Gaining Your Brand’s Fans: Why Customer Retention Is Important

Acquiring new customers is something most businesses focus on. At the same time, retaining existing customers, gaining their loyalty, and building strong long-term relationships goes out of the spotlight. Today, we would like to discover why customer retention is important and what are the ways to achieve it.

First Thoughts on Customer Retention Importance

Finding a new customer is estimated to be from 5 to 25 times more expensive than keeping an existing one. The odds may vary depending on each industry, but still the benefits of turning customers into loyal ones is quite obvious. Besides, customers who are loyal to a brand tend to buy more, at higher frequency, and make purchase decisions quicker. 

Now, to know why customer retention is important, let’s take a look at less obvious, but still important factors:

• ROI. Studies prove that even a 5% increase in customer retention rate can give 25-95% growth in revenue, as with loyal customers, average order value is usually higher.
• Brand advocacy. Happy and loyal customers are more likely to share their positive experience and recommend your brand to others. According to researchers, about 77% of consumers are eager to refer a company to others after a single positive experience. Personal recommendations are still one of the most effective ways to grow a customer base organically.
• Winning Millennial audience. People born in the digital age have already become the largest consumer group. Their purchase decisions are majorly based on customer experience, and 80% of them are most likely to become loyal customers to the brands that follow solid retention strategies. 
• More customer feedback. Customers who are loyal to a brand often like to make their input and feel like collaborators with a company. That means they are more willing to share their opinions and suggestions and can provide multiple precious insights.

To sum up, customer retention importance is not all about gaining revenue, though it helps with increasing it a lot. Implementing a smart customer retention strategy, may help a business observe positive changes in different aspects of your business.

Customer Retention Metrics: What to Look Out For

We already know why customer retention is important, but how do we measure it? Before we start doing math, we need to know what customer data usually matters to us. The number of analytics we can get is big, but we need to focus on key metrics that reflect customers’ loyalty.

Our first goal is to calculate customer retention rate (percentage of customers we retained in a specific period). A go-to formula would be: (a number of customers at the end of time period – number of customers acquired during period) / customers at the start of period] x 100. We can choose any period of time we are interested in, a month, a quarter, or a whole year. The final number shows what percentage of customers we acquired stayed with the company. But how do we understand what retention rate is good enough?

First thing to consider is the industry of operation. According to studies, average customer retention rate in different fields looks like this:

• IT: 81%
• Banking: 75%
• Professional services: 84%
• Retail: 63%
• Insurance: 83%
• Media: 84%
• Telecom: 78%

We can also compare our metrics to a past period. This would be a good place for us to start, while we’re defining moments of success and downturns.

What are some less direct metrics we can make use of?

Customer Churn Rate

Churn rate is a percentage of customers lost during a specific period. A high churn rate is typical for companies that struggle with delivering high quality customer service. It is also useful to compare this number with similar past periods, as it helps define influential factors we control.

Repeat Customer Rate

To see how many customers have made more than one purchase, we can use a simple formula: Number of returned customers / Total number of customers x 100. This metric is especially useful for the e-commerce industry, but can be applied in many others. 

Purchase Frequency Rate

If we divide a number of orders by a number of unique customers, we can see how often customers make purchases in a specific period of time. We can choose any time period, from a week to a decade, but the most useful practice would be to watch annual statistics. It gives us quite a clear and broad picture of customer behavior, and at the same time we can divide information we can work on from other factors, like seasonality. 

Customer Lifetime Value

This metric shows the total revenue we can expect from a customer during a time period they stay with us. Here’s how we count it: average order amount x purchases per year x retention rate. Customers who only sign up to use a discount coupon or a trial period and then close their account, have a low lifetime value. On the other hand, customers who make regular purchases or pay for subscriptions for years, have a high one. To maximize our profits, we need to examine this group closely and understand what influences their decisions and how we can get more customers with a high lifetime value. 

How Can We Improve Customer Retention Rate

Discovering customer retention importance, we can ask ourselves, how long can improving a retention rate take? A specific period of time would be unique for each business. Some companies can see immediate results, as they follow the right strategies. But in most cases we should get ready not for a sprint, but for a marathon. We are going to need to use a complex approach, follow a retention strategy that would include different parts of the company, watch the results, analyze how one or another solution works, and repeat the successful ones. 

Now, we would like to share some of the most useful practices that can help achieve a high customer retention rate. 

Mapping Out the Customer Journey

Retaining customers requires providing great customer experience, which can be much easier if you have a clear roadmap. It needs to cover every touchpoint a customer has with a brand, from the first glance at the advertising to a period after purchase. As we have pinpointed key interactions, we need to define potential and existing roadblocks that can cause customer’s dissatisfaction and stop them from making a purchase or returning for the second time. The smoother experience our customers would have, the more likely they would be to stick with us and become loyal to our brand. 

Collecting Feedback

For the sake of improving our customer experience, we need to make the most use of customers’ feedback. We need to be proactive in asking for feedback through all available communication channels, respond to each comment and review to engage our customers, and take actions on upcoming issues. First, it is important to use as many communication channels as possible, including social media and messengers. The next rule we always follow is to react to every review, to demonstrate customers the importance of their opinion and engage them to give more feedback. As for negative reviews, deleting them would be a bad practice that can harm a company’s reputation. If a person posts a negative review, a smart thing to do would be reaching out to them directly and suggesting possible resolutions of the issue that came up. 

Creating a Customer Loyalty Program

Loyalty programs can serve as a great motivation for customers to make additional purchases, choose our brand over competitors, and recommend it to others. Loyalty program models can differ — discounts, bonus points, milestone rewards, referral bonuses, or even something altruistic, like charity donations. The main idea of the loyalty program is to create an additional value for our customers. We may look at the examples of Starbucks, with their classic reward program, when each purchase brings a customer closer to a free drink or food, or a Beauty Insider program by Sephora. It offers customers to convert the bonus points they have collected into charity donations. Another great example would be Uber, which gives customers options to exchange bonus points to additional services, like premium support or priority pickups at airports. 

Improving Customer Communication

How often do we reach out to customers? How do we do that, besides sending updates on seasonal discounts? These are the questions we need to answer to start building a deeper and stronger relationship with our customers. We need to brainstorm ways to engage our customers and provide them with additional use, without overwhelming them. An example of closer customer communication could be a newsletter from a CEO with the most interesting news and updates, sent once in a month or quarterly. We can also take a look at the Netflix case, with their regular emails with personalized recommendations based on users’ preferences. Such interactions can help us strengthen our bond with the customers and help them feel more connected to our brand.

Engaging Our Team

There is a proven connection between a team’s engagement and good customer experience. Engaged team members show higher performance, which results in a higher customer retention rate. To make sure our team performs at the best level, every member needs to see their role in the big picture, be aware of how their personal efforts influence the processes, and be empowered to make decisions at their level. Also, let’s not forget about communication inside the team. Regular one-on-one meetings, group team building activities, and check-ups make a great positive impact on a team’s productivity and devotion, which reflects on communication with customers as well. 

Providing a Top-Notch Customer Service

73% of customers make their purchase decisions based on customer experience, above price and quality. For delivering the best customer experience, the processes within customer-facing parts of the team need to be tuned to perfection. Customer service often becomes one of the main points of interaction between a company and customers and becomes a key instrument for increasing a retention rate. If support services are convenient for customers, available through preferable communication channels, fast, effective, and performed by skillful consultants, customers will much more likely stay with a company.

Personalize Customer Experience

Personalization is the new black for businesses. Social media feeds, tailored offers, personal recommendations — everything is done to help customers get a unique experience, specifically customized up to their taste. The more we know about our customers, the closer we get to building strong long-term relationships. There is a wide variety of ways we can use this knowledge to create additional value for customers — from purchase recommendations, like in e-commerce, to creating completely customizable accounts, like in Spotify. It is even possible to use personalization to create valuable content for customers, like Grammarly that emails their customers a weekly report, analyzing their writing technique. 

Keep Records of Customer Communication

Today, customers have high expectations in terms of personalized experience. To fulfill that need, we need to keep track of all history of interactions, note their personal preferences, ongoing issues, etc. If customers have to explain details of their issues over and over, they will more likely churn, which means we need to minimize the number of repetitive interactions. The easiest way to ensure nothing gets lost is to collect and organize all the information in a CRM system. This makes communication processes more effective and independent of specific team members. 

Wrapping Up

Customer retention improvement is a complex long-term goal that requires strategic approach, analyses, and data-driven decisions. But as we achieve a high retention rate, it will affect positively on both revenue and our brand’s promotion. In order to retain customers, we need to focus on delivering the best experience, effective customer communication, and providing high-quality customer service. For 12 years, SupportYourApp has been gaining a solid expertise in customer service and communication. If you need some help with achieving a better retention rate, we know all about customer retention importance and have a clear vision of how to turn your first time customers into loyal ones.

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