Customer retention strategies and best practices
Gaining a new customer is good, but keeping a customer is even better. The latter can be difficult to achieve, however, it’s worth the investment. This is because customer retention contributes to a higher return-on-investment (ROI), plus it is less expensive to maintain. According to research performed by Frederick Reichheld of Bain & Company, “In financial services, a 5% increase in customer retention produces more than a 25% increase in profit.” Don’t underestimate the power of customer loyalty.
Before pursuing successful customer retention strategies, it is vital to understand the difference between business-to-business (B2B) and business-to-consumer (B2C) retail models. While B2B retailers sell products or services to other businesses, B2C retailers sell directly to consumers. The main difference between the two regards the way in which the buyer comes to an agreement on a product or service.
Whereas businesses tend to rely on logic when purchasing a product, consumers may fall back on their emotions. Implementing the right system for your customers optimizes the customer experience.
Personalize the customer experience
The most successful companies put their customers first. In the B2C world, online customization can help facilitate discovery and conversion, and even encourage subscription or repeat purchases.
In the B2B world, on the other hand, companies often deal more directly with clients, therefore customer personalization is imperative. Saving time and money should be priorities, but simply cannot be done without integrating business processes. In order to create a satisfying customer experience, you may want to consider an integrated e-commerce solution. This solution unifies processes such as product catalog updates, payment services, and warehouse distribution into one convenient system.
These processes, however, are largely back-end operations. Such operations are not the customer’s concern, nor should they be. Rather, customers are interested in a company’s front-end operations, which can be thought of as marketing and sales. For companies looking to optimize their e-commerce website for their customer’s satisfaction, they may want to consider headless commerce solutions, which separate a business’s front-end operations from the back-end. By better separating these operations, a company can more easily adapt sales initiatives while focusing on customer experience.
Customers who have shown time and time again their loyalty to your business deserves some recognition. Implementing a customer loyalty program can reward customers for their continued efforts. The idea is not to just give away free products or services, rather it is part of a larger marketing scheme geared towards customer retention. Incentives for customer retention could include a points or perks system in which each purchase made amounts to a certain reward. According to research done by Accenture Interactive, “Members of retailers’ customer loyalty programs generate between 12 % and 18 % more revenue for retailers than do customers who are not members of the loyalty programs.” In the end, customer loyalty programs can make businesses money.
Resell to customers
While the initial sale is important, subsequent sales are too. In order to resell to customers, specific strategies need to be put into place. A simple, all-encompassing solution is a company newsletter. By using email automation to send out a monthly or bi-weekly newsletter, you are effortlessly keeping past customers informed on your business happenings. Not only is a newsletter simple and effective, but it is also completely cost-effective.
Another highly helpful and cost-effective method of reselling to customers is to hear what they think about your products or services. If one customer is happy about buying your product, it doesn’t hurt to inform a different customer about that satisfaction. Additionally, it can inform you of any changes you may need to make to your products or services. Collecting, analyzing, and distributing customer reviews and surveys provides the information necessary to keep customers on board.
Finally, leverage the latest technology. Voice-powered assistants and smart devices make it easier than ever for consumers to make purchases or place orders. If you equip your e-commerce site to support voice commerce, you take a barrier to repeat sales out of the equation and empower customers to simply speak up when they need to order again.
Engage on social media
Engaging customers is of the utmost importance in keeping their business. An effective way to engage them is through social media platforms, such as Facebook and LinkedIn. Such platforms are deeply personal and can be used to create bonds with both past and potential customers. In the case of potential customers, social media can be used to reach out to people who have liked or commented on one of your business’s posts.
While traditional email and call centers are still important, 72% of the United States population are social media users. Thus, optimizing your business to include social media platforms may effectively reach out to past and potential customers.
Customer retention metrics
Measuring customer retention can inform your business if the efforts you are making to keep customers are working. Below are a few customer retention metrics:
Measuring the churn rate informs a company of its loss percentage. Though this may not be the happiest type of retention metrics, it is important. Churn rate shows how many customers have been lost and the value of the recurring business that has been lost with them.
To measure the churn rate as a percentage of customers lost, perform this simple calculation: the number of customers you lost last quarter divided by the number of customers you started with this quarter. For example, a company that had 300 customers at the beginning of last quarter, but lost 10 of them along the way would have a churn rate of 3.5%.
To measure the churn rate for the value of recurring business lost, take the same calculation but replace the numbers with your monthly recurring revenue at the start of the month (MRR) divided by your MRR lost at the end of that month.
Repeat purchase rate
The purpose of the repeat purchase rate is to show what percentage of your customers come back to make purchases. This metric provides a good idea of the value a company gives its customers. Some additional names for this metric include repeat customer rate or reorder rate. To measure the repeat purchase rate, divide the number of customers who bought more than once by the total number of customers — in a given timeframe, such as a year or a quarter.
Purchase frequency can inform you of the average number of times a customer makes a purchase in a given timeframe. In order to measure the purchase frequency, divide the number of orders by the number of unique customers — in a given timeframe, such as a year or a quarter. This metric can provide a company with knowledge of how often customers engage with them. The higher the number, the better the company is at retaining its customers. However, a low number can still be beneficial as it shows a company if they need to restructure their marketing campaign to better suit their audience. For instance, if sales drop in a given month, maybe more marketing initiatives need to be employed for that month.
Average order value
Average order value measures the amount of money typically spent each time a customer makes a purchase. In order to calculate this, divide the total revenue by the total number of orders. This metric reveals how effective a company’s marketing strategy really is. Ideally, a company would want a higher number as that means they do not need to spend too much money on customer retention.
Customer lifetime value
In its simplest form, customer lifetime value (CLV) can be calculated as customer revenue minus the costs of acquiring and serving the customer. This provides a company with the total worth of a customer over the duration of their relationship so far. However, by factoring in additional metrics, the future of their relationship can be revealed as well. This can be thought of as a historic vs. predictive measurement.
The predictive CLV metric can determine the money a company needs to keep customers, the future behavior of customers, as well as how to trigger such behavior. This metric alone provides some pretty solid customer retention strategies. In order to calculate the predictive customer lifetime value, multiply average purchase value by average purchase frequency — this determines customer value. From there, you’ll need to calculate the average customer lifespan. This is the average duration of time that a company maintains a relationship with a customer before they stop making purchases. Essentially, it is the time between the customer’s first and last purchase. Many companies use one to three years as a gauge of activity.
Now that the other metrics are calculated, CLV can be calculated. In order to perform this calculation, multiply customer value by customer average lifespan. Once calculated, CLV can be the most effectual metric in helping to maintain a loyal customer base.