Customer retention is described as a business strategy designed to maintain customers for a certain period. It is cited as one of the most important and comprehensive quantitative measurements that characterize the state and possible further trends of commerce.
Customer retention is important. In most organizations, it has been used as an indicator of the extent of clients’ satisfaction, longer customer lifetime value, and better brand image.
Customer retention is considered important because the cost of selling a product to the same customers is much cheaper than trying to find a new customer.
Harvard Business Review reported that the acquisition of a new client costs 5 to 25 times as much as retaining an old client. Besides, a 5% increase in the overall customer retention rates, would lead to an increase in profits by up to 95%.
Key Metrics and KPIs for Customer Retention
Understanding what metrics and KPIs are relevant and how one can properly follow and implement them greatly impacts customer retention ratios.
Here are some of the most critical ones:
1. Customer Retention Rate (CRR)
Definition: The proportion of people that continue patronizing the organization in a given period.
Formula:
CRR=(Number of customers at the start of a certain period ÷ Number of customers at end of a period − Number of new customers acquired during the period​)×100
Importance: A high CRR indicates that your customers find value in your product and are less likely to churn.
2. Churn Rate
Definition: The proportion of your clients who stop using the product in a given period.
Formula: Churn Rate= (Number of customers that have left during a certain period/Total number of customers at the start of the period) ×100
Importance: A low churn rate is very significant in ensuring that there is a steady flow of clients in organizations.
3. Customer Satisfaction Score (CSAT)
Definition: CSAT is the extent to which a customer has satisfaction concerning a product, service, or interaction.
Method: Normally, CSAT questionnaires always seek to find out the level of satisfaction from consumers and this is mostly on a scale of 1 to 5.
Importance: The CSAT helps in determining retention because if a customer scores high on the scale it means that the customer is satisfied with the product or service that you are offering him or her.
4. Net Promoter Score (NPS)
Definition: NPS focuses on the willingness of consumers to recommend your product to other consumers.
Method: Customers are asked about how likely they are to endorse your product, on a scale of 0 to 10.
Importance: A high NPS indicates that the customer is not only a repeat customer but also a satisfied customer who would recommend the product/brand to other customers.
5. Customer Lifetime Value (CLV)
Definition: Determines the total amount of money that a business can generate from a particular customer account throughout the business relationship.
Formula: CLV=Average Purchase Value×Average Purchase Frequency Rate×Customer Lifespan
Importance: Recognizing CLV assists firms in the proper allocation of their available resources and the fine-tuning of their marketing and customer retention campaigns. This shows that your customers have a high value and can be expected to yield good returns for a long time.
Strategies to Improve Customer Retention
1. Proactive Onboarding
Effective implementation of onboarding means that the new company’s customers can grasp the value that the product will present to them as soon as possible.
This way, it provides a foundation for building a long-lasting relationship and minimizes chances of customer attrition.
2. Regular Check-Ins
Communication with your clients should be constant. Check on them occasionally to know how they are faring, identify if they need any help, and address the issue.
Such touchpoints demonstrate to the audience and clients that you care for their success and improve relations.
3. Personalized Customer Journeys
Every customer is unique. Providing tailored solutions for the needs and wants of the consumer makes the experience more authentic.
The customer experience approach involves using quantitative data to tailor communications so that each customer feels appreciated and recognized.
4. Leveraging Customer Feedback
“There is no better source of information in business than the customers themselves. It is also important to incorporate forums of feedback to receive and analyze real-time consumer feedback.”
Apply this information when making the right changes to products and services, this will increase the satisfaction levels of customers and decrease the churn rates.
5. Incentivizing Referrals
Satisfied customers are your best advocates. Offer them some form of incentive for them to refer their friends and family to the business.
Apart from this, it reduces the cost of acquiring clients and targets the clients who are more likely to make conversions.
Final Thoughts
Customer retention is not just about stopping customers from leaving a business, but in making those customers advocates for the business.
Therefore, it is possible to apply comprehensive metrics, KPIs, and accurate strategies to foster better relationships and cut the clients’ churn rate for long-term and steady revenue growth.
