Customer retention plays one of the most important roles in generating revenue. The amount of time, energy, and money required to generate new customers are immense compared to generating additional sales from existing customers. You’ll make money generating one-off sales, but you’ll never grow your brand or become profitable long-term.
Every business generates one-off sales. However, if that’s your main strategy, you’re spinning your wheels. The majority of your profitability will come from repeat business.
What is customer retention?
Customer retention is exactly what it sounds like – retaining your customers and generating their repeat business. However, retaining customers involves more than getting a few sales from the same person. Ideally, you want customers to frequent your business on a regular basis long-term and avoid doing business with your competitors.
How to measure and utilize customer retention data
Capturing data regarding customer retention seems simple. For the most part, that’s true. It’s not hard to figure out your retention rate when you’re already tracking sales and have a customer database. However, that information isn’t useful in terms of making improvements.
To make improvements, you need more data. According to experts in customer retention, you need a firm grasp on three fundamental factors: your retention rate, when your users drop off, and why those users drop off. This makes sense because you can’t make improvements when you don’t know where you’re losing customers to your competitors.
Capturing and analyzing this depth of data is something you’ll need to hire out to a specialist. However, the general idea is that once you identify when your customers are leaving, you can investigate to pinpoint the specific reasons.
For instance, your customers might not like having to sign up for a membership just to get your product. They might be willing to sign up initially, but not on a regular basis. If you discover your customers drop off around the time they’re asked to renew their membership, that might indicate the membership – not your product – is the problem.
Prioritizing customer retention will boost your revenue
There are endless metrics that show why repeat customers are better than new customers. For example, repeat customers spend more money on a single purchase and they’re easier to persuade since they already know you. Repeat customers also become valuable brand ambassadors rather quickly when you have a great product and provide high-level customer service.
Focusing on customer retention will help you:
- Prevent customer churn. According to CallMiner survey data, U.S. businesses lose $136.8 billion each year when customers switch to competitors under avoidable circumstances.
- Identify areas where customer service can be improved. A 2017 American Express Customer Service Barometer survey revealed that 33% of Americans would switch to a competitor after just one bad experience with a brand. If your customers are dropping off because of bad customer service, that’s easy to fix.
- Develop an enticing loyalty program. Loyalty programs are great for retaining customers. The only problem is coming up with a desirable program. On your quest to identify where customers drop off and what makes them stick, you’ll learn more about what your customers like. You can use what you discover to shape your loyalty program.
Focusing on customer retention is an opportunity to build customer loyalty
With your focus on increasing customer retention, you’ll automatically be building customer loyalty. Resolving issues that cause customer churn will automatically strengthen customer satisfaction, which will contribute to customer loyalty.
Once you increase customer loyalty, more of your customers will jump into the role of brand ambassador, which will bring in new customers for you to dazzle with your streamlined processes and improved support.
Customer retention holds exponential power
Increasing your customer retention rates by just 5% can boost your profitability by up to 25%.
Similarly, and depending on your industry, reducing your churn rate by 5% can boost your profits by 25-125%.
The secret to a successful business is customer satisfaction
The formula is simple: great service creates happy customers that continue to buy from your brand over a long period of time. Those happy customers bring others to your business by posting positive reviews around the internet and becoming brand ambassadors.
When you focus on customer retention, you’re not just trying to please people – you’re investing in the long-term success of your business.