The Secret to High Customer Retention

In our competitive marketplace, the ability to retain customers can literally make or break a company. However, only 6% of U.S. businesses make customer retention a top priority. Don’t let that be you. After reading this quick guide, you’ll know what retention rate is, why it matters, and how you can strategize to keep it growing.

What is Retention Rate?

Your customer retention rate is the number of customers who stay with your business over an extended period of time or utilize additional services you provide. For example, in the financial industry, this might include how many customers open a checking account AND have a home mortgage loan. By knowing your retention rate, you can make changes to your business strategy as soon as a drop occurs.

Retention rate can be helpful to measure in any industry, as it helps gauge the level of loyalty among buyers. It’s particularly helpful for companies that offer subscriptions or memberships. This is because their profit is more heavily affected by how many users are sure to return in any given month or year. Some common users of customer or user retention rate are software-as-a-service (SaaS) brands, gyms, meal kit services, and app developers. Community colleges and state universities also use retention rate to measure how many college students stay enrolled.

How to Measure Retention?

Calculating your customer retention rate is easy to do. Simply track the number of customers at the beginning and end of a time period alongside the number of new customers acquired during this same period.

The formula should look like this:

Retention Rate = ((CE-CN) / CS))

CE = number of customers at the end of a certain time period
CN = number of new customers acquired during the same time period
CS = number of customers at the start of the time period

Let’s try with an example: 

In January 2019, a financial branch had 1,000 customers. In January 2020, the branch had 1,400 customers. 500 customers were acquired in the year 2019.

((1,400 – 500) / 1,000)) = 90% retention rate in 2019.

The average company has a 20% retention rate over eight weeks. Hitting a 30-35% retention rate in the same time frame is when you know you’re in good condition. Due to the nature of the formula, this rate tends to be much higher when you measure over a short period of time and lower for first-year analyses. Because of this, many business owners keep track of several retention rates (e.g., monthly, quarterly, or yearly rates) to get a clear look at their performance.

Why Your Customer Retention Rate Matters

Through its significant influence on ROI and growth, the customer retention rate is critical in determining the success of a business. It pays to keep your customers coming back. As we mentioned, when you increase your retention rate by as little as 5%, you can directly increase profits by 25% to 95%. And research shows that returning customers spend more and buy more often than newer ones.

Customer acquisition can also be very costly. It’s much cheaper to retain current customers than it is to find new ones over time. In fact, getting a new customer can cost your business 5-25x more than retaining a current customer. If you’re constantly pouring money into acquisition marketing to maintain the size of your user base, you won’t be as productive as you could be. Keeping retention rates high helps you improve your bottom line.

Loyal customers also bring in more revenue. Customers who are loyal to your business are 5x as likely to repurchase, 5x as likely to forgive, 4x as likely to refer, and 7x as likely to try a new offering. While acquiring new customers is important, retaining the customers you already have is less expensive, more rewarding, and helpful in optimizing your customer journey.

In terms of business data, your retention rate can give you a closer look at your churn rate so you can be more proactive about finding solutions.

While churn rate measures how many people have canceled their memberships or stopped buying your products or services, focusing on customer retention can help you win customers back before they choose a competitor’s brand.

Retention rates also give you insight into how long a first-time user will stay with your brand so you know where your customer growth rate needs to be within any given time period.

5 Ways to Improve Your Retention Rate

There are many factors that can go into improving one’s customer retention rate, including product satisfaction, service quality, trust, commitment, and competition. However, when it comes down to it, customer experience is often at the heart of many businesses’ retention rate problems.

According to a recent survey, 70% of consumers who had an unpleasant customer experience during the pandemic are less likely to purchase goods or services from that business in the future. Investing in improving your customer experience is always a reliable way to boost your customer retention rate.

To optimize your customer experience, it’s vital to consistently keep up with what your customers want and need. Customer expectations are always changing. But one key trend remains consistent: customers want more convenience. 86% of consumers expect local businesses to offer more convenient communication than they did prior to COVID-19.

It is crucial to connect with customers through the communication channels they prefer and meet them where they are. Consequently, investing in software that enhances your customer experience can greatly impact your retention rate.

To optimize your customer experience and boost retention:

1. Improve your customer service

Customer service is the leading motivator in consumers leaving a five-star (or one-star) review. Consequently, poor customer service can kill your retention rate. When your customers are unable to get answers or resolve issues with you in a timely manner, they may not want to return because they feel like you don’t care.

To show that you are responsive, respond to messages within 24 hours, at most. You should also try to respond to positive reviews within 24 hours and negative reviews within 2 hours. For positive reviews, express gratitude and encourage customers to return. For negative ones, resolve issues as quickly as possible by expressing sincere apologies, moving conversations to private channels, and offering proactive ways to fix any problems. You can also improve customer satisfaction by openly displaying and sticking to set customer support hours and using automations to address customers who want to engage with you outside those hours.

2. Personalize your customer experience

Today’s consumers crave personalization in their brand interactions. In fact, the top reason customers switch brands is lack of attention or appreciation. You can prioritize your customers by personalizing their experience. Address them by name in communication, send relevant promotions and information, and establish an authentic relationship.

An effective personalized experience starts the moment a lead contacts you with the simple act of collecting their name, phone number, and inquiry through a tool like Webchat. When your lead becomes a customer, you can gather further data to send messages at the right times. Businesses should anticipate customer wants and needs by considering the following components:

• Name
• Date of birth
• Location
• Last purchase
• Previous feedback
• Website journey
• Seasons and holidays

3. Allow customers to text you

Customers appreciate having multiple ways to reach you so they can use whichever avenue they choose at whatever time. Consequently, enabling customers to text your business significantly improves your customer experience, especially in terms of offering more convenience.

65.6% of consumers think that texting makes working with a local business more convenient. 40.5% of consumers say they are likely to switch to a different business because they offer text messaging to communicate. And consumers are almost twice as likely to prefer texting over any other communication method. Text helps consumers feel engaged and heard, empowering you to strengthen relationships and stay connected.

4. Show gratitude

Customers want to feel like they matter to your business. In order to build customer loyalty and retention, you need to show them that your business can give them more than just a product in return for their investment.

Make sure to thank customers, in person and digitally, for their purchase and let them know how much you value their business. You can also keep customers happy by sending your loyal customers exclusive offers and educational content that legitimately helps them get more out of your products or services. Showing gratitude can help you reach all existing customers with ongoing benefits and reward your consistent customer base.

5. Get feedback

If you want a high retention rate, continuous improvement and listening are crucial. Getting authentic, regular feedback is vital to creating an experience that keeps customers engaged. Perhaps you find out that a couple of customers have left because they felt that they had to wait too long in finance after engaging with your auto business. You might take this feedback and implement a free cleaning while the paperwork is being finished.

To make this step easy for your employees, you can use a tool like Surveys to obtain valuable insights and make important changes. When a customer has a bad experience, you immediately get an alert, allowing you to rectify the situation and change your processes when necessary.

Get Started

Don’t pour your money down the drain. Put your resources in the right places by accurately calculating your customer retention rate and investing to improve it. With great service, personalization, text, gratitude, and feedback, you can deliver a customer experience that will make your customers want to stay for life.

Podium empowers 100,000+ businesses to achieve stellar retention rates by offering outstanding customer experiences through text. See how tools like Reviews, Webchat, Payments, Teamchat, and Campaigns can revolutionize the way you do business free here.