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It’s no secret that acquiring new customers is costly and time-consuming. That’s why many brands now understand that customer retention is as important as—and more cost-effective than—focusing solely on new customer acquisition.
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By The Numbers: New Customers vs. Old Customers
The Harvard Business Review found that it can cost anywhere from 5-25 times more in budget (and time) to acquire a new customer than to retain an existing one.
What’s more, loyal customers not only spend 31% more money with a brand over time than new customers, but they are also more likely to refer others and advocate for your brand. Customer advocacy helps you acquire new customers organically—without the need to increase your ad spend. Likewise, happy customers provide valuable feedback that can help businesses improve their products or services to get new customers.
Yet still, too many brands spend the majority of their marketing budget (and sanity) chasing new customers. Smart brands know that the numbers just don’t support this strategy. They know a balance between customer acquisition and customer retention is vital.
Anecdotal evidence aside, shifting even a fraction of your budget toward customer retention is a proven way to bring outsized value to your brand. Reallocating just a 5% increase towards customer retention can lead to a 95% increase in your profits.
But what is customer retention—exactly? And why is it so important to the success of your brand? Here’s everything you need to know about this all-important business metric.
What is Customer Retention?
Customer retention rate (CRR) is a metric that brands use to measure customer loyalty over time—often referred to as your churn rate. As a general rule, the lower the churn, the more loyal the customers, and the more profitable your brand will become.
Customer acquisition cost (CAC), on the other hand, is another business metric that measures the cost required to gain a new customer. So instead of focusing on retaining customers, CAC measures the efficiency of your customer acquisition strategy. While you do need to focus on your CAC, don’t miss the forest for the trees.
To boost customer retention, companies will implement various tactics to reduce their churn rate. Improvements focus on better customer experiences and customer service to ensure that they remain loyal. Keep in mind that more customers don’t always mean new customers so it’s important to nurture and engage with the customers you already have.
So how do you create a customer retention strategy that keeps your current customers engaged and happy? Let’s take a look at six key tactics.
1. Get to know your customers
One of the most important things you can do is get to know your customers on a personal level. This means understanding their needs, wants, and pain points. When you understand what they’re looking for, you can tailor your product or service accordingly and provide them with the best possible experience. You can also proactively address any issues they may have before they become dissatisfied with your company.
2. Increase engagement with your current customers
Once you’ve established relationships with your customers, it’s important to stay in touch with them regularly—but not so much that you become a nuisance. Regular engagement reduces churn, improves your CLV (customer lifetime value), and keeps your customers coming back. Stay top of mind by sending out periodic email newsletters with helpful information, special offers, or just an update on what’s new with your company.
You can also reach out to customers if you have any changes or updates that might affect their experience with your brand, such as new features or price changes. Keep your customers in the loop, keep them excited, and keep them engaged with your brand.
3. Focus on timely, professional customer service
We’ve all experienced it. You support a brand with your wallet and then get left out to dry when you need a hand. No one likes to feel used and abused—timely, courteous responses to customer inquiries are imperative. One bad day for your customer service manager or sales associate can turn into a host of lost customers if their manner is poor and customers leave their interactions with a sour taste in their mouths.
Training and hiring the right people is key. A study by American Express found that 33% of customers consider switching companies after just one case of poor customer service.
Additionally, be sure to respond to both positive and negative reviews. If a customer gives an enthusiastic two-thumbs-up, thank them for taking the time to do that. If you get a not-so-stellar review, apologize first and see if there’s any way to remedy the situation. Reviews really matter and people can learn a lot about a brand from how they respond.
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4. Show your appreciation to reduce your churn
If it wasn’t clear yet, customers like feeling valued. So, make sure you show your appreciation for their business. After all, their business is your business. There are many ways to do this, such as sending personalized digital thank-you notes, offering loyalty rewards, or giving current customers early access to new products, content, or services.
These small gestures go a long way in making your customers feel appreciated—and make them more likely to continue supporting your brand on a long-term basis.
Keep in mind that long-term customers lower your churn rate, improve your CLV, and generally means fewer customers are switching to direct competitors. In total, US brands hemorrhage nearly $140 billion per year in revenue to consumer switching.
5. Get feedback from your customers
Another great way to keep your customers engaged is by regularly collecting feedback from them. This feedback can be used to improve your products or services, as well as the overall customer experience.
There are a number of ways to collect feedback, such as conducting surveys, asking for reviews, conducting focus groups, and monitoring social media chatter. Whichever method you choose, make sure you’re actively listening to what your customers have to say and making changes based on their valuable input.
6. Analyze your data
Last but not least, one of the most important things you can do to improve customer retention is to regularly analyze your data. We’ve already covered a few metrics to consider, such as your churn rate, CAC, and CLV. This data can be used to identify patterns and trends among your target market.
This data also identifies huge potential impacts on your key KPIs and improves opportunity costs. By analyzing this data, you’ll be able to better understand what’s working well and what needs improvement within your business.
Customer Retention, for the Win
Implementing these key tactics will help create a successful customer retention strategy that keeps your current customers engaged and coming back for more. Plus, the right strategy will increase organic, word-of-mouth support for your brand through loyal brand evangelists who are happily willing to spread the word to friends, family, and more.
That last part can make or break your business. Not only does this save money in the long run by reducing acquisition costs and reducing your ad spend, but it also sets your business up for long-term success by ensuring you have a base of happy, loyal customers providing valuable feedback and support along the way.
Struggling to improve your customer retention? Drop us a line to see how our network of pre-vetted digital marketing specialists can help get you to where you need to be.
