After you’ve created a killer app and identified your target audience, company growth can take place — and you must devote just as many resources to keeping existing customers happy as you do to selling to new ones.
And that’s why your customer success team exists — to help customers see the value and achieve goals using the products or services you provide.
But there’s more than just answering their phone call and helping them onboard with the software. It’s about creating a process that fosters communication, builds trust, and promotes mutual growth.
Read this guide to discover everything there is to know about customer retention — from measuring it to fostering it with every new customer.
- Customer Retention
- Retention Rate Formula
- Why is Customer Retention Important?
- Customer Retention Rate by Industry
- Customer Retention Management Strategies
Customer Retention
Customer retention is a company’s ability to retain its customers over time. It’s a percentage-based metric measuring how many customers were retained at the end of a given period.
Retention refers to the ability of companies to keep their customers happy. Customer retention depends on how many new customers you acquire and how many existing customers cancel their subscriptions, don’t return to buy, or close their contracts.
Before diving into specific ones, let’s go through some basic customer retention strategies.
What is customer retention management?
Retention management is keeping existing customers happy so that they continue buying from you long after they’ve bought from you. By encouraging these customers to stay loyal to your business, you encourage them to become repeat customers.
Who manages customer retention?
Customer retention is typically managed by customer success. Their job is to work with and please your customers throughout their business duration with your company.
Customer success teams should work directly with your customers, but they should also work with other teams within the company to improve customer retention.
Customer Success should help teams like Sales or Customer Service and Support (CS&S) – roles that have the potential for direct impact on retention – organize, manage, and enhance all aspects of the customer’s experience. This way, your whole business works together towards consistently increasing customer retention.
Customer retention is measured by customer churn rate — more on that later.
Customer Retention Formula
Customer retention rate is computed by dividing the number of customers acquired during the period by the total number of customers at the start of the period and multiplying the result by 100.
Before you begin to consider a retention strategy, understand your current customer retention rate.
Define a period, for example, “quarterly” or “yearly.” Then, follow this formula:
[ (# Customers at the end of the period — # Customers Acquired During Period) / # Customers at Start of Period] x 100
For example: If you had 20 customers at the beginning of the year, gained five new customers in the first three months, and lost one customer, then you’d be left with 14 customers.
[ (24 – 5) / 20 ) ] x 100 = 95% retention
Here’s another example: You have 44 customers, you gain 12 new customers, and 13 customers churn:
[ ( 43 – 12 ) / 44 )] x 100 = 70% retention
Once you know your conversion rate, consider analyzing your churned customers. Determine whether there are any commonalities among them. You might find that customers with a specific budget or company size are more likely to churn than others.
Why is customer retention necessary?
Customer retention measures both how successful a company is in acquiring new customers and how successful they are in keeping existing customers happy. It also increases ROIs, boosts loyalty, and attracts new customers.
It’s easier and cheaper to keep existing customers than acquire new ones. Returning customers spend more and frequently buy, referring their friends and family. Only a 5% increase in customer retention can increase company revenue by 25-95%.
The numbers don’t tell the whole story: retaining customers brings companies a ton of ROI.
There are a few reasons why customer retention is critical to company growth and success:
- Affordability: It’s 6 to 7 times more expensive to acquire a new customer than to retain an existing customer.
- ROI: A 5% increase in customer retention can increase company revenue by 25-95%.
- Loyalty: Retained customers buy more often and spend more than newer customers. They’ve learned the value of a product or service and keep coming back repeatedly.
- Referrals: Satisfied, loyal customers are more likely to sing a company’s praises and refer their friends and family — bringing in new customers, free of charge.
It may seem obvious that companies should strive to keep their customers. Still, when companies multiply and struggle to implement a strong customer support program, proactive support for existing customers can fall through the cracks.
Customer Retention Rate by Industry
According to a study roundup of Statista’s industry retention rates, the average customer retention rate varies across industries.
Those average rates are:
- Retail: 63%
- Banking: 75%
- Telecom: 78%
- IT: 81%
- Insurance: 83%
- Professional services: 84%
- Media: 84%
Use the industry retention benchmarks above to assess whether or not you are meeting customer expectations.
When you dedicate time, resources, and creativity to improving your retention, your current customers will be delighted and want to continue doing business with you.
Customer Retention Management:
How to Improve Retention Rates
- Highlight case studies during the sales process.
- Set expectations early and often.
- Communicate results regularly.
- Create a roadmap for the future of the relationship.
- Make memories around your shared successes.
- Ask for feedback and act on this information.
- Map out a consistent customer experience.
- Create a customer relationship marketing strategy.
- Keep a record of communication and any past problems.
- Make sure that the customer has a relationship with the entire team.
- Use reciprocity to increase loyalty.
- Empower customers with the tools they need to succeed.
Let’s now take a look at some strategies for customer retention management.
1. Highlight case studies during the sales process
You should focus on determining whether your company and the prospect would be a good fit.
Show previous case studies that reveal your company’s style and approach to customer communication and collaboration. You could also use testimonials from current clients to tell them how much you partner with them.
It’s similar to researching any big buying decision. You want to know whether and how it will work for you before you buy it. If the customer understands this, they will be more likely to set realistic expectations and be happier with their experience once they sign up.
2. Set expectations early and often
If you don’t set expectations and communicate these clearly, customers can quickly become upset. They might believe that you can deliver on specific goals, but they’re only seen after months six or additional initiatives.
Furthermore, your customers come from very different industries. Some customers may feel that your prices are too high, so they expect an extremely high level of expertise and “white gloves” customer service. However, some customers may not care about your brand but want to collaborate with you.
It’s essential to understand the different perspectives and communicate them clearly, so everyone knows what to expect from each other. Will keep customers happy with the relationship longer.
3. Communicate results regularly
If your product or service provides results and ROI for your customers, they’re more likely to stick around. Suppose a customer can point out that your company has influenced or increased leads, MQLs, SQLs, lifetime value, customer retention, etc. In that case, it will be much more difficult for the customer to say goodbye.
That means you need to set up a sound system for tracking the metrics that matter to the customer, which should relate to the goals you’ve established together.
Share your progress with your team. Furthermore, use a project management tool so that the customer can easily track how far along the team has progressed on a project.
4. Create a roadmap for the future of the relationship
Many people compare the relationship between companies and their customers to people’s relationships. It’s especially true when you think about the lifecycle of dating, which involves ups and downs. At some point, someone in the relationship wants to be sure that this is going somewhere. They want to know what the plan for the future looks like, and they want to know when they’re going to get there.
It can be easy to get into a routine when working with clients. Everything goes well, you know what they want, and you understand what works. You may want to know that you’re working toward the next step with someone, but you shouldn’t expect that person to take the first step.
It’s not fun to keep doing the same thing repeatedly. And it’s easy for the user to wake up one day to realize how uninspired and unmotivated the company team is, so they leave.
Your customer success managers should create and revise a regular relationship roadmap. Build-in steps for initiatives and projects that both parties can look to and be excited about during the current and next stage of the relationship.
5. Make memories around your shared successes
It’s known that people tend to remember negative experiences. Even though there are more positive events than negative ones overall, the negative experiences may last longer and be shared by more people.
Customer success teams should consider how they can create more memorable experiences around positive and successful interactions with their customers. When something negative happens, the company team overly communicates about the problem, discusses plans for fixing it, and apologizes.
But, when something truly remarkable happens, how much emphasis do you place on the event?
6. Ask for feedback and act on this information
To understand why customers leave your company, you need first to understand why they joined your company in the first place. Once you know the causes and the correlating signs of customer churn, you can work to avoid customer churn by proactively addressing issues.
Ask for regular feedback throughout the entire customer team, especially from the decision-makers. Track trends using a customer feedback tool.
For example, if you track by project, you can see which projects are most important to your customers and focus on improving them. You can also ask for more qualitative feedback from your customers on what contributes to their dissatisfaction.
Identifying and addressing these issues as soon as they arise will help you to keep your customers happy. The voice of the customer is a powerful customer retention tool — so use it.
7. Map out a consistent customer experience
Consistent delivery builds trust with customers. They’re familiar with the project and rely on your staff to get the job done and deliver the needed results.
Without this, most customer interactions are surprised, which means customers don’t like surprises. Even though they may say, they want to partner up with a more innovative, fun, risk-seeking company.
Create customer onboarding processes and kick-off meetings to ensure a smooth customer experience. For example, you could set an agenda for a meeting, share that schedule with others, and follow up with people who didn’t attend. You could also create workflows around projects and share them.
By having a process for each of these activities, your team will be more efficient, and customers will gain insight into what needs to be done.
8. Create a customer relationship marketing strategy
Have you thought about what the communication from your business looks like once a customer has signed up? Yes, she emails, but how often do they hear from the new business head who convinced her to buy?
Consider creating a newsletter sent from your company’s CEO to keep everyone up to date on what’s going on at the company. If you want to be successful, think about your customers’ education and training needs. Come up with exciting ways to continue building up the credibility of your business’ brand with your customers.
9. Keep a record of communication and any past problems
Your company’s culture, leadership, and business practices contribute to retention. Still, another way to prevent disruption in personnel changes is by adopting a CRM where you can store notes from meetings and phone calls, ongoing issues, and personal preferences of the customers, etc.
A detailed record of the relationship between the customer and the company will help the customer success team become an expert at helping the customer.
10. Make sure that the customer has a relationship with the entire team
If the customer’s sole connection with the company is based on a single relationship, there’s a high risk of churn when employees leave the company.
It’s essential to keep in mind that this is a dangerous place for customer retention, so your company should set a goal that customers build long-term relationships with multiple team members.
Ensure that someone else who works for the company is present when you take pictures with customers.
11. Use reciprocity to increase loyalty
Reciprocity is a social construct that has been found to increase loyalty. Kindness creates an obligation in the person who feels obligated to repay the kindness.
There are two kinds of reciprocity: surprise reciprocity and trumpeted reciprocity. Both of these can increase customer loyalty.
Reciprocity is a surprise gift or gesture. For example, if your company sends over tickets to a game the day of, or if a goal is achieved earlier than expected, this is an example of a bonus.
Reciprocity is when someone gives or does something for you because they want something from you. It doesn’t mean that you need to put every great thing you do in a monthly sales report, but it is clear to the customer that what they are paying for is something different than what they would typically expect from the relationship. As simple as taking behind-the-scenes photos at a video shoot and memorably packaging them as a gift for the customer’s team.
12. Empower customers with the tools they need to succeed
Nobody likes to wait around for support or assistance. We don’t want to spend our time searching for answers to questions we could quickly get answered by someone else. Instead of waiting for customers to contact you for help, give them the tools and resources they might need to succeed.
There are many ways you can empower your customers to help themselves and find the kind of support they need. You could send emails or newsletters with tutorial content covering details about your company or its latest features. You may also share links to your blog posts to help others accomplish their specific business goals.
Improve Your Customer Retention
Ready to get started making your customers happy to improve your company’s outcomes? Keep track of your business’ retention rates to see how you’re doing. If you want to improve your retention rate, follow the customer retention management strategies discussed.
We offer a range of services to give your business an online presence, allowing you to focus your time and energy on the rest of your company, contact us at MySalesScript.com.