What is customer retention?
Customer retention is what organizations do to stop customers from churning or switching to a competitor. Increasing customer loyalty is a key goal of any business and contributes greatly towards sustainable growth. Despite this fact, and irrefutable evidence that existing customers are more valuable than new ones, customer retention has often taken a back seat to driving sales.
But this trend is changing, especially given the rise of subscription-based business models. There are clear competitive advantages of customer retention, and we’re here to help you understand how and why the benefits of customer retention should be on your radar.
Preventing customer churn is in essence the main objective of most customer experience programs, and often the most tangible one.
And from an internal perspective we know that linking customer loyalty to revenue from repeat business and positive word of mouth means more budget for CX improvement efforts, like the development of a new customer loyalty program. But this is just one of the benefits of retaining customers.
Customer retention survey questions include ways to calculate loyalty in a meaningful way, for example “How likely are you to recommend our company to a friend or colleague”, which on a scale of 0-10 gives you a Net Promoter Score®. A customer loss survey can also be a great way to understand what made a client churn. By identifying pain points in the customer journey, your company can prioritize improvements that directly impact the customer experience.
What are the benefits of customer retention?
- Support sustainable company growth
Growing smarter. As we’ve already seen above, customer retention contributes heavily towards sustainable company growth. It lowers costs and increases profit. In financial services, for example, a 5% increase in customer retention produces more than 25% increase in company profit. And sometimes that increase soars to nearly 95%. Although that impressive statistic varies across industries, a good customer retention program will repay your efforts in spades.
- Increase the value of each sale for each customer
My money don’t jiggle. By investing in customer retention strategies (e.g., through a loyalty program), you can increase CLV (Customer Lifetime Value) as well as your chosen customer retention statistic or metric – the longer customers stay loyal, the more they tend to spend. Because you’ve already paid the cost of acquisition, your ROI grows. This applies to all profit channels – e.g., spend, or indirect—e.g., referrals of new customers.
- Get more insight into your customer and why they do what they do
It’s the data, darling. Historical data from customers (behavioral data, purchase history) can really help organizations make better business decisions. With customer data, you can understand why a certain customer action means a particular result, predict likely purchasing trends, see where the market gaps may be, and identify opportunities for improvement—across the board.
- Boost referrals and strengthen customer loyalty
Superfans sing your praises. Loyal customers are more likely to act as references, generate positive word of mouth and contribute towards new acquisitions. We all know the power of a personal recommendation, so leverage that to build your business. When you get that reference—use it! New customers are far more likely to trust a testimonial than your sales pitch, so boost your marketing with plenty of first-hand accounts about how good your product and service is.
- Reduce your cost of acquiring new customers
A bird in the hand is worth two in the bush. It’s cheaper to keep customers than try to acquire new ones. Plus, it’s easier to market to customers you already know well, then learning about new ones. The cost of acquiring a new customer can be anywhere between 4 and 10 times that of keeping a current one—depending on the source. No matter how you slice it, it’s clear that smart businesses make sure customer retention is a key focus.
- Develop better products, faster
Aging gracefully. Customers who come back help you understand what’s working with your products, and what’s not. For example, which products or services do they go for, and which ones they avoid. Asking why can offer insight into your product development and refinement and means you can sense-check what you’re doing at every step of the way. Make sure you’re hitting all aspects and asking your customers at multiple touchpoints to get a full picture. Go beyond the exit survey and ask questions much earlier in their customer journey.
- Reduce customer churn that weighs down sales growth
No slipping the net. Customer churn can cost you. A high churn rate weighs down your entire sales team’s growth rate; from the cost of acquiring a new customer, as discussed above, to missing out on the higher rate of selling—a current customer is far more likely to buy from you than a new one. But customer retention can be boosted with a few simple tactics like offering incentives for your longest-standing customers or deploying your best customer service reps to work with customers-at-risk.
- Experiment safely with customers who are open to change
Expanding the line-up. Because current customers trust you, and your product, you can try out new things. That trust gives you space to experiment with new products or services, that customers are more likely to try as soon as you launch. Bottom line, a loyal customer is 23% more likely to spend with you than your average customer. You can offer loyal customers beta testing, or a discount on a new product or service. Make them feel special and you’ll reap the rewards.
How do you retain customers?
You need to fight on multiple fronts when it comes to preventing customer churn:
- Ensure your communications channels are easily accessible to your customers. It needs to be as easy as possible for them to get in touch with you when things go wrong, via the channel of their choice.
- Build Customer Success strategies for your account management teams – focusing not only on customer retention metrics, but more importantly on the value your customers get from your products and services
- Put in place a Voice of the Customer program that focuses on measuring customer experience – a program that will put powerful insights in the hands of those who can take action and drive improvements at every stage of the customer experience journey.
How does Forsta help your customer retention efforts?
To maximise the advantages of retaining customers, you should make sure your customer retention program ticks all the boxes, across all areas of your business – and not just client facing ones!
We can help you to develop and implement Voice of the Customer, Employee Engagement and Market Research programs that deliver insight and drive business change. Our clients create multi-channel, multi-lingual feedback and research programs that engage customers, empower employees, deliver a compelling respondent experience, and provide high Return on Investment. For example, we can help you create a bespoke customer retention questionnaire, tailored to your needs, and closely aligned with your desired business outcomes.
Forsta’s customer engagement model provides the power to listen to the Voice of the Customer, integrate it with financial, operational, and free-form text data to generate powerful insight, and take action that will promote customer retention and drive better business decisions.
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