Customer Retention Strategies That Improve Loyalty

Is your business losing customers? Do you know how to calculate customer churn and retention? This guide full of customer retention strategies will help you get a handle on it all.

See why customer retention is related to your company’s revenue and profits. Learn different formulas for client retention metrics. And get customer retention tips you can use today. Stop churn and improve customer satisfaction.

What Is Customer Retention?

Your business wants to develop strategies for retaining customers. But first, it’s essential to understand what customer retention is and why it’s important.

Customer retention definition

Customer retention is simply the process of keeping your existing customers. If you offer a service, they keep using your consulting or subscribing to your platform.

Do you sell a product? You want them to buy it again and again, if it’s something they use regularly. An example might be a kitchen cleaning spray that customers need to purchase every month or so.

Or you might want to cross-sell or upsell other items in your inventory. You sell kitchen cleaning products, for example. But you also want customers to try your bathroom and home scent products.

Customer retention vs. customer acquisition

Customer retention is not the same thing as customer acquisition.

Customer retention is keeping the customers you already have. Customer acquisition is the process of bringing in new customers.

Why retention impacts revenue, referrals, and customer lifetime value

Why make such a big deal about customer retention?

Customer retention impacts both business revenue and new client referrals. What used to be novel research is now a given across virtually every industry:

It costs many times more to acquire new customers than to keep existing ones.
Current customers spend more on goods and services than new clients do.
A small increase in customer retention equals a large increase in total revenue.
Happy customers are more likely to leave positive online reviews for new buyers.
Satisfied customers refer companies they like to friends and family for more business.
A stable of regular customers demonstrates attractive brand loyalty.

The value of repeat customers is actually measurable. It’s the total revenue they bring to your business over the lifetime of your relationship.

This is called customer lifetime value. If you have customers for years or decades, that revenue can seriously add up. It contributes to business stability and growth when it adds to profits.

How to Measure Customer Retention

You can also measure customer retention. Businesses should do this to see if they need improved customer retention. Remember, it’s not profitable to keep going after new customers. It’s more economical to retain existing ones.

Customer retention rate formula

There’s a standard formula you can use to calculate customer retention as a percentage:

Retention rate = [(Total customers at the end of the measurement period – New customers acquired during the measurement period) / Total customers at the start of the measurement period] x 100

What’s a good retention rate? It depends on your industry.

It might be as low as 55% in hospitality. Or it could be as high as 86% in commercial insurance. Most businesses shoot for between 70 and 80% for healthy retention.

Churn rate

Your churn rate reflects your lost customer rate as a percentage:

(Customers lost during the measurement period / Customers at the start of the period) x 100

Customer lifetime value

There are various ways to calculate a customer’s lifetime value. The most common is:

Average purchase value x Purchase frequency x Relationship lifespan

Repeat purchase rate

Your repeat purchase rate is a percentage of repeat buyers out of all your customers:

(Number of repeat customers / Total number of customers) x 100

Net Promoter Score and customer satisfaction signals

The Net Promoter Score (NPS) is a metric used to evaluate customer satisfaction.

Surveys use questions like, “How likely are you to recommend our company to someone else?” Then scores are assigned to measure loyalty. From there, it’s possible to implement client retention strategies as needed. Customers are typically divided into:

Promoters – loyal buyers who contribute to growth and profit
Passives – satisfied enough customers who aren’t invested in the company
Detractors – unhappy clients who could even damage brand image

Why Customers Leave

Before you can employ user retention strategies, you must understand why some leave. Your customer retention solutions should be tailored to address these issues.

Poor onboarding or unclear expectations

This reason is typically associated with services or more complex products. Think computers or automobiles. Maybe the customer doesn’t know where to begin or how to use their SaaS platform.

Another common problem is a misalignment in expectations. The customer might expect major changes simply by buying your IT services. However, they need to do other things as well. Relying on your consulting alone is unrealistic.

Slow support or unresolved issues

Poor support can be frustrating for buyers of both goods and services. Your customers may be putting their own customers on hold waiting for you to handle a tech issue. Or a customer may be aggravated by waiting for advice about how to fix an electronic device.

Lack of personalization

Depending on your business type, customers may expect more personalization than they receive. For example, they might have purchased a class from your company. But everything is pre-recorded, with no opportunities for questions or feedback.

Product or service gaps

Rightly or wrongly, some customers may find holes in your offerings. Say you teach basic dog training. You might find people who leave because you don’t have an advanced obedience class.

What if you sell skincare products? There could be customers who leave because there are no sunscreen options for Black skin. Maybe they want moisturizers for women over 60.

Better offers from competitors

Of course, there’s always loss to competition. There are several reasons why this happens:

The customer believes the competitor’s service or merchandise is superior.
The customer finds a similar item or service for a better price.
The competitor offers something extra, like faster shipping or scheduling.

Customer Retention Strategies to Use

So, you’ve discovered why customers leave. Now you can use customer retention techniques to keep your clients in the future. Your strategies should match the problem you uncover with your research.

Personalize onboarding and education

You can do this with nearly any product, but it’s especially important with ongoing services. Reach out to welcome the customer and offer ready answers to common questions.

How can customers reach you? Where should they begin their journey? What should they expect over the next X months?

Set expectations early and follow through

You naturally want your customers to have high expectations for your business. But you don’t want to delude them with unrealistic hopes.

Remember the old adage: Under-promise and over-deliver. Be sure you’re at least meeting the customer’s basic expectations. But it’s always better to exceed them.

Schedule proactive check-ins

Follow-through is vital too. Check in periodically to see how things are going. Don’t wait until a customer leaves to find out what went wrong.

Use customer feedback to close the loop

Closed-loop feedback should be a key part of any customer retention plan. It has three parts:

Solicit and listen to customer feedback.
Analyze what the customer had to say.
Act on legitimate customer suggestions.

The “act” step above is what closes the loop. It’s even better if you can act quickly, such as within 48 hours. This can actually increase your Net Promoter Score and reduce churn.

What are some ways you can close the loop? It depends on if you uncover an individual or widespread problem:

Call or email the customer personally.
Offer the customer a refund, replacement, or discount.
Set up a company website or hotline to deal with an issue.
Address the problem in a bulk email or newsletter.
Implement a policy change or new set of rules.
Launch new products or services to fill gaps.

There is usually a need for internal change as well. That might include employee reeducation, better onboarding, or even hiring new staff.

Build loyalty or referral programs

Loyalty programs help create an emotional bond with customers. And that increases trust and the probability of a customer buying from you again. The customer is also more likely to forgive an error on your company’s part and to refer you to others.

Loyalty and referral programs for recommending your business can take many forms:

Discounts on future services
Buy X, get a free one
Birthday or anniversary gifts
Mention on the company website

Try to keep the time between rewards short to stay in the customer’s mind. And make interactions consistent to cement that emotional relationship.

Segment customers by behavior and needs

All customers are not the same. You separate leads in your sales funnel before they become customers, right? You should do the same with existing customers.

Some customers will need more hand-holding or email response from you. Others are more independent. A good example of this is someone who is just starting with your software platform versus a regular user.

Your interactions with the customer should reflect this difference. You’ll need to check in more often with needy customers. Or you might have to handle some clients with kid gloves.

Identify at-risk customers with data and sentiment signals

Use both hard data and more subjective information to pick out customers at risk of churn. Where are they in the NPS range? What survey data have you gotten from them?

You may also need to look at complaint emails and survey comments to read between the lines. Is this a loyal customer who had one bad experience? Or is it a detractor whose poor reviews might prevent new purchases?

Offer self-service resources

Many customers are happiest if they can fix their own problems. Consider providing an avenue for self-service. Then customers won’t have to wait for support to manage an issue.

This might be a dashboard with links to common tech solutions. It could also be an easy route for ecommerce exchanges, like home printing of return labels.

Improve support response speed and quality

When customers do need to contact you for support, what’s your response time like? You should definitely be assessing this in your customer surveys.

Some solutions include:

Sending personalized responses instead of generic emails
Increasing phone staffing for live support calls
Answering correspondence within a 24-hour timeline
Offering a chat bot for after-hours interactions
Reducing frustrating phone trees and algorithms

Communicate product updates and service improvements

Part of the “don’t wait until…” ethos is being proactive about sharing good news. Don’t wait until a customer has a problem with their software to tell them there has been an upgrade. Likewise, announce service improvements and the like on your:

Company website
Customer dashboard
Email communications
Bulk text messages

Reward long-term customers

Customer loyalty is great no matter how long they’ve been with you. But for really special customers, you need to up your game.

How can you reward long-term customers?

Give them their own tier(s) in your loyalty program.
Let them test new products or services for free.
Offer them priority service times or rapid shipping.
Host invitation-only events just for them.
Create limited-edition items only for those clients.
Name a product or service for truly unique customers.

Train employees around customer experience standards

Your employees should be meeting your customers’ needs, not the other way around. Does your customer feedback reflect that?

That starts with training (or retraining) workers to the standards you want. And it also means recognizing that different customers need different standards. Take new and very long-term customers, for instance. They might require more personalization and concierge-style treatment.

Make cancellation or complaint data actionable

Have you ever called a company with a serious complaint? Maybe you’ve even threatened taking your business elsewhere? Did the representative just shrug it off? How did that feel?

Serious complaints or cancellation of service should be actionable. Employees should forward these issues ahead. Every reasonable effort should be made to retain the customer or bring them back into the fold.

Customer Retention Examples by Business Type

Looking for some concrete examples you could use for your business? Here are three, sorted by business type.

Local service business example

Imagine you own a small business in your town. What are some tips for customer retention?

Offering a punch card for a free coffee, haircut, etc.
Throwing an annual customer appreciation event
Training employees to greet regulars by name
Raffling off a free product for repeat customers

Subscription business example

Subscription-based companies have it harder. They don’t get in-person contact with customers. So you have to make up for that online somehow. Suggestions include:

Personalizing email with the customer’s name and type of service
Giving each customer a dashboard with self-service options
Making sure clients can reach you 24/7 by phone if online solutions fail
Giving customers free upgrades (e.g., a month of a service gratis)

Multi-location business example

Enterprise-level companies can feel impersonal and uncaring to customers. How can you change that to retain them?

Use your size and resources to dedicate staff to onboarding and problem-solving.
Leverage predictive analytics to identify unhappy customers early on and cater to them.
Create partnership programs that replicate the emotional bond of smaller loyalty programs.
Solicit feedback from key long-term clients as a type of special advisory board.
Make “close the loop” strategies a key priority in business planning and implementation.

Common Customer Retention Mistakes

You can avoid making some of the most common errors with customer retention if you are aware of them. Here are the top four below.

Waiting until renewal to engage customers

We discussed “waiting until…” mistakes above. If you wait until it’s time for a customer to renew their SaaS package, for example, there’s a risk that it’s too late. They may have already signed up with another platform.

Instead, be proactive about checking in from the start. Engage customers so they feel like it’s better to offer feedback than to just leave.

Treating every customer the same

This was also touched on earlier. All customers are not the same. You will need to segregate customers by factors like:

New or going through onboarding
High-worth or long-term relationships
High needs (e.g., not tech savvy)
Detractors leaving bad reviews
Pickiness, jumping between competitors

Collecting feedback without acting on it

Have you ever seen an online thread about a big company willfully ignoring a known problem? Don’t be that company.

When you collect feedback, it’s a must to make it actionable. This includes surveys as well as social media comments.

Over-focusing on acquisition while ignoring churn

It’s worth repeating: It’s always better to retain customers than to go after new ones. And it’s sadly common why most companies go gangbusters for new customers. It’s because they’re ignoring the reasons behind churn. As unpleasant as it may be, it must be analyzed.

How to Build a Customer Retention Plan

Ready to build a better customer retention plan? Here are four major steps you must include.

Choose metrics

First, choose which elements of customer retention you want to track and address. Is your churn rate high? In which customer demographic—newer clients or those who have been with you longer?

The more granular you can be, the better your customer retention plan will be.

Identify highest-risk segments

Selecting the right metrics is essential. It will help you pinpoint which customers require the most attention. You want to stop the bleeding first, so to speak, before working on other areas of your customer retention plan.

Assign owners for follow-up

Remember, a plan with no implementation of follow-up is useless. Who is going to deal with customers that need extra guidance or are threatening to leave?

Every customer listed in your plan has to have an owner assigned. That might be someone in onboarding, sales, or support.

Review retention data monthly

More “don’t wait until…” advice! Don’t run your customer retention plan for months without reviewing your data.

Why? It might be working, but it might not. If you need to fix something, it’s better to do it early on. That’s less expensive than waiting months and continuing to hemorrhage customers.

FAQs About Customer Retention Strategies

What are the best customer retention strategies?

There is no one best customer retention strategy because every business is unique. And their customers are likewise one of a kind. The best customer retention techniques are tailored to your own clients.

How do you improve customer retention?

The specifics for improving customer retention are outlined above. But in a nutshell, you must:

Understand what drives customers to both stay and leave your business.
Develop specific strategies to address these facts.
Put your customer retention plan into action across your business.
Listen to feedback from customers along the way.
Evaluate and tweak the process regularly to get your rate where you want it.

What is a customer retention plan?

A customer retention plan is a set of specific strategies used to keep existing customers. It’s created by looking at the unique aspects of your business and how to better cater to your customers’ needs.

Which metrics measure customer retention?

There are several key metrics used in measuring customer retention:

Customer retention rate
Customer churn rate
Customer lifetime value
Repeat purchase rate
Net Promoter Score

You’ll find the formulas for all of these above.

Why is customer retention important?

Customer retention is vital for several reasons. It boosts your revenue and profits. That’s because repeat customers tend to represent a bigger slice of your business pie. And it’s less costly to retain customers than to acquire new ones.

Happy loyal customers will recommend you to others. That’s a key to bringing in new business while keeping established clients—the best of both worlds.

Conclusion: Retention Improves When Every Customer Interaction Has an Owner

As stressed above, customer retention plans demand assigning ownership to customer interactions. Listen360 automates feedback collection and evaluation, so the right person can be attached.

Get the insight you need from different sources in a timely and efficient way. Stay on top of customer satisfaction without increasing manpower. Make continuous improvements while closing the loop when possible. Find success with your customer retention plan with the help of Listen360.