In case you are not familiar with the term; customer retention refers to the ability to retain customers over a specified period of time. High customer retention means customers tend to return to, continue to buy from, or do not defect to another business, or stop coming to you entirely. In most cases organizations aim to reduce customer defections, or “switching”. Customer retention starts with the first contact an organization has with a customer and continues throughout the entire lifetime of a relationship and successful retention efforts take this entire lifecycle into account. A company’s ability to attract and retain new customers is related not only to what product or services it offers, but also the value it creates for the customer, and the reputation it establishes within and across the marketplace.
The benefits of customer retention are vast. Retaining connected customers is more preferred than acquiring the new customers, as businesses understand that acquiring new customers cost much more than keeping the connected ones. That is why nurturing and incentivizing these relationships are so important. By offering discounts/offers, rewards, and customer loyalty programs helps in retaining customers as well as enhance revenue.
Successful customer retention involves more than giving the customer what they expect. Generating loyal advocates of the brand means going above and beyond expectations.
So, is your business doing enough to retain customers? Well, let’s begin by determining what your current retention rate is.
How to Calculate Customer Retention
The following formula will help you to calculate your businesses existing customer retention rate:
Customer Retention Rate = ((# Customers at End of Period – # Customers Acquired During Period)) / # Customers at Start of Period)) X 100
For example: Imagine you start the year with 50 customers, gain 10 new customers in the first quarter, and have three customer churn.
((57-10)/50)) x 100 = 94% retention rate
Once you are able to calculate this, you should then audit your customer churn to determine whether there are similarities between why certain customers left. If you can pinpoint the cause for customer churn then you can make changes accordingly.
Why Is Customer Retention So Important?
The main reason why customer retention is important is its direct impact on profitability. Research by John Fleming and Jim Asplund indicates that engaged customers generate 1.7 times more revenue than normal customers, while having engaged employees and engaged customers return a revenue gain of 3.4 times the norm. Furthermore,
- It costs 5 percent more to acquire a new customer than it does to keep a current one.
- It costs 16x more to bring a new customer up to the same level as a current one.
- 82 percent of companies agree that retention is cheaper to execute than acquisition.
- A mere two percent increase in customer retention can lower costs by as much as 10 percent.
Customer Retention and Your Bottomline
- The average repeat customer spends 67 percent more in months 31-36 of their relationship with a business than they do in months 0-6.
- A five percent increase in customer retention can lead to an increase in profits of between 25 and 95 percent.
- Lowering your customer churn rate by five percent can increase your profitability by 25 to 125 percent.
- Repeat customers spend 33 percent more than new customers.
- A 10 percent increase in customer retention levels results in a 30 percent increase in the value of the company.
How Can Businesses Better Retain Customers?
Today’s digital and mobile driven consumer exposes an opportunity for businesses to retain consumers more effectively. Traditionally, businesses had to rely on snail mail or punch cards to keep customers coming back. However, recent statistics show that consumers prefer communications through increasingly digital means. For instance:
- 80 percent of businesses surveyed rely on email marketing for customer retention.
- 56 percent of survey respondents considered email marketing to be the most effective method of reaching customer retention goals.
Since e-mail marketing is said to be the best way to communicate and retain consumers, businesses can leverage this channel with specific marketing tactics that drive engagement. Digital rewards or eGift cards are a great way to connect with your clients and establish customer retention. By connecting your e-mail list, you can instantly send, or schedule digital rewards to clients using Perkalead’s eGift card platform. Through drip e-mails you can consistently incentivize customers with eGifts as a show of appreciation for their business.
If you’re looking for an effective solution for improving your customer retention rate, sign up for Perkalead today, and make rewarding and incentivizing a no brainer for your business.