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Your best customers don’t just buy one product or use your service once. They come back again and again for more. Customer retention increases your customers’ lifetime value and boosts your revenue.
Customer retention increases your customers’ lifetime value and boosts your revenue.
It also helps you build amazing relationships with your customers. You aren’t just another website or store. They trust you with their money because you give them value in exchange.
What does customer retention mean? And how can you achieve customer retention through relationship-building strategies?
Let’s explore these concepts in depth and look at a few examples that you can apply to your own business.
What is Customer Retention?
The customer retention definition in marketing is the process of engaging existing customers to continue buying products or services from your business. It’s different from customer acquisition or lead generation because you’ve already converted the customer at least once.
The best customer retention tactics enable you to form lasting relationships with consumers who will become loyal to your brand. They might even spread the word within their own circles of influence, which can turn them into brand ambassadors.
But let’s start at the beginning. You’ve sold a product or service to a consumer, so what next? That’s when you build and implement customer retention strategies.
The Importance of Customer Retention for an Online Business
You might have heard that it’s easier and less expensive to retain customers than to acquire them. The most recent statistics indicate that it’s true.
For one thing, you’ll spend five times less money on customer retention.
Additionally, at best, your probability of selling to an existing customer is at least 40 percent more likely than converting someone who has never bought from you before.
Existing customers also spend 31 percent more than new leads, and when you release a new product, your loyal customers are 50 percent more likely to give it a shot.
Those statistics should prove sufficient to compel you to build and test out a customer retention strategy.
How to Calculate Your Customer Retention Rate
Companies can calculate their customer retention rates in different ways. It all depends on what period of time you’re examining, but many marketers use too many variables.
Let’s say that you have 2,000 existing customers over a period of two months. During that same period, 900 of them return to buy something else from you. Those are the two numbers that will allow you to calculate your customer retention rate.
However, you have to discount any new customers you bring on during those two months. They’re not part of the equation. You should only count the people who bought something from you prior to the two-month start date among your existing customers.
If you’re measuring your customer retention rate from January 1 to February 28, you would take into consideration the customers who bought from you prior to January 1. If a new customer buys from you on January 15, he or she doesn’t count.
How Do the Best Companies Retain Customers?
Customer Retention Examples
Some of the best customer retention examples are extremely simple, but they can boost profits by an incredible margin.
I mentioned earlier that your value proposition can have an incredible impact on customer retention, especially if you incorporate value that goes beyond your product or service. TOMS, an apparel company, does this beautifully. It sells shoes for profit, but for each pair a customer buys, the company donates another pair to someone who needs them.
It’s called One for One, and it’s a beautiful example of corporate social responsibility at work.
We’ve also seen lots of partnerships that can skyrocket customer retention. Starwood, a hotel chain, partners with several companies through which their customers can earn rewards toward future stays. If you rent a car from Hertz or belong to the Diners Club, you get more rewards.
Integrations are another prime example. It’s easier to use a software program when you can integrate it with software you already use.
Customer retention doesn’t improve overnight. However, if you have a few solid strategies up your sleeve, you can coax your existing customers back for more.
First, know your customers. Figure out what they want and need and where their pain points lie.
Next, find ways to surprise, delight, and motivate them. Get in touch. Ask for feedback and testimonials. Help them realize you appreciate their patronage.
You can test every strategy you try and continuously refine your approach. The more you test, the stronger your customer retention program becomes.