What is Customer Retention?


Customer retention refers to the rate at which customers stay with a business in a given period of time. This is often referred to as churn rate and is a key metric for practically all B2B and B2C businesses. In general, the lower the churn, the more loyal the customers and more successful the business, as the business retains more customers over time.


Why is customer retention important?

For many businesses, customer retention/churn is a key KPI, because a company’s ability to retain existing customers is fundamental to both its short-term and long-term success.

Some key reasons include the following:

  • It is often much cheaper to retain existing customers than acquire new ones. Sales and marketing acquisition costs usually greatly outweigh costs related to customer service and ongoing customer satisfaction.
  • Loyal customers tend to be repeat customers, meaning they’re valuable. Increasing customer retention, increases the chance that a customer will become a loyal, repeat customer and can massively increase profits.
  • It is more effective for businesses to upsell or cross-sell to their customers as they already have a relationship built on trust and product satisfaction.
  • Happy customers can often lead to gaining new customers through referrals.

It’s clear that customer retention should not only be an important metric, but a core goal of almost every business. So let’s first look at how we can measure it, before discussing different ways to improve it.


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How do you measure customer retention?

To calculate your customer retention rate (CRR) you can use the following simple formula involving the customers you have at the start (S), at the end (E) and customer acquired during the period you're measuring (N).

It looks like this: CRR = ((E-N)/S) x 100.

 Astro's example of calculating your CRR:

You have 130 customers at the start of a month. In that month you lose 9 and gain 23 new customers.

  • Number of customers at end of period = 144
  • Number of customers at start of period = 130

In general, businesses should aim for as high a retention rate as possible. In reality, businesses aim to hit more than 85%.

Now that you know how to measure customer retention, let’s look at how it can be improved with some easy-to-follow strategies.


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11 Great Ways To Increase Customer Retention Rates

The following tips provide businesses with a good starting point when it comes to improving customer retention. Taken together, they can serve as a solid foundation for a successful customer retention strategy.

  1. Improve user onboarding
  2. Create an achievable roadmap with your customers
  3. Use client feedback to find weaknesses and constantly improve
  4. Understand your clients with customer experience and journey mapping
  5. Get personal with social media support
  6. Segment customers to deliver the right content at the right time
  7. Use automated emails to encourage inactive users to take action
  8. Upsell to existing customers
  9. Identify customers that are likely to churn
  10. Create a personalised customer loyalty programme
  11. Create a referral programme

1. Improve user onboarding

One key reason for churn is that users simply do not understand how to get the most out of a product. During the onboarding process, a company should ensure that the client is aware of the key benefits that a product offers.

One great way to do this is through training sessions that teach users about best practices and standardised workflows. Giving your customers the tools they need to succeed will maximise customer satisfaction and decrease churn over time.

2. Create an achievable roadmap with your customers

Be realistic when it comes to setting and delivering on customer expectations. What levels of success did comparable businesses achieve? Take the time to schedule a session to jointly map out a roadmap that your new client is comfortable with.

The roadmap should include with realistic milestones and achievable goals. Key players, such as the customer success team, should be able to easily access this customer roadmap and act on this.

3. Use client feedback to find weaknesses and constantly improve

User feedback is absolutely essential when it comes to improving customer retention. This is relatively self-evident, as the way a client feels and perceives your brand ultimately determines whether they will become a loyal customer or jump ship.

Businesses need to gather accurate feedback from their users. This can be accomplished through satisfaction surveys or a feedback bar on the website or platform where users can submit feedback while they are using the product.

4. Understand your clients with customer experience and journey mapping

Customer experience mapping and customer journey mapping refer to the process of charting your customers’ interactions with your brand across all touchpoints. The more you understand the different journeys customers take en route to purchasing, the more you can optimise their customer experience.

Brands like Aston Martin were able to create a truly unique and highly personalised customer experience benefit from extreme customer loyalty and excellent retention rates.

5. Get personal with social media support

Social media is the channel of choice when it comes to immediate response. Clients expect immediate and personalised customer service and social media really lends itself well to this task. Social media is a great way to quickly resolve potential customer support issues or queries.

What’s more, it’s also a great way to a create a connected and unified customer experience.

6. Segment customers to deliver the right content at the right time

The way a business collects, groups and ultimately acts on data is vital to its success. Sales CRM software usually allows the segmentation of prospects and customers into groups based on how they interact with your brand. Businesses can use these insights to tailor marketing campaigns to the individual level of awareness of its customers and prospects.

When it comes to retargeting efforts, email segmentation is the key to delivering the right content at the right time. A loyal existing customer does not want to receive offers for an initial purchase. Companies, such as Perkbox have witnessed great success by using email nurturing campaigns based on segmented customer and prospect data.

7. Use automated emails to encourage inactive users to take action

One way to increase retention is by ensuring customers are as active as possible. If a user has remained inactive for a while, an automated email through your CRM system can induce this user to take action.

For example, if you are tracking how users interact with your product and notice that they have only used a small array of the features, an email explaining how to use other features could re-ignite their interest. Emails could include educational content such as best practice guides or successful case studies from other customers.

This strategy is best aimed at relatively inactive users. Users that are already comfortable and active with the product will not appreciate a barrage of automated emails.

8. Upsell to existing customers

Upselling is a great way to boost customer retention amongst loyal customers. By convincing them of the need for a premium or upgraded service, they become more invested in your brand.

Using existing content assets such as ebooks and whitepapers is a great way of reminding existing customers about all the features product offers while ensuring that they remain as active as possible.

9. Identify customers that are likely to churn

One strong argument for basing KPIs around customer satisfaction is that it makes it easier to identify customer that are are likely to churn. Often, there are many warning signs before a user churns, including level of activity. If a user has not used the product for 30 days, a business should look into this and find out why.

Some businesses use a traffic light system. Green signifies users that are happy with the product and very unlikely to churn. Amber is reserved for users that potentially have an open issue, but that this issue is not critical. Red is for users with a serious risk of churning. This could be due to a serious complaint levelled against the company, or simply that they have expressed that they are not satisfied. Efforts should be prioritised to keep the at-risk users from churning.

10. Create a personalised customer loyalty programme

A customer loyalty programme is a great way of giving something back to customers while at the same time offering a chance to build a personal connection.

Companies like Belly are enjoying great success in providing retailers with a trackable loyalty points programme and insightful analytics into customer behaviour.

11. Create a referral programme

A referral programme can incentivise satisfied customers and increase customer loyalty. By offering upgrades, credits or other extras to existing clients, you can greatly increase the number of new signups while engaging your existing users at the same time.

Actively turning your most loyal customers into brand ambassadors increases their emotional connection to your brand - and that boosts retention.


Create a data-driven customer retention strategy

Keeping track of all the data required to maximise customer retention is no easy task. Using a CRM solution is essential for having all the data needed to make informed sales, marketing and customer support decisions in one place. Start putting a customer retention strategy in place today by building your KPIs around customer success and satisfaction.

That’s a lot of info!

Here’s what you should take away from this article:

  • What is customer retention? Customer retention refers to the amount of customers that stay with a business over a measurable period of time.
  • Why is customer retention important? Keeping customers is more cost effective for businesses than finding new ones, so customer retention is a priority for most organisations.
  • How do you measure customer retention? Customer Retention Rate = ((E-N)/S) x 100. (S) = Customers at the start; (N) = Customers acquired during the measurable period; (E) = End customers.
  • What are some ways to increase customer retention rates? Some ways to increase customer retention rates are: Improve customer onboarding, solicit feedback, use social media support and use automated emails.
  • How can data help increase customer retention? Businesses can leverage data to learn more about customer preferences and personalise interactions, leading to a higher customer retention rate.

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