Why Customer Retention is Important and Strategies to Increase it

Alice Tavernese
By Alice Tavernese
By Alice Tavernese,
Nov 1, 2022
Hand shake

How important is it for your business to have repeat customers? What strategies can you employ to increase repeat purchases from your customers? Customer retention refers to the number of customers who remain loyal to your brand over time. This is especially true for the current ecommerce climate where repeat purchases are crucial and should be a part of any solid business strategy. You should recognize and understand how to discover your customer retention rate and be able to develop a practical retention plan that helps your business shatter its growth targets.

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Understand the Importance of Customer Retention

Customer retention is the process of engaging with your existing customers to attempt to get them to continue purchasing your products or services from your business. Customer retention should be an easy win for your business, as this audience has already engaged and likely knows about your brand. 

Customer retention is less costly and less difficult than acquiring new customers through customer acquisition strategies. Considering all the cash, time, and effort you can put into your paid marketing and organic social media campaigns, keeping your current client coming back should be a far easier task than coercing new clientele to purchase. You've invested a lot to get your customers, and you wish to retain as many of them as possible. To maximize your existing customer relationships, you should comprehend what customer retention is and the reason it's so important to your organization's development.

How To Calculate Customer Retention

Customer Retention Rate Formula

Your customer retention is measured in the form of a percentage and can be calculated with this formula: [(E-N)/S] x 100 = CRR

Determining your retention percentage can be calculated by the following steps: 

  1. Identify the time frame or period you want to review
  2. Gather the total number of existing customers at the start of your selected time period (S)
  3. Gather the total number of customers at the end of your selected time period (E)
  4. Finally, determine the number of new customers added within the time period (N)

Let’s say your company had a total of 100 customers at the start of your chosen time period (S), ended the period with 100 customers (E), and added 10 new customers over the period (N). They would have a customer retention rate of 90 percent: [(100-10)/100] x 100 = 90%.

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Tips on how to Increase Customer Retention

1. Create a Loyalty Program

Starbucks Rewards Program

One very easy way to increase customer retention is by creating a loyalty program for your customer base. This may be through client sign ups via email or even through your own app. The idea is to get your customers coming back for freebies (even % off coupons) through the collection of points or rewards just by continuing to purchase your products.

A popular example of this is the Starbucks Rewards program, where every time you purchase a coffee with a dedicated gift card you gain points that can be redeemed for free coffees, free food, and even free merchandise. Of course, there are plenty of ways to adapt this to your business model. The reward should be applicable and specific to your business. Many different types of stores offer a rewards program where the return customer can accumulate points to get a percentage off their purchase.

2. Offer Incentives for Referrals

Uber Account

Another great way to get a customer to come back is by offering a discount code through a referral code. This means one of your current customers already has your product, and they are given a specific code to pass along to their friends and family. In return they are given a discount just for referring someone else. This is a great method to not only retain your customers but also to gain new business from those who may not have been part of your marketing funnel if they hadn’t been referred by someone.

The Uber example above is great! Not only can you share your code with friends and family, but they give many options to post your code to social media, where anyone in their clients’ network can use the code, all the while their original client reaps the reward as well. It’s a win-win for all involved, and makes the client feel like they’re helping others out with this special code.

3. Be Transparent About Pricing

Pricing strategy

Price transparency can be quite the issue for businesses because with the ease of shopping online, the average shopper is becoming smarter – and significantly more aware of all the other options that become available to them. It’s become very quick and easy for people to search online for other deals on the exact same product. And when they find a better deal elsewhere, this usually leads to a drop in the trust of any other brand trying to sell that product for more money. 

Shoppers are always looking for the best deal, especially with Black Friday and Cyber Monday around the corner. When you as a business owner are transparent about the costs that go into creating, producing and shipping your products, you are providing comfort to your client base and value to your brand. In turn, this gives the customer confidence to return to your service or product because they feel as though they are getting the most value from your product.  

A recent 2022 study showed that 48% of US consumers abandoned carts because their extra costs (shipping, taxes & other fees) were too high. To combat this, try being more upfront about your shipping costs. A good way to entice your customers to buy is to offer free shipping at a certain spend. And a great way to get them to come back is make this free shipping offer a part of your business model so the customer always has that opportunity.

4. Provide Great Service

Credit Card tap machine

Even when you have an award winning product, if your customer service isn’t at par, you are sure to lose customers. No one wants to be treated poorly and it’s important to leave a good impression on your customer base with not only your product but also by the people you employ. Remember there are other humans behind all the screens and we all just want to be treated fairly and with respect. A good customer service experience will not always bring the customer back, but it will leave a lasting impression on the customer and could influence their buying decisions in the future. 

“Many companies have forgotten they sell to actual people. Humans care about the entire experience, not just the marketing or sales or service. To really win in the modern age, you must solve for humans.” — Dharmesh Shah, CTO & Co-Founder, HubSpot

5. Give Customers Easy Access to Support

CRM logos
website support box

Keeping communications with your customers clear and concise is a must. Customer service should be no different. We’re getting really close to one of the busiest shopping times of the year (Black Friday & Cyber Monday), so you should set clear expectations for when customers can reach you. You should specify when customers should expect to get an answer back from you so they won’t feel like being ignored. If you don’t already have one implemented, consider adding a Helpdesk to your website tech stack. A Helpdesk is a tool you can use on your website to help customers answer questions and get immediate answers by adding a messaging system to your website. Apps like Gorgias or Zendesk can help with exactly that, by providing chat functionality and even an AI ticketing system to better respond to awaiting customers. 

If you haven’t already seen, we have a full 20+ page Black Friday and Cyber Monday Ecommerce Prep Guide, chock full of helpful tips and tricks for the coming spending season. Click the link here to learn more!

To Sum Up the Importance of Customer Retention

Understanding how to calculate customer retention and its importance will help you improve not only your customer service, but can also help boost your bottom line. 

There are many ways to implement different kinds of systems that will show the customer that you appreciate their continued support. Such as a referral program, rewards program, and in general just providing them with the best service possible. 

For more great tips, follow us on social media where we discuss new ways to help small businesses owners with their marketing efforts and showcase the amazing results our team has provided our current clients. We’d love to hear from you and join in on the conversation!

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