Imagine spending thousands on marketing campaigns and strategies to acquire new customers every year…and then routinely losing these customers to competitors or a new trending product in the market!
Each year, companies across various sectors allot a whopping figure solely for customer acquisition. But to make the most of this investment, a company must have an effective customer retention strategy in place. Customer acquisition is, on average, five times more expensive than customer retention; it varies across industries due to factors like purchase value, length of the sale cycle, purchase frequency, and company maturity. Also, a brand has a 40% higher chance of selling their products to an existing customer than a new one. This is why smart brands and companies concentrate more on customer retention programs than acquisition. According to research from Harvard Business School, increasing customer retention rates by only 5% increases a company’s profits by a satisfying 25-95%.
Let’s learn more about Customer Retention
Customer retention is a company’s strategy to coax a consumer to repeat their purchase pattern. In simpler terms, it is a process through which a company tries to turn one-time customers into repeat customers and maximize the customer’s lifetime value; it is also a more tangible result of excellent customer service and experience.
The customer retention rate of a company determines how successfully the products are accepted in the market, how strong your customer base’s loyalty is, and can help you detect flaws in your customer service and marketing campaigns.
There is a simple formula to calculate Customer Retention Rate (CRR):
Customer remaining at end of the period – new customers during the period
————————————————————————————————– X 100 = Customer Retention Rate
Total customers at the start of the period
When you subtract your remaining customer from the new customers you’ve acquired during that period and divide the total number of customers, you will get your customer retention rate. To calculate the percentage, simply multiply the figure by 100.
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Importance of Customer Retention
The number one advantage of retaining an existing customer is cost-efficiency. As we have noted earlier, a brand could save a substantial amount by engaging existing customers and retaining them rather than acquiring a completely new customer. Repeat purchasers become brand advocates in the long run and aren’t swayed by new products by a competitor nearly as much as occasional purchasers, a major advantage. Loyal customers also have a high lifetime value and significantly contribute to the company’s profits for years to come. A brand advocate adds more value to the company by increasing brand credibility through word-of-mouth publicity.
Tips on How to Retain Existing Customers
Now that you understand the importance of customer retention, the big question is ‘How to retain customers in business.’ Here, we bring some basic yet essential tips to retain your customers.
- Understanding your Customer – Before formulating retention strategies, it is important to know your customer. The question of how to retain customers comes much later; first, you need to understand your customer, what drives their motivation to purchase from you, and learn about his purchase patterns and behavior.
- Connect with your Customers – Once you know and understand your customer, connecting and engaging with them becomes much easier. You already know and understand their preferences, so make sure to alert them of offers and products you think they might be interested in.
- Decrease Response Time – Oftentimes, customers that do not receive prompt replies from the company tend to drift away. Having a swift and efficient response team at your disposal will help you significantly with your business.
- Show Some Love – A little bit of appreciation goes a long way when it comes to brand-customer relationships. If a customer has taken the time to reply to your message or tweets about the brand, make sure you visibly appreciate their time and effort. Shoutouts, retweets, even reposting images of customers will build brand engagement and help to retain customers.
Benefits on Retaining Customers
- Boosts Brand Advocacy – Loyal customers are more open, even unapologetic, about sharing their opinions on their favorite brands. They are also responsible for bringing in new customers through referrals and word-of-mouth publicity. You could further motivate them to promote your brand by incentivizing their referrals. For optimal advocacy solutions, connect with Annex Cloud.
- Brand Extensions Also Profit from it – Existing customers are 50% more likely to buy new products by the brand they trust and buy from than new customers; hence retained customers prove highly beneficial for the brand and its extensions.
- Low Marketing Costs – Retained customers develop an emotional connection with the brand and do not require special marketing activities to influence their purchase decision.
- Build Brand Credibility – A good customer retention rate speaks volumes about the brand and the company. It helps in building a positive brand image and boosts the brand’s credibility.
Best Strategies to Retain Customers in 2021
- Create a Communication Calendar – The best customer retention strategies are centered on communicating the right message to the customers at the right time and through the right medium. Creating a communication calendar will enable you to engage your customers consistently and smartly. You don’t want to spam your customers nor send them irrelevant mail or offers. A communication calendar with help you to create strategic messages that add value to the customer experience and stimulate a response, or better yet, action.
- Personalization Is the Way to Go – There is no better way to catch the customer’s eye than personalized communication. Use the customer data at hand and separate consumers according to their purchase preference, buying habits, and purchase frequency. Once you have segregated your customers, it becomes easier to create personalized communication and offers that you are sure will entice them.
- Leverage the Power of Social Media Platforms – The pandemic and consequent worldwide lockdown brought people from all age groups online. Social media has triumphed as the most powerful platform to engage with customers. Use social media platforms to your advantage and conduct giveaways, contests, and interesting campaigns.
- Measure KPIs and Improve Them– Key Performance Indicators (KPIs) show how successfully a business achieves its core objectives. Important KPIs to retain customers include a quick response time and customer conversion rate. It is also extremely important to measure KPIs in terms of the funnel drop rate and action per engagement. Funnel drop rate refers to the rate of unsubscribe requests a company receives during a particular period and action per engagement refers to how many customers opened the emails or communication that you have sent them.
- Initiate a Loyalty Program – Loyalty programs have gained tremendous popularity in 2020 and 2021. A loyalty program provides an incentive to the customer to return. It not only motivates customers to repurchase from the brand but also helps in boosting brand loyalty in the long run. Design a program that suits your brand requirements, embodies your brand values, and adds value to the overall customer experience to make the most of this investment.