How to Improve Customer Retention?

How to Improve Customer Retention?

Table of Contents
Table of Contents

In this article, we cover the following topics such as the definition of customer retention, the formula to compute your retention rate, and how business can implement various strategies to improve on your numbers.

Did you know the following stats on customer retention and its impact?

  • 82% of companies agree that retention is cheaper than acquisition.
  • 75% of consumers say they favor companies that offer rewards.
  • 56% of customers stay loyal to brands which “get them.”
  • 65% of a company’s business comes from existing customers.
  • Increasing customer retention by just 5% boosts profits by 25% to 95%.


In the world of Internet ...., it's important to remember your competitor is only one mouse click away - Doug Warner

Your task as a business owner is cut out. The conventional barriers to entry, like geography, domain knowledge and technology, are obsolete in the modern world. New competition emerges from unexpected quarters. Uber started a taxi service, and that led to a decrease in car sales. Today,  your biggest competition may not be even be in the same industry as you!

You have to outsmart your competitors to grow your sales. This is where some entrepreneurs get it wrong. They divert all their focus, energy and resources to customer acquisition. While important, acquisition at the cost of customer retention negatively impacts life time value (LTV) and long term growth of the company.

Higher customer retention leads to higher Life Time Value from all customers. And this is true not just for SaaS or internet based business models, but for traditional brick and mortar setups as well. Which is why loyalty programs have been around longer than the internet!

If you made it this far, then chances are that you want to know more about customer retention. Let us take a look at what we will cover in this article hereon.

  1. What Is Customer Retention Rate?
  2. How to Compute Customer Retention Rate?
  3. Why Customer Retention Is Important for Your Business?
  4. How Can Business Improve on Their Customer Retention Rates?
  5. Final Thoughts on Customer Retention

What Is Customer Retention Rate?

Customer retention rate is a measure of how many acquired customers stay with your business. The details and benchmarks change depending on the industry, but the general computation is as shown below.

How to Compute Customer Retention Rate?

Before implementing the right customer retention strategy, you should gather and identify your retention metrics. These metrics are crucial for you to compute your customer retention rate. Hence, the rate will give you the idea on how well your business is in retaining your existing customers.

Infographic related to customer retention
Infographic related to customer retention

In general, there are 3 data points that you need to gather before computing the customer retention rate:

  • The number of the customer at the start of the period (S)
  • Total number of the customer at the end of the period (E)
  • Sum of new customers acquired during the period (N)

Once you have this information, calculating customer retention is easy!

Customer Retention Rate = [(E-N)/S ] x 100

Let's say you own graphic design software. At the beginning of the month, you have a 1000 users. During the month, you acquired another 200 users. By the end of the month, you have 1100 users.

You can apply the formula shared above to compute the customer retention rate:

Customer retention rate = [(1100-200)/1000] x 100

                                             = 90%

If your customer retention rate is standing at 90%, it means that your business manages to retain 90% of your existing customers. Although it's quite unrealistic to strive for 100% retention rate, businesses should continue to push themselves to attain higher retention rate.

Apple manages to retain 92% of its iPhone users, which is quite a remarkable stat.

Although there's no clear guidelines or range of retention rate that you should refer to, businesses should set the retention rate that's realistic and ideal, depending on the size and nature of your business.

Why Customer Retention Is Important for Your Business?

Statistics on importance of customer retention
Statistics on importance of customer retention

Studies have shown us the compelling statistics below:

  • Increasing your retention rates by 5% increases profits by 25% to 95% - Bain & Company
  • Existing customers are 50% more likely to try out on your new products than a new customer - Neil Patel
  • The profitability of selling to an existing customer is 60-70% while selling to a new prospect is only 5-20% - Neil Patel

Sometimes, businesses focus their priority more on converting a new customer, and they forget about nurturing their relationship with their existing customers. But, little do they know that the current customers are their most valuable assets that they should focus more on.

Having loyal customers help you to reduce your business expenses lower. As you have already established good relationship with your customers, you can cut down cost associated with marketing and advertising expense.

Your happy customers will end up as your brand ambassadors and advocates. Most of the people often trust the recommendation from their close friends. Hence this serves as a powerful tool for your business to gain new customers.

How Can Business Improve on Their Customer Retention Rates?

Knowing the importance of a good customer retention rate is not enough. You will need to act on it and roll-out various policies to improve your customer retention rate metrics.

Ways to improve on customer retention
Ways to improve on customer retention

Here are some strategies that businesses can follow to improve on their retention rates:

Set Customer Retention Targets

You cannot improve what you do not measure. Set your customer retention targets. Use historical data to ascertain what your current customer retention rate is, and then set an improvement goal. It could be any number to start with, say 10%. Then review your performance at the end of the month and decide if the target was unrealistic or not.

Was the target too low? Raise it for the next month!

Was it too hard? What was the actual number achieved? Do you need to adjust the next month's target? Do it if you think that is the better strategy.

The objective, after all, is continuous improvement and not some magic number.

Track the Customer Journey

Tracking your customer's journey gives you immense knowledge about the customer's profile. You can follow each customer's timeline with the company, their past transactions, conversation history, and their likes and dislikes.

Converting an existing customer to a loyal, repeat customer does not happen overnight, and it takes time and dedication. Tracking the customer journey, engaging with them regularly is required. Once you have established a strong relationship with them, it's easier for you to sell them your premium products.

If you find it challenging to track your customer's journey as a small or  medium business owner, invest in a CRM software that can help you solve your problem. Read the article below to find out more.

What is CRM | Learn About CRM and How It Can Help Your Business
In this article, we cover on definition of CRM, who uses the CRm software, the types of CRM available in the marketplace, the statistics on how CRM has grown over the last few years, and great tips business need to evaluate before choosing a CRM software.

Provide Excellent Customer Service

Customer service is the act of providing and delivering professional help to customer's needs, both before and after your customers buy your products and services.

  • 90% of Americans use customer service as a factor in deciding whether or not to do business with a company - American Express
  • 93% of customers are likely to make repeat purchases with excellent customer service companies - HubSpot Research
  • 78% of customers will retreat from a purchase due to poor customer experience - Glance

Here are a few ways that businesses can improve their customer service quality:

  • Provide training to your employees, so they know the business inside out better.
  • Prepare a standardized script so that everyone can reply faster confidently.
  • Instill a good and positive attitude among your sales reps.

Investing in a CRM software with the capability to handle customer service will help immensely in this endeavor.

Run Loyalty Programs

Loyalty programs are a marketing strategy to encourage customers to continue buying your goods and services.

Here are some examples of loyalty programs you can run to improve your customer retention:

  • Issuing a membership card
  • Enrollment offers
  • Birthday gifts
  • Points redemption

Ask for Feedback

Customer feedback is the greatest tool a company can use to improve.

Your most unhappy customers are your greatest source of learning" - Bill Gates.

There is no such thing as a bad feedback. Understand the customer's perspective with an open heart. Businesses should take all feedback seriously and learn from their customers. Companies can improve and hone their products and services with the input given until it meets their customer's expectations.

Final Thoughts on Customer Retention

Giving rewards to your customers to make them happy

A well executed customer retention strategy can help lower your cost of sales, improve recurring revenue and get you better LTV (Life Time Value) numbers. Most importantly, it leads to happy customers, and that is a win in any book!

Are you interested in fostering a strong relationship with your customers, providing excellent customer support and improving your customer retention rates? Then try Deskera CRM! Sign-up for 30-day free trial today.

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