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Customer Retention Strategies: A Guide for Small Business Owners

by Oluwatosin Faith Kolawole

March 15, 2022


Customer retention has become a buzzword for small business owners today as they continue to see how greatly it benefits their business. With a mix of intentional marketing, social media, and brand strategies, you can get customers to stick with your business longer. We can talk all day about how the customer is king but what strategies are you putting in place to ensure you retain your customers? 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. To set your business up for success, we have created this guide on how to retain customer loyalty.

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What is Customer Retention?

What is customer retention
Source: Qminder

Customer retention measures customer loyalty and it is the practice of engaging customers to keep returning to purchase your goods or services. This means doing whatever you can to ensure they don’t switch to a competitor and that depends on how pleasing your customers find your product or the quality of your service. Retaining your customers is key to building a successful business and the best companies know this and leverage it. The retention process kicks off from the moment a lead becomes a customer and everything you do throughout the lifetime of the relationship contributes to whether or not you get to retain the customer. 

The Difference Between Customer Retention and Acquisition

Customer Acquisition Vs Customer Retention
Source: Shopify

Acquiring a customer and retaining one are two different things but as a small business owner, you must know which to focus on per time.  While customer acquisition refers to bringing in new customers, customer retention focuses on building relationships with already acquired customers. Beyond transactions and making your customers happy, you also want to ensure you build a form of 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. Despite this, a lot more companies still tend to focus more on customer acquisition. 

Deciding which to focus on per time depends on what level your company is. If you are a new company, you would naturally want to focus on growing your customer base and when you have covered the basics, you would start working on retaining customers. However, it is not always black and white, as you want to ensure you are doing all it takes to retain your customers from day one of purchase from your company. 

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. You want a company where your customer stays loyal to your products and services even when presented with other options. Customer acquisition might seem like the easier way out but do you think it will be effective for your business in the long run? 

Why is Customer Retention Important?

Retail Revenue Drivers for Customer Relationship Management
Source: Superoffice CRM

Customer retention has a huge influence on businesses all over the world, regardless of the industry. Research done by Frederick Reichheld of Bain & Company found that increasing customer retention rates by 5% increases profits by 25% to 95%. Are there justifiable reasons why customer retention is important? We have highlighted some below. 

1. Cost Savings

It will generally cost you more to acquire a new customer than it would to retain 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 have to spend on advertising and marketing to earn the trust of more people and convert them to customers. With existing customers, however, all you have to do is assure them of your service and ensure they choose your company over and over again.

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 that a business benefits from throughout its relationship with the customer. There is a higher chance of increasing a customer’s lifetime value when you retain them for longer and this 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. Investing in customers who already commit their resources to your business will pay you back eventually. 

3. Increased Loyalty

By focusing on retaining customers, you show them that they are important to your business. In the process of retaining them, you will have to offer the best services and products and sometimes, perks that will make them stay. This will push them even further to stick with you over other competitors. As a result, they will be loyal over time and be even willing to pay more for your products or services should the need for them arise. 

4. More Referrals – Word of mouth Marketing

Once you get your customers to be loyal to you, they are very likely to get more referrals for your business with little to no extra persuasion from you. If your product is good and the customer service is great, any customer would naturally want to share positive feedback. With this, you can get free marketing and advertising online and via word-of-mouth to people around them. 

Research from Semrush on word-of-mouth marketing found that millennials were 38% more likely to discover brands through recommendations from friends and family. The same study also found that on average, customers who have their problems resolved by a business will tell four to six people about their positive experiences. 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. 

Important Customer Retention Metrics and How to Measure them

Your first approach to developing a customer retention strategy is to first understand the metrics that show the customer retention rate. You must also learn how to measure these metrics, so you can track your progress over time. The most important customer retention metrics include customer retention rate, customer churn rate, repeat customer rate, and customer lifetime value. 

How to Calculate 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 of time (for example, a month, a quarter, or a year):

(E–N) ÷ S x 100 = CRR

 In this formula, 

  • S – number of customers at the start of that period
  • E – number of customers at the end of that period
  • N – 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. 


Let’s measure the CRR of Company X in 2021. The period of time used will be from January to December 2021.  

Number of customers:

  • January 2021 (S): 500
  • December 2021 (E): 1200
  • Acquired between January and December 2021 (N): 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 the year 2021. 

How to Calculate Customer Churn Rate

Customer churn rate measures the percentage of customers lost over a period of time. A high customer churn rate would mean that the company has a low retention rate. It is calculated using the formula:

[Lost Customers ÷ Total Customers at the Start of Time Period] x 100

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%. This means that Company X churned out 40% of its customers in 2021. 

How to Calculate Repeat Customer Rate

Repeat customer rate measures the percentage of customers who made two or more purchases from your business over a period of time. It is calculated using this formula:

[Customers with two or more purchases ÷ Total number of unique customers] x 100

How to Calculate Customer Lifetime Value

Customer lifetime value measures the total revenue expected from a single customer during the course of 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

Customer Retention Strategies

Now that you understand what customer retention is and what it means to retain customers over time, you must also know the strategies to put in place. What can you do to ensure you retain your customers as efficiently as possible? While there are numerous strategies you can take advantage of, we have highlighted some of the most effective ones for your small business.

1. Understand Your Customers

The first step to retaining customers is to understand them and this will guide you through the best strategies to implement. By understanding your customers’ needs, you will be able to curate the best experience for them and also ensure your products or services meet them at the core of their needs. Using customer relationship management (CRM) software is a great way to go about this, as it helps you to 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 the power they hold over these email addresses. It is beyond collecting many email addresses but rather putting deliberate effort to ensure you maximize them. As soon as a customer signs up and you have their email address, you now have direct access to 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 to your customers and also walk them through a journey with drip emails. In an earlier article, we shared how you can use email marketing to boost sales in your business. 

3. Prioritize Customer Support

Customer support is huge when it comes to retaining customers and this is also highly dependent on how fast you respond. Data from Zendesk shows that quick first replies result in higher customer satisfaction; 73 percent of customers surveyed said that speedy support resolutions are key to a good customer experience. As you build your brand, remember to prioritize customer support. 

4. Personalize the Customer Experience

It creates a special effect when a customer feels like you know and understand them. The customer insights on modern POS systems can help with this, as you can use a customer’s purchase history to make recommendations for them. Also, if you’re using email marketing, you can personalize the emails you send to your customers based on their buyer’s journey. 

5. Accept Customer Feedback

Always give room for feedback from your customers. Whether it is via website surveys or comment cards, or via direct messages on social media. This will make them feel seen and heard and will also help you find out what your customers want and adjust.

6. Incentivize Referrals

To encourage referrals among customers, you can incentivize it. For every customer who refers their family and friends to your business, you can offer attractive discounts. This will encourage them to refer more people and make them feel appreciated for spreading the word about your business. 

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 bear fruit, it is worth it in the end. If you need to understand better how this works or need the best hands to walk you through it, we have a community of talented software developers at Charisol that can help and you’d see effective results. 

We’ve worked on outstanding brands over the years such as MailDrip, Aluuka, KakedBar, and Tishlms, among others. Our services span Software designing, App development, Digital Marketing, Social Media Marketing, Content Writing & Marketing, and Search Engine Optimisation.  We will work hand-in-hand with you to ensure you get the best for your website or products. We will also ensure we create the perfect balance between user research experience and customer experience. 

You can also follow us on Medium or social media (Facebook, Instagram, Twitter, LinkedIn).

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Picture of Oluwatosin Faith Kolawole

Oluwatosin Faith Kolawole

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