Customer Retention: How to Measure It and Improve It
Companies and their leaders are always looking for ways to lower costs.
Companies seeking to trim their budgets will often look at manufacturing costs, training, and onboarding expenses, hiring expenses, and even employees’ salaries. But one cost-saving method that is often overlooked is customer retention.
Customers give life to businesses in a way that no other factor can. Much of why companies exist and continue to exist is because of customers. Finding customers is already hard as it is. But keeping them? Now there’s a Herculean challenge!
What is customer retention?
Customer retention happens when companies are able to convert prospective and existing clients into repeat customers, ultimately keeping them from switching to competitors. Customer retention should begin at the very first contact and last all through the entirety of the customer's relationship with the brand.
Why is customer retention important?
It’s cheaper to keep current customers than it is to find new ones.
How so? There are two reasons:
1. Because returning customers tend to buy more from a company and will even recommend its products or services to other people. That’s free marketing! Who doesn’t want that?
2. Through retaining customers you don't need to invest in acquiring new customers to replace churning customers.
Customer retention is valuable because it gauges how good a company is at keeping current clients satisfied. Think about this: a 5% increase in customer retention can improve a brand’s revenue by 25% to 90%.
Some of customer retention’s benefits include:
Valuable feedback on customers' preferences
Sustainable business growth
Increased Customer Lifetime Value
Improved customer loyalty
Customer acquisition cost savings
Minimized customer churn
Who takes care of customer retention?
The Customer Experience team is typically in charge of customer retention. Customer retention needs to be the responsibility of a team with a broad skill set and the ability to analyze every touchpoint throughout the entire customer lifecycle. These professionals will identify pain points and opportunities for improvement throughout the customer journey, and create a strategy for how to reduce friction and improve customer retention.
Ultimately, however, while Customer Experience handles the nuts and bolts, retention is everyone's responsibility. You need a good product, at a good price, with a great support offering to keep customers coming back.
How to measure your customer retention rate
One of the first things to do when measuring customer retention is to set a time frame. Whether it’s a week, a month, a year, or more, always know what period you would like to get statistics for. Then gather the following data: number of existing customers at the start of a time period, number of customers at the end of a time period, and new customers added during that time period.
Now it’s time to calculate:
1. Determine the number of customers you have at the end of a time period. (CE)
2. Then subtract the number of new customers gained during that time period. (CN)
3. Then divide that by the number of customers at the start of that time period. (CS)
4. Finally, multiply the result by 100.
Tips on how to improve customer retention
1. Make a good first impression
From the look of your website (how user-friendly it is, background colors, how your buttons look like, etc.), to the quality of your products/services, and even how great your after-sales support is – all of these play a vital role in creating a great, lasting first impression.
2. Be transparent
Customers are sick and tired of being lied to. So make it your goal to be as transparent as possible. And while realistically you can’t divulge everything, at least be honest about the things that matter. Give customers realistic expectations so you aren’t setting them up for disappointment. Make sure that customers are aware of your product/service’s capabilities and limitations. Also give them valuable tips and tricks on how to maximize the use of your product or service.
3. Improve your onboarding process
Make your onboarding process as smooth as possible. Map out the onboarding journey from end to end and gather as much feedback on each touch point; from surveys, from speaking with customers and from asking the team. The aim is to determine areas in your onboarding process where unnecessary delays or avoidable challenges occur, as these could cause your customers to feel stressed. Once you’ve figured those out, work with your team to remove them. When you provide customers with a smooth and efficient onboarding process, the chances of them staying loyal to your brand are very high.
4. Invest in your customer support operation
Do you know what customers aren’t big fans of? The lack of a human connection when they contact companies. According to a study by Oracle, around 73% of US adult consumers fall in love with a brand because of friendly customer service. So remind your representatives to always:
a. Have a friendly, non-judgmental tone
b. Be empathetic
c. Be relatable
d. Be patient
e. Be prompt in responding
f. And not to use jargon
5. Make it personal
In a world where most brands are so obsessed with just selling, selling, selling – dare to stand out! Try and build genuine and lasting relationships with your customers. More often than not, it’s the simple things that really touch customers’ hearts. You have access to basic information about your customers: their age, favorite holiday, favorite color, spending behavior, etc. Use those to your advantage. If a customer is celebrating a birthday, send them an inexpensive yet thoughtful gift with a card that has a heartfelt message in it. If you can, set aside a reasonable budget for personalized swag items such as inexpensive but high-quality mugs, t-shirts, magnets, coasters, notebooks, pens, umbrellas, and others. Not only can you use these swag items as gifts, but you can also utilize them as promotional materials
6. Invest in your team.
Don’t forget, some of your best brand ambassadors are your employees. They should live and breathe what your company is about, especially your customer support team. Customer service teams deal directly with customers, and that interaction between them will play a vital role in how customers look at your company. Happy employees work better, that’s just how it is. When there is opportunity for growth, offer it up to everybody in the company. You never know, there might be some hidden gems in your team that you haven’t discovered yet. When it comes to training and onboarding, don’t rush it! It should always be quality over quantity. Refresher training is also useful in providing employees with updated information and processes.
7. Gather valuable customer feedback.
Customers evolve too and so do their preferences. That is why it is important to send out feedback and survey forms to learn more about what's making your customers smile or frown. The more data you have on what customers would like to see more of from your company and your products or services, the easier it will be for your team to achieve customer satisfaction!
8. Use social media for insights – and act on them
It isn’t news to anybody that billions of people are now on social media. They not only use it to connect with people, but also to reach out to brands. Connecting with customers via social media will allow you to provide support to them whenever they need it, and it can also be a great way to gather feedback. Try not to be so defensive when it comes to negative reviews. Instead, get your team to carefully examine all those not-so-nice comments, sift out the valuable data, and use it to come up with a formula on how your product can be better or how your service can be more effective. If you’re new to analyzing customer reviews, it can seem intimidating. But as you and your team get used to it, you will see that reading and acting on reviews, both good and bad, can work wonders for your brand.
9. Constantly work on quality.
At some point, your competitors will come up with more innovative ways to improve their product/s, you should too. While budget will be a big factor when it comes to quality improvement, always strive to find a balance between saving a few bucks and improving your offerings. Improvement doesn’t have to cost a lot, but don’t be cheap! It will cost you more when customers start leaving you because of poor quality. Also, you have all the data you need and the formula, so there’s no reason for you and your team to be complacent when it comes to your customer retention rate. Remember: complacency is continuous success’ biggest hindrance.