Ever Googled “customer retention definition” just to figure out what the term is even referring to? You’re not alone! Here’s a guide that will explain the importance of customer retention, and offer some best practices for you to harness its power.
Customer retention: a definition
The short definition: actions a business takes to keep its customers.
The longer, more complex definition of customer retention is measuring and evaluating customer loyalty, then planning and implementing processes to reduce churn, or losing customers. Generally, a business’s customer retention involves evaluating the percentage of long-term clients.
Why customer retention is so important
Customer retention is a key to sustained growth. In fact, it’s not only much easier to sell to an existing customer but also to sell more to an existing customer. The probability of selling to a new prospect is 5 to 20 percent, while the probability of selling to an existing customer is 60 to 70 percent, according to Invesp.
Along the same lines, you’ve got a better chance of convincing your current customers to try your new product than trying to make the sell to new customers. How much of a chance? Existing customers are 50 percent more likely to try new products. The trust you’ve built with your existing customers can especially pay off with new ventures.
Existing customers keep rewarding you for the effort you put in to retaining them. For example, they spend, on average, 31 percent more than new customers. That’s a serious upsell that increases their customer lifetime value. And even a small effort toward retention can make a big difference. In fact, increasing customer retention rates by 5 percent increases profits by 25 to 95 percent, according to Harvard Business School.
Plus, your loyal customers are your best marketers. Fifty-five percent of U.S. consumers express loyalty by recommending the brands and companies they love to family and friends, according to Accenture.
Customer retention vs customer acquisition
Which should be your priority, customer acquisition or customer retention?
A strong percentage of companies (44%) focus more on attracting new customers than they do on retaining current ones, according to Invesp. While bringing new customers on board can be useful to growth, it’s a costly endeavor.
To reach new customers you often need a healthy advertising budget and the marketing power to create and monitor things like Facebook ads or email marketing messages.
Marketing to existing customers does require some work, but your efforts can go a lot further. Your existing customers know your product and don’t require glitzy ads and big budgets to convince them to try a new product, upgrade their services or add a few more items to their cart.
Even if you market to lost customers or those that haven’t bought anything from you in awhile, you get a solid return on investment. If you launch an email campaign targeted to this specific group, for example, you’ll see an average $28.50 returned for every $1 spent, according to Experian. Compare that to the $55.24 that is costs to attract a new customer via email.
Of course, you do need to acquire new customers to grow so there’s certainly an argument to be made for attracting new customers, but retention is often overlooked. Given the ROI on customer retention efforts, it should be a priority.
Four ways your company can focus on customer retention
Now that you know the definition of customer retention, you may be wondering how your business can best focus its efforts on keeping your existing customers. Here are five approaches:
Start a loyalty program
Americans are a fickle bunch. McKinsey Research reports that 58 percent of customers switch to a different brand. But according to Accenture, 43 percent of consumers spend more with the brands and companies they are loyal to, and a loyalty program can be just the incentive customers need to stay with a company.
Loyalty programs are also one of the best ways to convince consumers to share their data. According to Retail Dive, 65 percent of men and 59 percent of women are willing to share their private information in exchange for loyalty program rewards.
Look for a program like Fivestars that offers a rewards program with built-in promotions and a data collection component. See how Fivestars works, and how it can bring customers back again and again.
Don’t go overboard on contact
According to Accenture, 81 percent of U.S. consumers feel loyal to brands that are there when they need them, but otherwise, respect their time and leave them alone.
Offer repeat customers coupons, special deals or VIP access
Your competition knows how important customer retention is, and uses coupons, deals and special VIP incentives (such as early shopping hours) to entice customers away from you. According to Valassis, 79 percent of brand loyal consumers are influenced to buy a brand they wouldn’t typically have purchased due to coupon influence. It’s worth offering your own coupons, deals and the red-carpet treatment to your best customers.
Create customer profiles to better understand customers and market to them
As you gather data on your customers’ preferences and habits, don’t forget to put it to use! Microsegmenting means your marketing can feel more personal and persuasive for your customers. Episerver reports that 21 percent of shoppers are more likely to purchase again from brands that do more to personalize their shopping experience, and 17 percent say they are more loyal.
Every business must make the best marketing decisions possible with the budget available. By using the information above every business can better understand the power of customer retention and make efforts to keep VIP customers loyal and frequent shoppers.