Customer retention has become a buzzword for small business owners today as they continue to see how greatly it benefits their business.
Combining intentional marketing, social media, and brand strategies can encourage customers to stay with your business longer.
It doesn’t matter what lead generation and customer acquisition practices your business has. What effective customer retention strategies are you implementing to ensure your customers stay?
Having your customers return to buy your products or services will help you cut down on marketing costs and increase your revenue in the long run.
We have created this guide on retaining customer loyalty to set your business up for success.
What Is Customer Retention?
Customer retention measures customer loyalty. It is the practice of engaging customers to keep purchasing goods or services.
This means doing whatever you can to prevent them from switching to a competitor. How pleasing your customers find your product or the quality of your service will determine this.
Retaining your customers is key to building a successful business; the best companies know and leverage this.
The retention process begins when a lead becomes a customer, and everything you do throughout the lifetime of that relationship contributes to whether or not you retain the customer.
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Understanding Customer Acquisition and Retention
Acquiring a customer and retaining one are two different things. As a small business owner, you must know which to focus on at any given time.
While customer acquisition refers to acquiring new customers, customer retention focuses on building relationships with existing customers.
Beyond transactions and making your customers happy, you want to build a relationship that encourages them to become return buyers.
Research over the years has shown that it costs five times as much to attract a new customer than to keep an existing one.
Deciding which to focus on per time depends on what level your company is.
If you are a new company, you will naturally want to focus on growing your customer base. Once you have covered the basics, you will start working on retaining customers.
The balance here is to find a way to merge both effectively, such that as you acquire customers, you also have strategies in place to retain them.
Why Is Customer Retention Important?
Customer retention has a significant influence on businesses all over the world, regardless of the industry.
Fred Reichheld of Bain & Company conducted research that found a 5% increase in customer retention leads to increased profits by 25% to 95%.
Why is customer retention important? Here are some reasons to consider:
1. Saves cost
Retaining a new customer will generally cost you more than retaining existing ones.
If you want your company to save money in the short and long term, you must embrace customer retention strategies.
Consider how much you would spend on advertising and marketing to earn more people’s trust and convert them into customers.
With existing customers, however, you need only assure them of your service and ensure they choose your company repeatedly.
2. Higher return on investment (ROI)
Customer lifetime value is one important metric many businesses do not consider.
This refers to the total worth of a customer from which a business benefits throughout its relationship with that customer.
Retaining customers for longer improves the chance of increasing their lifetime value, which contributes to a higher ROI over time.
Considering that 65% of a company’s business comes from existing customers, increasing the value of existing customers will subsequently, over time, drive growth for your company.
3. Increased loyalty
By focusing on retaining customers, you show them that they are important to your business.
To retain your customers, you should offer the best services, products, and sometimes perks that will keep them.
This will encourage them to stick with you over other competitors. As a result, they will become loyal over time and even willing to pay more for your products or services if the need arises.
4. More referrals (Word-of-Mouth Marketing)
Once you get your customers to be loyal to you, they will likely get more referrals for your business with little to no extra persuasion from you.
If your product is good and the customer service is excellent, any customer would naturally want to share positive feedback. With this, you can get free marketing via word-of-mouth to people around them.
Research from Semrush on word-of-mouth marketing found that millennials were 38% more likely to learn about brands through recommendations from friends and family.
The study also found that when businesses solve customers’ problems, those customers share their positive experiences with four to six people.
This could work against you if the customer has a bad experience with your business, but you can use it to your advantage by providing positive experiences.
Effective Customer Retention Strategies for Busineses
Now that you understand customer retention and its benefits, you must also know the strategies to implement.
What can you do to retain your customers as efficiently as possible?
While numerous customer retention strategies are available, we have highlighted some of the most effective ones for small businesses.
1. Understand your customers
Understanding your customers is one of the most important customer retention strategies. This knowledge will guide you in implementing the best strategies.
By understanding your customers’ needs, you can curate the best experience for them and ensure your products or services meet them at the core of their needs.
Customer relationship management (CRM) software is a great way to do this, as it helps you efficiently track your customers’ journey and metrics.
2. Create an effective email marketing campaign
Almost every business today collects email addresses, especially if they have an online presence.
However, not all small businesses leverage their power over these email addresses.
It is beyond collecting many email addresses; instead, you must put deliberate effort into ensuring you maximize them.
When a customer signs up with their email address, you can directly talk to them.
Use this opportunity to build a relationship with the customer and announce new products, offers, or discounts.
With an effective email marketing campaign strategy, you can build a loyal community of customers and boost sales.
Email marketing tools like MailDrip can help you personalize the emails you send your customers and walk them through a journey with drip campaigns.
3. Prioritize customer support
Customer support is crucial for retaining customers and highly depends on how fast you respond.
Data from Zendesk shows that quick first replies result in higher customer satisfaction; 73 percent of customers surveyed said speedy support resolutions are key to a good customer experience.
As you build your brand, remember to prioritize customer support.
4. Accept customer feedback
Always give room for customer feedback via website surveys, comment cards, or direct messages on social media.
This will make them feel seen and heard and help you determine what your customers want and adjust.
5. Incentivize referrals
You can offer attractive discounts for customers who refer their family and friends to your business.
This will encourage them to refer more people and make them feel appreciated for spreading the word about your business.
BONUS: Important Customer Retention Metrics and How to Measure Them
Your first step in developing a customer retention strategy is understanding the metrics showing the customer retention rate.
You must also learn how to measure these metrics to track your progress over time.
The most crucial customer retention metrics include customer retention rate, customer churn rate, repeat customer rate, and customer lifetime value.
1. Customer retention rate
The customer retention rate (CRR) refers to the percentage of previous customers who have been loyal to your business over time.
The formula below is used to calculate the CRR of a company over a defined period (for example, a month, a quarter, or a year):
(E−N) ÷ S x 100 = CRR
In this formula,
- S refers to the number of customers at the start of that period
- E refers to the number of customers at the end of that period
- N refers to the number of customers acquired during that period
Once you have the numbers, you can plug them into the CRR formula, and your result will be in percentage.
Example
Let’s measure the CRR of Company X in 2021. The period used will be from January to December 2021.
- S (January 2021): 500
- E (December 2021): 1200
- N (Number acquired between January and December 2021): 900
To calculate the customer retention rate, we will go back to the formula:
(E−N) ÷ S x 100 = CRR.
Now, insert the figures, and it will be:
(1200 − 900) ÷ 500 x 100.
The result will be 60%.
This means that Company X retained 60% of its customers in 2021.
2. Customer churn rate
The customer churn rate measures the percentage of customers lost over a period. A high customer churn rate indicates a low retention rate.
It is calculated using the formula:
(Lost Customers ÷ Total Customers at the Start of Period) x 100
Example:
Still using the figures for Company X from above:
Lost customers in 2021 (N + S – E): 200
Total customers as of January 2021: 500
To calculate the customer churn rate for Company X:
(200 ÷ 500) x 100.
The result will be 40%.
Company X churned out 40% of its customers in 2021.
3. Repeat customer rate
The repeat customer rate measures the percentage of customers who made two or more purchases from your business over time.
It is calculated using this formula:
(Customers with two or more purchases ÷ Total number of unique customers) x 100
4. Customer lifetime value
Customer lifetime value measures the total revenue expected from a single customer during their relationship with your business. This will help you discover your most loyal customers.
It is calculated using this formula:
(Average order value ÷ purchase frequency) x 100
Conclusion
Will customer retention change the game for your business? Yes, it will.
As a small business owner, your customers are your most valuable asset. While customer retention can take time to pay off, it is ultimately worth it.
Implement the strategies post and be prepared to see excellent results.
If you need to understand how this works or need the best hands to walk you through it, we have a community of talented software developers at Charisol who can help, and you’ll see effective results.
Over the years, we’ve worked on outstanding brands like MailDrip, Aluuka, KakedBar, and Tishlms.
Our services include software design, app development, digital marketing, social media marketing, content writing and marketing, and search engine optimization.
We will work hand-in-hand with you to ensure you get the best for your website or products.
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READ MORE: 7 BEST BENEFITS OF A WEBSITE FOR SMALL BUSINESSES | Charisol
