In order to grow a sustainable business, retention becomes one of the most vital parameters to gauge the health of your business. If you don’t have an impressive customer retention rate, it’s like filling up a bucket with holes. Customer retention is essentially a lot of effective strategies centred around keeping customers for a long time so that they turn from regular customers to loyal advocates which further leads to higher CLV. Customer retention is critical because it tells you how good your products/services are, how efficient your customer success team is, how well your brand is perceived and the red flags that need your immediate attention.
Here’s why customer retention pays dividends:
- According to a report by Econsultancy, almost 82% of companies have said retention is cheaper than acquisition. It’s important to nurture your best customers to drive higher retention
- Retention also results in increased AOV (average order value) because loyal shoppers spend continually and more with your company. Research shows that loyal customers are 23% more likely to spend with you than the average customer
- It also positively impacts your revenues because research says that increasing retention by just 5% can result in 25%-95% rise in profits. Also, existing customers bring 65% of a company’s business
- If you make customer retention your priority, the referrals and word of mouth also increase exponentially
To measure Customer retention rate, use this formula:
CRR = [(E-N)/S] * 100
Let’s understand this better by breaking it down
E = number of customers you have at the end of a period (week/month/year or other duration)
N = number of new customers your business made a sale to or acquired in some other ways during a specific period
S = number of customers you had at the start of the period
Although the higher the customer retention rate, the better, here is the average industry retention rate:
- Retail: 63%
- Banking: 75%
- Telecom: 78%
- IT: 81%
- Insurance: 83%
- Professional services: 84%
- Media: 84%
According to research, for products in the media or finance industry, an eight-week retention rate over 25 percent is considered elite. For the SaaS and e-commerce industries, over 35 percent retention is considered elite. What influences Customer retention rate?
- Customer service. 68% of customers leave brands because of bad support (Source: U.S. Small Business Administration). Customer Service can either increase or reduce customer retention. Excellent customer support strengthens trust of existing customers and makes them come back again.
- Price. Ensure your product/solutions are competitively priced to make sure customers are more likely to return. If the prices are too high, they will easily switch brands.
- Loyalty programs. This is a great way of encouraging repeat business. In effect, a loyalty program rewards your customers for their advocacy and incentivizes for future purchases.
Here are some best practices to boost customer retention rate:
- In order to provide superior customer service, it’s important to listen to them through surveys and feedback about their experiences with your brand. According to Oracle, a bad experience is the biggest reason why churn happens. It’s important to identify pain points, churning signs and improve the buyer’s journey.
- Reward your most profitable customers with relevant, personalized and lucrative incentives through effective loyalty programs.
- Offer a personalized experience, according to Salesforce, “79% of customers are willing to share relevant information about themselves in exchange for contextualized interactions in which they’re immediately known and understood.”
- Offer a whiteglove onboarding experience. Your customers should know what they can expect from your brand by giving a comprehensive orientation of your products/services.