Improve customer retention rates and better your business by keeping customer needs in mind
When growing your customer base is your ultimate goal, you need to make sure the customers you have don’t disappear. Understanding and improving your retention rate is key to long-term business growth.
With only 6% of U.S. businesses making customer retention a top priority, focusing on your retention rate can be your opportunity to pull ahead of the competition and keep your business on an upward track. Retained customers will offer you the greatest lifetime value possible.
We’ll guide you through what retention rate is, why it matters, and how your strategy can keep it growing.
What is retention rate?
A retention rate is the measurement used to determine how many customers, patients, or clients a business is able to keep over a given period of time. Usually expressed as a percentage, this rate is a key signal in how likely your company is to thrive in the future. By knowing your retention rate, you can make changes to your business strategy as soon as a drop occurs.
Retention rate can be helpful to measure in any industry, as it helps gauge the level of loyalty among buyers. It’s particularly helpful for companies that offer subscriptions or memberships. This is because their profit is more heavily affected by how many users are sure to return in any given month or year. Some common users of customer or user retention rate are software-as-a-service (SaaS) brands, gyms, meal kit services, and app developers. Other industries like healthcare, home services, auto services, and professional services also track retention rates to better understand who is coming back time and again.
How to measure retention rate
In order to measure your customer retention rate (CRR), you can use the following formula:
CRR = ((EC – NC) ÷ SC)) x 100
Simply plug your numbers into each of the variables as follows:
- EC: The total number of customers at the end of a period
- NC: The number of new customers gained within the given period
- SC: The total number of customers at the start of the period
The average company will have a 20% retention rate over eight weeks. Hitting a 30-35% retention rate in the same time frame is when you’ll know you’re punching above your weight. Due to the nature of the formula, this rate tends to be much higher when you measure over a short period of time and lower for first-year analyses. Because of this, many business owners will keep track of several retention rates (e.g., monthly, quarterly, or yearly rates) to get a clear look at their performance.
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Why customer retention rate matters
It pays to keep your customers coming back. When you increase your retention rate by as little as 5%, you can directly increase profits by 25% to 95%. Consumers are driven to buy from brands they trust. Over time, existing customers will begin to spend 67% more than new ones.
It’s also important to recognize that customer acquisition is expensive. It costs 5-25 times less to retain customers than to acquire new ones. So, if you’re constantly needing to spend on marketing to maintain the size of your user base, you won’t be as productive as you could be. Keeping retention rates high will help you improve your bottom line.
In terms of business data, your retention rate can also give you a closer look at your churn rate, so you can be more proactive about finding actionable solutions. While churn rate measures how many people have canceled their memberships or stopped buying your products or services, focusing on customer retention can help you win customers back before they choose a competitor brand.
Retention rates also give you insight into how long a first-time user will stay with your brand, so you know where your customer growth rate needs to be within any given time period.
How to improve retention rate
Getting higher retention rates depends on your ability to provide a consistently great customer experience. No matter how long a customer has been with you, they want to be treated well—or they’ll choose a competitor who treats them better.
Below, we provide three ways you can easily treat each of your customers like royalty to ensure they stay with your brand.
01. Improve your customer service
Poor customer service can kill your retention rate and costs businesses $75 billion per year. When your customers are unable to get answers or resolve issues with you in a timely manner, they’ll be discouraged from returning because they don’t feel like you care.
Customers appreciate having multiple ways to reach you—for example, via email, phone, SMS, and social media—so they can reach out through whichever avenue is most convenient for them. They also want to know that you can respond in a timely manner, usually within 24 hours but research shows that responding within 5 minutes is best. Businesses can improve customer satisfaction by openly displaying and sticking to set customer service hours. This way, no one ever feels like they’ve been left hanging.
By implementing Podium Feedback into your strategy, you can get a proactive pulse on what customers think about your business. When a bad experience occurs, you’ll immediately receive an alert. This way, you can resolve the issue through a purposeful one-on-one conversation that turns a potential churned customer into a retained customer.
02. Show your gratitude
Customers want to feel like they matter to your business. In order to build customer loyalty and retention, you need to show them that your business can give them more than a product in return for their investment.
You can keep customers happy by sending your loyal customers special offers and educational content that truly helps them get more out of your products or services. While focusing on customer service may improve your relationship with people who reach out, this strategy can help you reach all existing customers with ongoing benefits.
Of course, this doesn’t mean you shouldn’t continue listening to what your customers are saying online. You can encourage customers to love and show appreciation for your business online by thanking them for their social media posts and online reviews.
03. Personalize the customer experience
In 2018, 33% of all churned customers ended their relationship with a company due to the lack of a personalized experience. Showing your customers that they’re one in a million, rather than just a part of a million, can be all the difference they need to choose to stay.
An effective personalized experience starts from day one through the simple act of collecting your lead’s name, phone number, and inquiry through Podium Webchat. As your lead becomes a customer, you can gather further data to send gifts on birthdays, membership anniversaries, and more.
More retention equals more profit
When customers know they can rely on your business, they’ll boost your sales and keep your business growing. By implementing a strategy that allows you to focus on your existing customers as much as your new ones, you can actively increase your retention rates, and boost your profits along the way.
