“I need more customers!” I hear this a lot from business owners and clients. My question to them is usually, “What is your customer retention plan right now?” Typically followed by, “No, you don’t understand, I need to attract more customers. My sales are down.”

I understand how they are feeling. They are stressed about deflated sales, and they automatically associate this with needing new customers or acquisition. They are told by all the experts they need a flashy new campaign; they need to make Instagram reels; they need an SEO expert to redo their website. It can be overwhelming. When they are inundated with all the ads promising hundreds of new leads or customers in 10 days if they buy this plan or that plan, it’s easy to see why business owners often prioritize acquisition over retention. At this point I redirect them, because increasing customer retention should be part of your business operations.

In this post, we’ll go through what Customer Retention is, how to measure it, why it’s important, and how to increase it.

What is Customer Retention?

 Plain and simple, retention is the ability of a company to retain its customers over a long period of time. Retention plans include all of the efforts and activities across the business that aim to enhance, strengthen, and build relationships with customers that will keep them coming back and refer you to friends and family. It measures not only how successful a company is at acquiring new customers but also how successful they are at satisfying existing ones. We call this creating the Customer Lifetime Value (CLV) because it does have a definitive numeric value on your balance sheet.

I place equal importance on retention efforts because 65% of any company’s business comes from existing customers—not new ones. It makes good sense to ensure we are doing all we can to optimize retention before spending on acquisition. Studies show that retaining a customer is 6-7 times more affordable than efforts to get a new one. When the economy is tight, affordable is appealing!

Irena Vatafu, customer experience expert clarifies the importance of tracking this number.

 “In customer success, service, and experience, CLV is a driving force because it effectively gauges the efficiency of all three efforts into a tangible, quantifiable metric. The resulting number objectively shows not just the value of fostering customer relationships, but also how much money one can reasonably spend on those relationships while still turning a profit.”

How to Measure Your Customer Retention Rate

All this sounds great but where do we start in creating a customer retention program? We need to understand what our current customer retention rate is before we launch into planning. Knowing our numbers gives us a base point from which to work so we can make informed decisions on the planning side of things.

The formula is based on tracking customers over a specified time period and dividing that number by the number of customers at the start of that period and then multiplying that by 100. It looks like this: 

So, for example let’s say we started with 100 customers at the beginning of the year, and we measure by quarters to make things easy. In that first quarter we gain six new customers and we loose two.

[(98-6)/100)] X100=92% retention

Now that we have this number, how do we use our customer retention percentage to help grow our business? Tracking our customer behavior is important for when we create our customer retention plan. Finding out why those two customers left is the next step we want to take. Send out a survey, reach out by phone, or email. We want to know the reasons they left. Was it budget? Was it product quality? Was it service? This is valuable data that helps us gauge our performance and how we can do better.

Why Is Customer Retention Important?

I’ve written before about creating the ultimate customer experience on my blog here, and customer retention is tied closely to it. Building out a solid customer retention plan does the following for your company:

·      Increases ROI. A 5% increase in customer retention can increase company revenue by 25-95%.

·      Saves money. When money is tight, knowing that you can spend 6 to 7 times less money to gain sales is smart.

·      Builds loyalty. Studies show that retained customers buy more often and spend more than newer customers. They know the value of your products and services, and you have a trust relationship established.

·      Gain Referrals. One of the best ways to market is through referrals. When we have raving fans telling friends and followers how great we are, we gain new customers at no additional costs.

What I found interesting was that while most agreed on the importance of retaining existing customers, few had actual plans or systems in place to accomplish this important goal. It’s common for companies to miss this crucial step when they grow faster than expected because there are so many other things vying for their attention. But a solid customer support program that utilizes all of the possible touch points in your business is easier to maintain, cheaper to implement, and produces faster and better results.

Customers leave for a variety of reasons; some we can address and others we can’t. If someone moves away there isn’t much we can do to retain them for example. The following are some of the basic factors that affect our customer retention numbers:

·      The quality of customer experience delivered by our company

·      The level of personalization in our interactions with our customers

·      The perceived quality and added value of our products and services

·      The quality of customer service and support provided

·      The cost and the difficulty of switching to a competitor

Knowing this we are now going to look at some things we can do (or stop doing) to improve our customer retention and create raving, loyal fans for our business.

How Do We Improve Our Customer Retention?

Create A Balanced Approach To Our Marketing Plan

Most of the businesses I work with on marketing spend a disproportionate amount of their budget on acquiring new customers. They run sales, send out fliers, run ads etc. but pay little to no attention retaining the paying customers they already have. It’s no wonder, when 63% of marketers believe and promote acquisition as the most important advertising tool. Yet, 80% of our revenue comes from about 20% of our exiting customers.

Here's what we do: Make sure your relationship building doesn’t drop off once they become a customer. This puts a bad taste in their mouth and creates a sense of insincerity around your business. The old saying, “Under promise, Over deliver,” is what we want to follow. Make customer success part of your marketing plan. Make efforts to maintain long-term relationships, improve engagement, increase customer satisfaction, and cultivate trust and integrity with those you serve.

Learn To Love And Utilize The Data

Data drives ROI-period. When we operate our businesses without accurate data, we’re playing a game of Whack-A-Mole. How do our customers feel about our products or services? How do they experience their interactions with us? Where do they run into issues throughout their customer journey? We don’t know the answers to these important questions unless we ask.

Here's what we do: Gather your team together for a strategic brainstorming around customer feedback and experience. Based on your core values and your mission, audit your efforts to ensure that what you’re wanting to impress upon your customer is actually translating to the customer experience journey. Build out your customer feedback strategy and start gathering data. Create and implement regular Customer Satisfaction Score (CSS) surveys, Customer Effort Score (CES) surveys, and Net Promoter Score (NPS) surveys to measure customer satisfaction and get a deeper understanding of their needs. GetFeedack is a great resource to learn more about these tools.

Exceed Customer Expectations

I’m going to argue that Customer Service is perhaps the most underrated and underutilized tool we small business owners have in our toolbox to maintain and grow our business. The 7 key functions needed for a healthy business are complex and require intentional planning and attention. We are busy and often wear many hats, I get it. But consider the cost of not prioritizing customer success. CX Trends 2022 Report by ZenDesk reveals that 60% of consumers now have higher customer service standards. They are paying more for everything, and they are wanting equivalent value for it. The report also reveals that 61% would switch to a company’s competitor after just one bad customer service experience. I belong to a natural cleaning subscription service which has a Facebook page. They advertise that when you reach a certain amount in your order you get to choose a free gift. One customer posted she was leaving the company because she didn’t receive her free gift. That’s not as uncommon as we might think. Consider this, 79% of consumers have made purchase decisions based on the quality of customer service, while 81% will likely make another purchase following a positive experience.

Here’s what we do: Think about your mission, vision, and values. How do you want to show up in the marketplace? Spend some time creating and designing an outstanding customer service journey for your business. Train your staff and give them the tools and the authority to ensure your customers are wowed by their interactions with you, your team, and your business. Make sure your plan provides clearly defined steps and be consistent in its application. Nothing creates a negative experience for an existing customer like inconsistency in practices or policies.

Embrace our Human Side

We all love technology and how it makes our jobs easier. With automated schedulers, chatbots, and AI-powered systems, the gap grows wider in our ability to connect with our customers. A majority of consumers would still prefer a human interaction with a business, especially when it comes to customer service issues. The fact that 75% of global consumers want to interact with a real person and 59% feel that companies have lost touch with the human element of customer service should wake us all up.

Here's what we do: Audit the customer touch points in your business and make sure your customer support is staffed by humans. Automating scheduling and adding a Frequently Asked Questions (FAQs) page on your website are helpful and convenient for you and the consumer, but when a customer has an issue or a question, don’t leave them frustrated. Allow your customers to reach out to your business and get human assistance.

Reward Customer Loyalty

We love loyal customers but how do we show them that love? Are we consistent in showing our appreciation or are we missing opportunities. Bond Loyalty specializes in helping companies and brands build “intelligent connections, engaging experiences, and meaningful growth” with customers. In their research, they reveal that only 20% of customers feel that brands are loyal to them. The report goes on saying that 80% of consumers say that loyalty programs make them more likely to continue doing business with brands and 73% are more likely to recommend brands with good loyalty programs. A loyal customer is also more likely to be willing to spend more (68%) to maximize the benefits they do receive.

Here’s what we do: Along with the tips above consider implementing a Customer Loyalty program. If you have a wine store, create a wine club offering rewards, special offers, and even club events. Have a clothing boutique? Provide discounts based on the number of items purchased. How about private fashion shows and first dips on new items. Serve refreshments and make them feel special. Provide free wrapping services during the holidays for loyalty members. The idea is to create added value for them for being a loyal customer. An effective customer loyalty program can boost engagement, retain more customers, and increase sales.  

Retain A Competitive Advantage

Your business is not only competing with Joe’s Appliance on the other side of town. The marketplace is a physical and digital battlefield and consumers have access to a wide range of similar products and services. Budgets are tight, prices are higher than ever before so it’s important to ensure the quality of our products and services provides value for the consumer. The importance of quality becomes clear in Insider Intelligence research showing that 58% of consumers worldwide switched brands in the past year because they wanted a better quality product.  

Here's what we do: Budgeting for product or service development can keep us ahead of our competitors. Invest time and resources on gathering feedback and improving your offerings to deliver better value to customers. Stay abreast of new technology for your industry and implement what fits your business.

 Be The Employer Of Choice

The ability to retain customers is intricately tied to the experience they have with your employees. Your product can be amazing, but if your employees are untrained, unhappy, or unengaged, the business suffers, and the customer suffers. Employees who feel valued and are ‘all-in’ on the company mission, vision, and values are your greatest asset in retaining and gaining new customers. In fact, those happy staffers are 20% more productive than unhappy ones. A happy customer that believes in you and your company is more likely to go the extra mile to help a customer, suggest additional products, and provide an exceptional customer experience.

Here's what we do: Build a strong foundational company culture by defining and living out your Mission, Vision, and Values in every aspect of your business. With your team, develop the ultimate customer experience, define expectations, roles, the value to the company, and help them grow and develop in their role. When your team is able to contribute to the development of the customer experience, they are more likely to deliver and get excited about it. Create a space where creativity is encouraged and empower them to own their role in the company. These practices will improve employee satisfaction and retention, and ultimately improve the customer interaction.

Wrapping It Up

Understanding the value and return on investment that customer retention brings to our businesses motivates us to take on the challenge. Creating plans around customer retention takes effort, resources, and time but the payoff is a gratifying reward. We know now that retained customers have higher lifetime value and are more profitable for our business. As we head into the new year, consider tackling one or two improvement steps per quarter for the next 12 months.  Make it a New Year’s resolution to focus more on building and maintaining long-term relationships with your customers, delivering excellent service, taking advantage of customer feedback, offering customer loyalty programs, ensuring your product quality is competitive, and improving employee happiness to retain more customers in the long run.