Customer Retention Rate is the North Star Metric of your Business

client retention

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.
 
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