiatives.

• Hosting or sponsoring community events, online or in-person.

There aren’t any platforms that are specifically designated as customer retention software. There are, however, several types of tech tools that share customer retention as a goal:

• Customer engagement software helps you address customer dissatisfaction efficiently. You can reach out to your customers using targeted communications across various touchpoints such as your website, chat, calls, and social media. You can also offer them self-service tools along with personalized customer support to maintain a low churn rate.

• Customer experience (CX) software helps businesses understand and optimize the overall experience they offer. This includes customer sentiment and brand image. Understanding and managing CX can help boost sales and profitability. CX tools help achieve this by tracking customer interactions and providing actionable insights.

• Customer journey mapping tools make it possible to visualize and analyze customer experience across all touchpoints and channels. Similar to customer relationship management software, they give businesses a 360-view of the customer experience and can automate marketing and communication tasks.

• Customer loyalty software allows businesses to create and run loyalty programs. It helps marketing professionals overcome the challenges of operating loyalty programs, such as measuring loyalty metrics and using the program to improve CX. These platforms can also be used to track customer behavior and reward customers beyond purchases.

• Customer relationship management (CRM) software helps sales and marketing professionals manage routine administrative tasks, identify trends, convert leads, and increase sales. Professionals use CRM solutions to tailor email marketing strategies, improve customer satisfaction, and maximize consumer retention.

• Customer satisfaction software allows businesses to collect, organize, and manage customer feedback. Customer satisfaction software can integrate with CRM and product management solutions to help apply the acquired feedback to business interactions and product development.

• Customer service software helps customer support teams document, track, and resolve customer queries. Customer service agents can address customer questions, issues, and complaints and communicate with them across different channels such as email, web, live chat, and social media.

Customer journey mapping provides a visual aid (the customer journey map) to help businesses understand the customer journey, or the series of interactions a customer has over the course of their customer lifetime. 

Mapping the customer journey helps businesses identify which customer interactions, also known as touchpoints, result in desired outcomes and which ones could use some work. The benefits of customer journey mapping include customer experience insights, better customer service, and increased customer retention.

You can create your own customer journey map by downloading our free template.

Customer satisfaction surveys can provide businesses with valuable opportunities to learn what they’re getting right and what could be improved in terms of customer experience, which can make a big difference in their customer retention efforts. However, their usefulness depends on how the survey questions are worded. 

Here are a few tips you can use to optimize your customer satisfaction surveys:

• Make sure each question addresses a specific goal. Gartner [5] suggests that customer satisfaction surveys should be based on this question: “How satisfied were you with your recent experience?” From here, you can modify the question to address a specific goal, such as, “How satisfied were you with the search function on our website?”

• Use an odd-numbered (5- or 7-point) rating scale. This avoids ambiguous feedback and is a happy medium between too few options (such as satisfied, dissatisfied, or indifferent), and too many options, which can overwhelm respondents.

• Use open-ended questions. Yes or no questions can give a limited view of a customer’s experience and prevent more nuanced feedback from respondents who were satisfied with one aspect of their experience but dissatisfied with another. Open-ended survey questions can uncover issues with your online store that aren’t yet on your radar.

Customer satisfaction software can help you customize and run surveys as well as analyze the results, so that you can assess your team’s strengths and quickly address any recurring issues that might cost you customers. Check out our database to learn more.

The primary metric for measuring customer retention is customer retention rate, or CRR. CRR tells you the percentage of customers who stay customers over a given period of time. The customer retention rate formula involves:

1. Taking the number of customers you have at the end of a certain timeframe

2. Subtracting the number of new customers acquired over the course of that timeframe

3. Dividing it by the number of customers you had at the start of that timeframe

4. Then, multiplying that number by 100

Let’s say your business had 750 customers at the beginning of Q2 this year, and 780 customers at the end of Q2. You acquired 60 new customers. Calculations for your CRR will look something like this:

(780 customers at the end of Q2 - 60 new customers acquired)  X 100 = 96% CRR

750 customers at the beginning of Q2

What this calculation also reveals is the loss of 30 customers over the course of Q2. Still, a 96% CRR is wildly successful, considering more than a third (37%) of retail business leaders in our 2022 Holiday Retail Preparation Survey[*] clocked theirs at 50% or lower. A good CRR is as close to 100% as possible, but it’s best to use your own performance as a benchmark.

Your customer retention rate doesn’t just tell you how long your customers tend to stay customers, but how good your business is at keeping current customers happy. It’s good practice to measure your CRR regularly. 50% of the respondents in our survey said they measure theirs monthly or quarterly.

• Customer lifetime value, abbreviated as either CLV, LTV, or CLTV, is the average revenue brought in by a customer relationship over a lifetime. A customer who makes multiple purchases from your business over their customer lifespan, or the total number of years that they purchase from you, will have a higher CLV than a one-time customer. 

You can calculate CLV by multiplying customer value by average customer lifespan. This will give you an estimate of how much revenue you can expect from your average customer over the course of their relationship with your business.

• Customer loyalty index, or CLI, helps you track customer loyalty over time. Customers take a survey that gauges net promoter score, repurchases, and upselling all in one. The three questions that make up the CLI survey are as follows:

  • How likely are you to recommend [your business name] to a friend?

  • How likely are you to buy from [your business name] again?

  • How likely are you to try [your business name]’s other products or services?

Customers answer on a scale of 1 to 6, where 1 means “very likely” and 6 means “not likely.” You can calculate CLI by finding the average of the scores to all three questions.

• Customer churn rate, or CCR, tells you how many customers your business lost within a given timeframe. The easiest way to calculate it is to find the inverse of your customer retention rate. Our customer retention rate example above resulted in a retention rate of 96%. Our CCR, then, would be 4%, which again is very successful.

Customer retention analytics, also known as survival analytics, involve using all of the above metrics as well as other customer data to understand not just what keeps your customers on board, but what might cause them to leave. This data helps inform the strategies your business should use to increase customer satisfaction, enhance CX, and ultimately boost retention.