Customer Retention 101: Key Metrics, Strategies, and Best Practices
Published: February, 2024
Last updated: : February, 2024
Numerous studies show that it costs five times more to acquire a new customer than to retain one. Also, it makes a lot more sense to invest in your hard-earned customers than cold leads. Despite this, many companies continue to launch costly marketing campaigns in the hope of attracting new customers. If you want to make your business more efficient and stop wasting money down the drain, a customer retention strategy is essential. Fortunately, we’ve prepared effective ones for you. Whether to create a push notification campaign or personalize customer support interactions, you’ll learn a few ways to retain customers. Keep reading to find out more!
What is customer retention?
Customer retention is the ability of a business to keep its existing customers and prevent them from switching to competitors. Companies typically measure a customer retention rate by calculating the percentage of customers who continue to make purchases or use their services over a period of time. Client retention rate is essential in determining customer satisfaction and the effectiveness of a company’s product quality, customer service, and marketing efforts. By maintaining this indicator high, businesses can build long-term relationships with their clients, increasing brand loyalty and revenue growth.
What are the benefits of customer retention for businesses?
Many people think that new clients drive their success, but the facts suggest otherwise. Companies that retain customer loyalty make more money with less work. Let’s look at the numbers to see the bigger picture.👉 Repeat customers cost you less than new customersResearch shows that you need to spend 5 to 25 times less to retain customers than to acquire new customers. So, if you increase customer retention rate, chances are your business will earn more by putting in less effort. 👉 Existing customers are more likely to buy a new product from youIf you want to make more sales, investing in existing customers is a smart idea. According to Invesp, only 5–20% of new clients will likely purchase a product from you. Meanwhile, there's a 50% chance that an existing client will try a new product.👉 Existing customers spend more than first-time customersPeople who have already bought from you are 50% more likely to try your new product or spend 30% more on it than someone who has never bought from you before. So, if you want to boost the average check amount, you should improve customer retention.👉 Building customer satisfaction value and retention helps increase customer lifetime valueLow customer retention results in lower customer lifetime value. No business owner wants that because loyal customers tend to buy more over time by upgrading their products or services. Plus, your devoted clients help to spread the word about your brand, further driving sales and growth.
Key customer retention metrics
One way to find out your client retention rate is to measure it. To do this, you need to familiarize yourself with its formula. However, it’s incomplete without other metrics. Below you can find key customer retention metrics to help you better understand and calculate your client retention rate.
🧲 Customer retention rate
Customer retention rate is one of the most important metrics to track. It measures the percentage of customers that continue to do business with your company over a specific period of time. To calculate it, use this formula:
where S is the number of customers you had at the beginning, E is the number of customers you had at the end, and N is the number of customers you acquired during the measurement period.
🔙 Customer churn rate
Another important metric that helps to evaluate customer retention process is the customer churn rate. With its help, you can calculate the share of clients that have ended their ties with your brand. Utilize this formula to find out your customer churn rate:
where L is the number of lost customers and S is the total number of customers at the beginning of the time period.
♾️ Customer lifetime value
Customer lifetime value shows the projected revenue a customer will generate over the course of their relationship with your brand. By analyzing the customer lifetime value, you can determine how much money new and repeat customers will bring you in the future. You can calculate this metric using the following formula:
where C is a customer value and A is an average customer lifespan. To find the customer value, you should multiply the average purchase value by the average number of purchases.
🔁 Repeat customer rate
Repeat customer rate represents the percentage of customers who make more than one purchase from your brand. By calculating this metric, you can find out how loyal your customer base is. To calculate the repeat customer rate, make use of the following formula:
where R is the number of return customers and T is the total number of customers.
🛍️ Purchase frequency rate
The purchase frequency rate provides insight into the number of times consumers make a purchase from you within a specified period of time. To calculate it, use this formula:
where O is the total number of orders and U is the number of unique customers.
5 effective strategies to retain customers
Now that you’ve familiarized yourself with key benefits and metrics of customer retention, it’s time to talk business. Here are the top five strategies for increasing customer loyalty, retention, and profitability.
1. Reach customers through different channels
The best way to stay top of mind is to constantly remind your customers about your brand. This can be done by reaching them through different channels. These include:
By diversifying your channels, your message can reach your customers where they are most likely to see it. In addition, this strategy allows you to personalize your communication to better connect with your customers. Pro tip: To effectively reach your customers through in-app and/or web push notifications, use Nashpush, an easy-to-use interface for push alerts. It offers multi-platform support and allows you to run a few push campaigns at the same time.
2. Create a customer feedback loop
To start a successful retention customer journey, you need to create a customer feedback loop. This way, you can constantly collect customer feedback and improve your products or services. To get client feedback:
create focus groups
implement a live chat
send personalized follow-up emails after each purchase
offer incentives for customers to leave reviews
encourage customers to leave reviews through various channels (email, social media, or app)
After collecting all the feedback, distribute it to different teams within your organization for analysis and improvement.
3. Offer personalized customer support
Impress your customers by providing personalized support. Start conversations with information about the customer's purchases and conversation history. This will help save customers time, show them that you value them, and build trust and loyalty.
4. Encourage loyalty with incentives
Our next piece of advice is to reward people who stick with your business to increase customer retention. This way, you can keep them coming back and make repeat purchases. To encourage customer loyalty, offer incentives like:
exclusive access to new products or services
4. Create a customer communication calendar
A customer communication calendar is a planned schedule for reaching out to your customers. With its help, you can find out the last time a customer engaged with your brand and remind them about your business through an email or message.A customer communication calendar is extremely useful when a customer's subscription is about to expire or when you have new products or services to announce. However, you can also use it to send personalized birthday or anniversary wishes to your customers.
Customer retention is not just about keeping existing customers happy, but also about maximizing their lifetime value and fostering long-term loyalty. By implementing the best retention practices described in this article, businesses can create a customer-centric approach that not only boosts profitability but also strengthens their brand reputation. Now, armed with these insights, you can take the necessary steps to build strong relationships with your customers. Good luck!