What is Customer Retention Rate and How Do You Track It?
Customer retention costs up to 700% less than customer acquisition and is much faster. Understanding and improving your customer retention rate is an effective way to increase your business's bottom line.
What is a Customer Retention Rate?
Customer retention rates are the percentage of customers whose business that a company keeps over a specified period of time. A retention rate factors in any new customer acquisition and customer churn statistics.
Customer churn occurs when whenever an existing customer no longer engages with a business. This can occur when a customer cancels services, does not execute an intended purchase, or closes a contract.
A business must calculate customer retention rates in order to understand customer churn patterns. Analyzing customer churn statistics will help a business identify problems that are resulting in heightened customer churn. Identifying issues early on can stop churn from further increasing and allows for a business to find proactive ways to combat progressed churn.
Customer retention rates measure not only how well a business can retain existing customers but also how well a business can acquire new customers. It is much more cost effective to retain existing loyal customers than to invest in customer acquisition strategies. In fact, only a 5% increase in customer retention rates can result in 25-95% higher company revenue.
Loyal customers buy more and spend more money than new customers do. In fact, loyal customers are worth up to 1000% as much as their first purchase in the long term. Loyal customers should be looked at as a lifetime value for a business, as it is much more profitable to sell to an existing customer than a new customer.
New leads only become acquired customers in 5-20% of cases. However, existing customers can be converted into a repeat customer in 60-70% of cases. Case studies prove that retained customers are a lifetime value to a successful company. Likewise, existing customers should be provided with a lifetime value through your product and services.
Loyal customers are additionally more likely to bring you new customers free of charge through referrals and recommendations. Instead of spending massive amounts of money in pursuing new customer leads, your existing customers will do the work for you!
It is crucial to improve customer retention rates over time to not only keep customers happy but also provide the best customer journey possible. Not only will investing in a retention strategy increase customer satisfaction but it will translate into direct business profitability.
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How Do You Track and Improve Your Customer Retention Rate?
The average customer retention rate is different depending on what industry your business is in. However, case studies calculate the average customer retention rates at or below 20%. Typically a customer retention rate is calculated based on the number of customers that exist at both the start period date and end period date. The start period date and end period date are usually based on quarterly or yearly statistics.
Best practices to improve customer retention rates include-
1. Researching case studies that are relevant- Case studies can provide a foundation from which to improve customer retention strategies. In the same way that your company would research any large purchase, you should research the communication styles and customer needs that will result in the most long term customer retention.
2. Communicate with retained customers and new customers- Create open communication with your customers that is transparent and consistent. Measure customer successes and share stories that will make customers happy to partner with your business. Communication is a pillar of emotional connection, and emotions have a high influence on loyalty and buying power.
A project management tool can assist with showing existing customers what your partnership has provided them. Keep your churn rate low and customers happy by checking in and updating them regularly on what successes your partnership has created.
Find creative ways to communicate with customers from their start period date to the end period date. This could be a newsletter or social media updates, any material that helps to promote your brand and increases the number of meaningful interactions with your customer base.
3. Request feedback- Improve customer retention rates by requesting feedback from your customers. Measure customer satisfaction and make sure to provide existing customers with opportunities to give advice or critiques.
Create multiple platforms for customer feedback including social media surveys or questionnaires at customer journey milestones. Customer churn rates can be decreased when asking customers who are no longer interested in your services or product what you could have done differently to retain their business.
If you notice customer satisfaction or customer service issues, confront them swiftly and effectively. Always request feedback from customers, regardless of how the customer experience went overall. Customer feedback will help improve customer retention and is an indispensable part of a retention strategy for any successful company.
4. Focus on customer experience and journey- There are many retention marketing techniques to implement in order to create the best customer experience possible. Loyalty programs and lifetime value testimonials will help bring in new customers but also reassure retained customers why they want to engage with your company as opposed to your competition.
- Customer Experience- Why It Matters and What You Can Do About It
- Customer Experience Strategies- Why They Matter and What to Do
- What is Customer Retention Rate and How Do You Track It?
- The Overall Importance that Customer Experience Has for a Business
- Ways to Improve Customer Experience
- Why Returning Customers are Just as Important as New Business
- Why Online Customer Reviews Can Make or Break a Business