11 best practices for retaining customers - Part 1

This piece covers 11 different customer retention best practices including building trust, improving customer support, and acting on customer feedback.
11 best practices for retaining customers - Part 1
Like

“It’s cheaper to retain an existing customer than to attract new ones” is an adage as old as marketing itself and it’s given rise to a host of customer retention practices. But which practice helps a company retain customers effectively? That’s what we’re setting out to explore in this piece on retention best practices.

Customer retention and profitability

But before that, let’s look at some of the reasons you should dedicate time and effort to your retention strategy. Firstly, it can drastically impact your ROI (return on investment) and profits for the better. Just a five per cent increase in customer retention produces more than a 25% increase in profits.

Indeed, because retaining a customer is around five to 25 times cheaper than attracting a new one, it has bottom and top-line benefits. You won’t have to spend as much on marketing or sales, while continuing to upsell your existing customers. In other words, retention is the foundation for all sorts of business growth because loyal customers will buy more (and increase their customer lifetime value), recommend others, and help you improve your products and services. 

The challenge of customer churn

High customer churn is a big problem for any business, but especially subscription-based ones like membership organizations and SaaS businesses. When your churn is too high, you will end up spending more and more to attract new customers, but never grow your profit margins as customers continue to leave. It’s also known as having a leaky bucket. 

Some churn isn’t terrible for your business. On average, companies lose around 10-25% of their customer base each year. The average customer retention rate across all industries is around 75.5% but in media and professional services, this is higher at 84%. In SaaS, the average customer retention rate is around 50-68%. 

Metrics worth knowing about

You might be wondering how to calculate your customer retention rate for a specific period of time. It’s worth knowing this, as calculating this at regular intervals (quarterly, semi-annually, or even monthly) will help you identify when your retention is doing well and when it might need a boost, or indicate an issue. 

Customer retention rate

Customer retention can be worked out with the following formula: 

[(Total customers at the end of the time period - New customers added during the time period)/ Existing customers at the start of the time period] x 100.

Customer churn rate

Another useful metric to begin tracking is your churn rate. This is calculated by:

[(The number of customers at the start of a time period - number of customers at the end of the time period)/ number of customers at the beginning of the time period] x 100. 

Knowing your churn rate will tell you how many customers have decided to stop purchasing from your company or didn’t renew their subscriptions. It can be an indicator of a bigger issue that may impact your growth, such as dissatisfaction with your product or service, a bad customer service experience, or a competitor attracting them away. Again, reviewing this at regular intervals will enable you to take mitigating actions to stem the flow of customer attrition. 

Customer Lifetime Value

Finally, understanding a customer’s lifetime value (CLV) will help you identify customers who will generate a lot of profit during their time with your brand (and therefore, who needs targeted action to retain them for longer). 

The simple formula for CLV is as follows:

Customer Lifetime Value = Average Total Order Amount x Average Number of Purchases Per Year x Retention Rate. 

How to retain more customers

Now onto customer retention best practices. Broadly, these can be separated into three distinct overarching tactics.

  1. Build strong customer relationships
  2. Create the right customer experience and environment
  3. Leverage their expertise and feedback

Let’s explore each area and the tactics that fall under them in more detail. 

Building strong customer relationships

All relationships rely on a few things to work well. One of these is really knowing who you’re in a relationship with. The best customer relationships are created through thoughtful interactions that show a customer that they mean a lot to your business. 

1. Know your customers

That’s why you need to start your customer retention strategy with some elementary work on understanding your customers. Ask yourself the following:

  • How well does your business currently know your customers as individuals?
  • What are their wants, needs, painpoints, and goals?
  • How well is your product or service meeting their needs and aspirations?
  • How do your customers want to interact with your brand?
  • How are you currently interacting with your customers and are these communication channels working for you and them?
  • How committed are your customers to your brand (would they move to a competitor in a heartbeat)?

 Data from sales, marketing, and a customer community will provide you with some of these answers. But the best source is direct from customers, asking them via a community, focus group, informal chat or survey. Use the answers from this to inform parts of your retention strategy, such as informing what product features will improve the stickiness of your brand or where you can boost your customer experience to increase their loyalty. 

2. Build trust with your customers

All relationships need trust, and for businesses, this is developed in a multi-faceted, multi-departmental way. Actually, it needs to be on everyone’s job description, because they may all play a role in representing your brand to a customer and contributing to their impression of your trustworthiness. Trust is so important to today’s businesses, that Edelman has dubbed it “the new brand equity”.

Customers must trust that you will deliver, through your products and services, and when they need support. Limit the number of bugs that occur in product upgrades and have a seamless and timely way to report and resolve any issues that do occur. Let customers know of any downtime that may occur due to maintenance or upgrades. Act on any customer complaints in a rapid manner, and escalate if needed so senior management knows of recurring issues that may impact trust and loyalty. 

Simultaneously, brand trust can be built through consistent, open communications. This is where customer communities can prove helpful as they offer a natural way of interacting with customers. When discussions are occurring organically in a community, your customer support, marketing, and sales teams can become part of the conversation. Just make sure the discussions add value, instead of simply selling your products and services. 

Get trust right and upselling will soon follow.  7 in 10 customers state that they will buy more from brands that they trust. 

3. Communicate your brand vision and mission

Closely linked to trust are your mission and purpose. Consumers are increasingly aligning themselves with brands that stand for something that they also believe in. Indeed, 62% of consumers state that they consider a brand’s values and practices when making purchasing decisions. 

Sharing a common purpose is a surefire way to build a lasting relationship. Patagonia regularly hits headlines for its stance on fighting the climate crisis. Meanwhile, B2B brand SAP defines its purpose as “a quest to help the world run better and improve people’s lives.”

4. Create the best first impression

Making the best first impression when a customer first joins your ranks, will help to convince them to remain with you for longer. Consider how your onboarding experience can complement your customer retention tactics by setting expectations early and communicating key things like your mission, vision, and the value customers will get from your brand. If you have a customer community, onboarding is the perfect moment to introduce them to the other customers and employees who are a part of it. 

Think about your communications during this time and how they can help your new customer make the most from your product, and connect with your brand. You can offer them training or content to learn how to use your product in different ways. Or you might want to connect them with their peers so that they can chat about your product, their goals, and any challenges they might encounter along the way. You might want to engage customers with personalized tips over a period of days and weeks so the information doesn’t overwhelm them. 

Go to Part 2 

Please sign in or register for FREE

If you are a registered user on Zapnito, please sign in