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Customer Retention Guide

What is customer retention? 

Customer retention refers to the actions and activities done by an organization to reduce the rate at which it loses its customers.

Businesses – be it B2B/SaaS companies, eCommerce platforms, travel agencies, etc. – work really hard to attract new customers through a mix of marketing efforts, social media, and brand strategies. They invest a lot of time, effort, and of course money to gain customer trust and convert them into loyal customers. It makes much more sense to hold on to them and ensure they continue to buy your products or services regularly.  

In fact, an article published by Harvard Business School states that increasing customer retention rates by just 5% can increase your profit margins by 25% to 95%. The goal of a customer retention program is to keep more customers intact and influence them to stay with your company for as long as possible.

For an eCommerce business, you’ll want your customers to come back as many times as possible and make purchases no matter the minimum order value. Meanwhile, in the case of a B2B/SaaS organization, your goal would be to ensure subscription renewals, plan upgrades, and so on.

To avoid losing customers, understand the importance of customer retention, gather the right information, draft necessary retention strategies, and ensure their effective implementation. 

In this guide, we’ve tried to touch base on every aspect of customer retention to help you understand the basic nitty-gritty of the concept and use the provided information to your business’s advantage.

Let’s get started!

What is customer retention management?

Customer retention management refers to the process of managing a customer’s experience and ensuring satisfactory efforts are made by the company to achieve customer retention goals effectively. 

A retention manager’s goal is to analyze the current retention rate, develop comprehensive programs to keep acquired customers for as long as possible and add new customers to this list. This is in contrast to gaining as many new customers as possible, which is the goal of a sales or account manager.

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Formula to calculate customer retention rate

To calculate the retention rate, start by defining a period of time, aka a cohort, be it a month, a quarter, or a year. Then calculate it with a formula that is essentially the inverse of the customer churn rate.

Customer Retention Rate = ( (Total Customers at End Date – New Customers acquired during Period) / Starting Customers at Start Date) ) X 100

Let’s consider an example to understand the formula in a better manner. Say you started 2019 with 100 customers. If 20 of these customers left after making a single purchase during the entire year, your retention rate will be 80%. 

Even if you added 40 new customers during the entire year, increasing your total to 120, doesn’t change the rate of retention. How? Let’s look at the numbers.

( (120 – 40 ) / 100 ) x 100 = 80

The new customers aren’t factored in when calculating the retention rate, as they’re a result of marketing and acquisition efforts, not loyalty or any other customer retention effort made by the organization.

4 stand-out benefits of customer retention 

Avoidable customer churn costs the U.S. businesses approximately $136 billion per year. If you master the art of retaining customers, even reduce churn to 1%, you’ll have almost double the number of customers in the next 8 years. 

There are many more benefits to improving your customer retention rate. Let’s take a look.

1. Comparatively lower than the customer acquisition cost

It’s a lot cheaper to keep your existing customers than marketing and selling your products to a completely new set of audiences. According to Harvard Business Review, acquiring a new customer costs about 5 to 25 times more than retaining the existing ones. 

You can use qualitative and quantitative tools along with A/B testing to improve the interaction of your customers with your website and mobile application. Additionally, you don’t have to spend dollars on ads, and even on many other marketing channels. 

So, any campaign or effort made towards improving customer retention is comparatively cheaper and provides a much better ROI for your business than an equivalent acquisition program for getting new customers on board.

Another benefit is that any improvement in retention rate will automatically improve the results of your marketing and sales programs. For instance, if you increase the value of each retained customer by 50%, the acquisition ROI doesn’t just improve by 50%, it also increases campaign profits by 100% or more.

If you spend $20 on Facebook ads to get a new customer, and each customer is worth $30, your profit margin per customer is $10. Improving customer retention rate by 50% will ideally more than double your profits – from 10$ to $25 per acquisition.

2. Loyal customers spend more

A study by Gallup shows that loyal customers spend 23% more than the average customer.

One-time customers have no relationship with your brand. They only choose your product(s) based on lower prices or other distinct advantages. But every time you retain a customer with a positive interaction is another chance to create a loyal, long-term customer for your business.

Loyal customers return more often and spend more than first-time customers as well. For SaaS and subscription-based businesses, you will find it easier to upsell and cross-sell to a loyal, long-term customer than a customer who’s still exploring your product.

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3. It’s great for your brand

As per a blog published by Marketing Charts, most customers usually forget about a brand or product after a single purchase. It is because many brands do not pay much attention to engaging customers at regular intervals. If customers are kept engaged and informed about a brand’s offerings, they’re more likely to make repeat purchases and convert into loyal customers. 

number of purchases it takes to build loyal customers
Image Source: Marketing Charts

Additionally, every loyal customer is an added brand advocate that has the potential to get more referral business and increase your sales. As per Hubspot, 81% of consumers trust recommendations from family and friends over those from companies. This makes retention an excellent branding investment as well.

4. Returning customer purchase data can help create better marketing campaigns

Data is one of the most powerful tools for any business. You can use data gathered from qualitative and quantitative tools to understand the basic psyche of your customers – identify their pain points, the things they like about your brand, the products they’re engaging with, and so on. 

Such data helps marketing teams take the guesswork out of the picture and create marketing campaigns that are sure to convert more customers into loyal customers. You can find natural product bundles based on purchase history, and figure out relevant, personalized recommendations to market to customers with similar initial purchases.

Retaining customers over the long term will also help you win more business during holidays and sales. The highest converting customer source for Shopify merchants during Black Friday 2018 was emails sent to existing customers. They recorded an average conversion rate of 4.38% from emails only. 

And, that’s an average which includes stores that made no efforts to nurture their customers beforehand.

11 customer retention strategies you should use

For SaaS companies, on the other hand, these could be effective onboarding programs, discounts on subscriptions, etc. From here, you can use milestones, new features & training, and more to keep your users active and subscribe to your products or services for longer than usual. 

Today, brands across various industries can use many different strategies to ensure their retail customers come back and make repeat purchases. In the case of eCommerce, some evergreen methods include, exclusive flash sales, running loyalty programs, discounts on each purchase, and so on. 

Instead of focusing your energies on preparing one single strategy, mix and match different efforts, work with qualitative and quantitative data, and marketing automation tools available to your business to retain your customers. 

In this section, we’ve covered 11 important customer retention strategies that are common to all industries. 

1. Onboarding emails & training programs

For SaaS and other businesses that offer a service at a recurring monthly/annual cost, perfecting onboarding and training during the initial signup is critical.

Any improvements made to retain customers in the first few weeks can cascade down and dramatically impact your revenue and profitability.

Improving Retention Over Weeks
Image Source: Hubspot

A 15% increase in week one retention can lead to 50% higher retention rates by the end of week ten and beyond.

One strategy that can help you with onboarding is creating an automated email campaign that acts as a training program. Grammarly does a great job of this. The grammar correction tool sends detailed emails to its subscriber base that motivate new users to use the app to its full potential.

screenshot of the onboarding email from Grammarly
Image Source: Grammarly

Create training programs and onboarding emails to make sure every user knows how to use your product from day one. This further acts as a catalyst to ensure your user base stays connected and uses your services for long. 

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2. Customer loyalty programs

A customer loyalty program, in its most basic form, is a stampable or digital card that many restaurants, bakeries, and other local businesses give out to their customers. “Buy two, get one free,” “Get redeemable reward points on each purchase,” or something similar is usually the motto. And, it works. It gives customers a reason to choose a specific business over and over again. 

Over the years, the concept of loyalty programs has changed and many businesses have brought in many innovations in this customer retention scheme. Airlines, pharmacies, and credit card companies have some of the most sophisticated loyalty programs out there today. 

Let’s take CRED or Apollo Pharmacy as examples. 

CRED is a mobile application that allows you to easily make credit card payments through its intuitive user interface and earn “CRED coins” against every bill payment. You can redeem these points by purchasing items from various premium lifestyle products & services.

Apollo Pharmacy works on similar lines. Everytime you make a purchase at any of the Apollo-linked pharmacies across the nation, your account linked to your phone number gets credited with some points. You can redeem these points in the form of money while making a purchase. For instance, if you have 100 reward points and your total payable amount for your purchase is 350, you can redeem these points and pay only 250 at the time of checkout.   

Many pieces of research show that such customer retention schemes work. It has been seen that 79% of consumers are more likely to continue doing business with a brand that offers a loyalty program. And, 73% of them are more likely to recommend these brands to their friends, family, and peers.

Thankfully, a comprehensive loyalty program is no longer a tactic reserved for enterprises with big budgets like banks or airlines. 

With plugins and extensions, you can easily implement rewards and loyalty programs in Shopify, BigCommerce, WooCommerce, and other major eCommerce platforms, and use this method to your advantage.

Develop your own program to give your customers a reason to choose you every time they want to buy something you offer. You can provide store credits, product rewards/gifts, exclusive bundles/sales, and more.

SaaS companies can also develop in-house programs that reward long-term customers with bonus features, extra data/usage credits, or other relevant rewards.

3. Personalized product recommendations and offers

For eCommerce stores, it’s not enough to just send out random newsletter emails and promotions to your list of existing customers. Today, 91% of consumers are more likely to shop with brands that offer personalized offers and recommendations.

So, make sure to follow in Amazon’s footsteps. Keep a track of your customers’ browsing and purchase history, and use this information to tailor marketing emails to each customer.

Personalized Product Recommendations By Amazon
Image Source: Amazon

If you’ve ever paid attention, you’ll notice that after browsing through a specific category, Amazon follows up by sending an email highlighting relevant deals. All its emails are generated based on what you’ve browsed through its platform or have purchased in the past. 

To follow suit, you don’t need their scale or expertise. Major eCommerce platforms usually have integration options with popular email marketing tools like MailChimp, which makes personalized marketing a lot easier than most business owners think.

The platform automatically tracks key data points such as product page views, add to carts, sales, and more, gathering plenty of useful business data. You can use this information to create better and promising customer retention campaigns.

Mailchimp Helps Create Customer Segmentations
Image Source: MailChimp

Additionally, you can segment your customer list based on products, vendors, number of products purchased, average order value (AOV), and more. Even small online retailers and mom-and-pop shops can send personalized emails at scale to retain customers and make them come back for more.

SaaS and B2B companies can use similar personalization tactics during the acquisition stage, curating the content based on the size/industry of the company, the subscriber’s position within the company, and more.

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4. User milestone/progress emails/notifications

For apps, software products, and SaaS businesses, a great way to keep your customers using your product is to send milestone emails/messages to your customers. They give your users a sense of progress and a reason to keep logging in week after week.

Grammarly sends some of the best milestone/weekly engagement emails that we have ever seen.

Let’s examine what makes them work so well.

Grammarly sends milestone emauls to customers to retain them
Image Source: Grammarly

You don’t just get a detailed breakdown of your performance and essential metrics. It also highlights usage streaks, you get performance badges filled with writing puns and fun designs, and you can see real data on how you match up against other users.

People will work hard to avoid breaking a streak once they’ve started one, and Grammarly establishes itself as an intrinsic part of a positive habit.

You can follow suit by informing your users of their progress on a regular basis and using similar tactics, like comparing their metrics to the average, highlighting progress, and offering custom recommendations.

High levels of customer engagement lead to more loyal customers, which is why this strategy is great for preventing churn.

5. Offer value with email newsletters

Over the past few years, the way customers interact with businesses has significantly changed. Increasing concerns over how businesses collect and use a customer’s personal data, rapid spread of misinformation, and flooding of branded content, together contribute towards the fundamental shift. More than 55% of customers claim that they don’t trust the businesses they buy from as much as they did before.  

How to solve this problem? 

A way to go about and stand out in the market is by becoming a trustworthy source of industry tips and insights. 

Too many email newsletters are thinly-veiled affiliate marketing machines or focus 99% of their energy on upselling existing customers to more expensive programs.

Instead of taking this tired approach, invest in a newsletter that becomes a retention asset. A B2B SaaS business in the automotive sales industry, for example, could focus on informing its users about cutting-edge auto sales & marketing techniques, as well as releasing industry benchmarks, white papers, and reports to ensure customer retention. 

An eCommerce site, on the other hand, focused on health and fitness could send nutrition advice, training programs, and meal plans to keep the interest of its users intact.

In a nutshell, avoid bombarding your existing customers with too many marketing messages. Instead, focus on offering real value, and building long-term relationships. 

6. Use a human touch to surprise and delight customers

In an increasingly sterile and digital business world, ruled by cloud-based giants, a little human touch can go a long way.

Something as simple as a personalized handwritten note to thank first-time customers can leave a massive impression.

Handmade Thank You Note Sent To A Customer
Image Source: Twitter

In the example above, an online fashion store sent a handwritten note along with a gift, which delighted the customer enough for them to immediately share the news on their social media handle.

Positive experiences like these don’t just act as word-of-mouth marketing but also help in increasing brand awareness and building long-lasting customer relationships.

One of Shopify’s vendors, John’s Crazy Socks, was able to increase their returning customer rate by 2,027% in a single year with handwritten notes, hand-wrapped gifts, and more similar tactics.

It might seem labor-intensive and expensive, but going above and beyond on every sale is a lot cheaper than spending thousands of dollars advertising your products or services to new customers.

7. Use push notifications to reach inactive members

In today’s day and age, push notifications have more potential to help businesses increase their customer retention rate than many other marketing tactics including emails. 

As per industry statistics, push notifications have an opening rate of 90%. In fact, it’s almost 50% more than that of email marketing. Moreso, 70% of individuals today feel that they’d be more interested in receiving brand offers and other information through push notifications than other marketing means.

push notifications

Let’s take Ubisoft for example. A leading creator, publisher, and distributor of interactive entertainment and services, Ubisoft heavily uses web push notifications to retain its customers. 

Be it to fuel considerations during a pre-launch campaign, or sustain the interest of players when new content is released in the game, post-launch push notifications have helped Ubisoft get an average click rate of 17%. The number is huge considering the average click rate of most email campaigns is between 2% and 4%.

8. Win back lost customers with abandoned cart campaigns

Not every customer that lands on your website will surely make a purchase. Often, visitors add products to their carts for the following reasons:

  • Don’t wish to purchase the product right away
  • Look for the same product on other websites to compare prices
  • Cane across hidden charges such as additional shipping cost that they do not wish to pay, etc. 

On average, 79.17% of online shoppers abandon their carts. However, just because they took a detour and did not make a purchase the first time, doesn’t mean that they don’t plan to purchase the items at all. They just need a little more persuasion than before to complete the transaction.  

No matter if they’re one of your existing customers or someone new to the platform, send them a series of automated emails to remind them of their abandoned cart(s) and persuade them to complete the purchase.

You can also use other marketing tools like push notifications, retargeted ads, and more to convince your customers to make the purchase. 

9. Secure your payment gateways

With cybercrimes on a rise, it’s important to assure your customers that your payment gateways are safe and secure to use. It’s been seen that most customers abandon their purchases at the last step as they find the payment modes untrustworthy.  

Adding the following security protocols and badges on your website may help retain customers better than before.

  • SSL for secure connections – SSL encrypts necessary payment related information and ensures payment security. 
  • PCI certificate – The Payment Card Industry Data Security Standards (PCI DSS) provide guidelines on what you need to do to secure sensitive data while processing payments.
  • Tokenization – It replaces sensitive customer data with a randomly generated string of characters which further reduces the risk of data breach. 
  • 3D secure –  Three Domain Secure is a messaging protocol that contains three domains: the receiving bank, technology processing the transaction, and the issuing bank. It helps to add an additional layer of security to prevent frauds. 

10. Use surveys & social media platforms to understand customer psychology

Up to 97% of your unhappy customers will churn silently.  In other words, customers who aren’t satisfied with your product(s) or service(s) will leave without even contacting your customer support.

Since you have no point of reference or information on most lost customers, you need to be proactive. To get insights into possible problems that might be causing churn, you can use mediums like surveys and monitor social platforms.

Implementing automated surveys throughout your site/app can help you identify problems with your user’s site-wide experience before it negatively impacts your customer relationships. Trigger surveys when users finish a specific task for the first time, return to your app after prolonged inactivity, contact customer service, or cancel their subscription.

You can also use social media listening tools like Mention or Hootsuite to keep track of everything your customers have to say about you, even if they don’t tag you in their posts. Monitor your company and all your product names and read all posts regularly.

This approach will give you a more realistic image of how customers feel about your products.

11. Personalize all our retention efforts

Treating each customer as an individual is a key to retaining the maximum customers. It doesn’t matter if you are sending an email, recommending a product, or giving out customer rewards.

Focusing on the individual consumer is the key to success. 

Successfully personalizing your loyalty program can lead to a 5.2X lift in word of mouth mentions, and a 3.5 lift in spending caused by the program[17].

To be able to personalize your customer experience to this degree, you need to have a user program and measure essential data points like product page views, add to carts, and more.

With this data, you can create customer segments that impact everything from your emails, push notifications, and marketing messages, to the rewards in your loyalty program.

9 customer retention mistakes you might make

When done right, customer retention not only maximizes the value of your existing customers, but it also boosts the results of all your marketing and sales efforts. Making a single mistake can lead to the loss of thousands of dollars and unhappy customers.

Mentioned below are nine common retention mistakes you should avoid.

1. Not assigning enough budget to retention activities 

Spending the entire budget on customer acquisition is a common mistake among SMBs and online businesses. Adding more customers and visitors to the top of the funnel may sound easier, but improving the bottom of the sales funnel is a better investment.

Reducing lost customers and improving retention and repurchase rates will have a more significant impact on revenue and profit than just spending more on an ad campaign. So, assign a portion of your marketing/product development budget to customer retention projects.

2. Not tracking customer behavior

Conversion tracking has become more common over the past couple of years, but a surprising number of businesses only track basic metrics like the number of sales.

With a comprehensive analytics platform, you can use heatmaps, session recordings, funnel reports, and more tools to get a holistic image of how your customers interact with your website or app.

It can help you pinpoint precisely where customers drop from your funnel, and when your users become inactive.

3. Not using an email list to its full potential

A typical email marketing mistake is to simply collect email IDs and send out manual mass promotions during holidays and sales.

An email list can be used much more effectively than this. You can send personalized recommendations, follow-ups on abandoned carts, build trust with high-quality content, and more.

By actively interacting with your customers through email, you also establish your brand in their mind and create a lasting relationship.

Don’t let your customers’ email addresses just sit unused in a database.

4. Not paying much attention to high-value customers

Tracking customer behavior can be one of the best ways to identify high-value customers. You can use the gathered data to create long-lasting high-tier subscribers that constantly add to your business’s revenue. 

Label these customers and make sure they get a higher level of customer service. Responding to and resolving their issues ASAP should be a top priority. Losing even one of these customers could pose a great effect on your profits.

5. Not asking for feedback

Many businesses, especially SMEs, pay least attention to improving customer experience once they start registering good profits. They shift their focus to getting more people aboard than keeping the existing ones intact. 

Don’t make that mistake. Your existing customers are an asset that can help you make your platform better and even excel in today’s highly competitive market. All you have to do is just ask for their feedback at regular intervals. 

This will not only help you analyze your business and its activities at a micro level, but also impart a sense of belonging to the customers. They’d be more willing to stick to your platform now more than ever. 

6. Stopping at the sale

When it comes to customer retention, a huge mistake made by companies, regardless of their industry, is that they stop communicating with customers as soon as the sale is made.  

Even if you sell a consumer product, following up with basic instructions, top tips, or even recipes, can be a powerful way to start building a meaningful relationship with that customer.

With SaaS apps and other software products, you should perfect your onboarding process and create different flows for users based on their apparent mastery of the app.

The initial sale isn’t the end of a customer relationship; it’s the beginning of one.

7. Inconsistent customer experience

A pet peeve of many customers is when they get a different customer experience depending on the channel.

75% of consumers expect consistent experiences across multiple channels, and 73% are likely to switch brands if they don’t get it.  

To meet their expectations, you must centralize data across channels and departments to avoid siloed data and communication. This way, any staff member that interacts with a customer will have access to their complete history and can provide service with context.

8. Giving up on inactive users

Not following up with inactive users is a fundamental mistake that can lead to horrible retention rates. Just following up a single time over one channel can be enough to win back a noticeable percentage.

Saas companies with large user bases should develop a multichannel approach with segmented messaging based on each user’s history.

Instead of just remaining silent as customers stop using your product(s), or visiting your website, make sure you reach out with personalized messages that reactivate them.

9. Not using marketing automation tools

Many small and medium-sized businesses don’t use any marketing automation tools because they think they are complicated and expensive.

But marketing automation platforms have become a lot more accessible over the last few years. With some services, you can even get started for free, until you hit a certain number of users.

They also integrate with most major eCommerce and CMS solutions, making it easy for companies to gather data and create segmented campaigns.

9 ways to improve customer retention with a customer feedback loop

According to a survey published by Gartner, 75% of surveyed companies increased their customer experience technology investments in 2018. The survey revealed that when businesses grow in CX maturity, they levied a greater focus on increasing customer understanding and delivering accurate actions by analyzing customer data. 

But, improving customer experience and getting more satisfied users don’t have to be an expensive, high-tech endeavor. Implementing a simple customer feedback loop can help find and apply insights that improve your retention rate.

1. Choose a survey format (NPS/CSAT)

Ideally, there are two most common customer satisfaction surveys that you can choose from to get deeper insights into your customer base – Net Promoter Score (NPS) and Customer Satisfaction Score (CSAT).

You can choose either or both or even develop a similar survey that you feel would be more appropriate for your targeted audience.

At the same time, avoid using long-form surveys. They’re a big turn-off and also slow down the user experience. Keep your questions to a minimum and rely on a scale instead of yes or no answers.

2. Trigger automated surveys after key events 

With any modern marketing automation tool, you can set custom triggers that open a survey at crucial times. 

For example, you can survey users:

  • When they leave your site with items in their shopping cart
  • When they cancel their subscription
  • After contacting customer support
  • After they confirm receiving a package
  • After using a significant feature for the first time
  • After using your app after a significant stretch of inactivity

The results can help you identify the key areas where users are facing problems. For example, you might find a specific page or a segment that’s causing users to abandon your site.

3. Interview users for further insights

Though NPS and CSAT are an ideal way to get insights into what customers feel about your business and its offerings, they often come with limitations. To get more specific information around what are the areas where your customers are facing problems, use heatmaps and session recordings. The qualitative tools help you identify the exact points on your page that may be causing friction in the experience of your customers. 

If you’re looking for a more granular level of information to understand a customer’s experience on your site, conduct user interviews. They are an excellent tool for singling out specific problems. 

Tell the test users to complete the task in question, and then ask them questions to single out problematic areas, and get ideas for improvement.

If you can’t or don’t want to recruit existing users for the interviews, you can also set up usability tests with people who have never used your product before.

4. Efficiently test changes and iterations

Once you’ve figured out exactly what the problem is, it’s time to iterate and design solutions.

But if you just upload a new version of the same page, you won’t know if you’ve fixed the problem until you can see a statistical difference in usage stats or your retention rates over time.

That can slow down the process of finding the right solution, as you can only test a single iteration at any given time.

Instead, you can use multivariate testing to test out multiple potential solutions simultaneously. You can also segment the traffic and exclude specific users, for example, veterans who are used to the existing interface. 

Once you’ve found the best solution, you can implement it on your live website.

5. Create a team that masters customer retention

Setting up a team in your company to handle customer retention can be an excellent way to deep dive into a customer’s journey and identify loopholes. Don’t lose sight of integral pieces that can make the most significant difference in customer experience and in keeping vs. losing a customer.

6. Work closely with the customer service team

Working closely with your customer service team is the easiest way to get first-hand insights into problems that are currently causing customers to leave. If you have analysts or managers that have access to call center and help desk reports, they can give you an overview of potential product issues from the get-go. 

You should also include senior agents that have a lot of personal experience interacting with unsatisfied customers. Together, they will provide you with information that can help you quickly ideate tests for new and improved designs, workflows, features, and more.

7. Avoid data and communication silos

55% of companies suffer from organizational silos. An organizational silo is when all the data and efforts to achieve specific goals are isolated to individual departments or offices. Even if customer support and marketing both work to improve customer retention rates, in a siloed system, they don’t share data and don’t collaborate efficiently.

To solve this problem, integrate CRM data and try to use the same SaaS solutions across departments wherever possible. Create cross-office Slack channels/email threads and hold meetings regularly so everyone involved can collaborate in real-time.

8. Brainstorm and choose strategies/tactics/tests as a team

Once everyone involved has access to all the data, analyze your starting point, and brainstorm/discuss strategies and approaches to take.

You can, for example, look at the customer retention strategies mentioned earlier. By involving multiple team members across departments and positions, you will be able to come up with valid tests faster and get results more quickly as well.

9. Plan implementation with relevant departments

To effectively implement tests, design/development, marketing, customer service teams, and analysts must all be on the same page.

For startups and small businesses, it might not be an issue, but it can be a significant hurdle for larger companies and enterprises. Design/development teams need to implement the website changes and decide on a logical timeframe. 

Marketers/analysts should look at user activity data and funnels to confirm that a solution works as intended. Customer service should track any differences in support tickets related to the task as a result of the new solution. It’s much easier to improve the user experience when it’s a unified, company-wide effort.

5 customer retention best practices you should adopt

You don’t need to implement complex strategies or use expensive tools to create better customer relationships. By devoting yourself to creating a better user experience, you can increase rates of retention, even if you don’t have the budget to centralize all your data or implement technologically advanced solutions.

Mentioned below are five essential best practices that will help you keep your customers aboard.

1. Treat customers as individuals

In 2021, resorting to mass marketing is a mistake. Your customers know that you track and save their data and expect you to use it to improve their experience.

70% of millennials are tired of batch and mass emails from brands and would prefer personalized messages instead. This trend will only continue over the coming years.

So, use data to treat your customers more like individuals. Customize your marketing messages, product recommendations, etc. based on each customer’s history with your business. Segmentation is the first step to providing them with a better experience and gaining their loyalty.

2. Listen to your customers

Just collecting surface-level data points to improve your marketing efforts isn’t enough to create the perfect customer journey. Only understanding what your users are doing isn’t enough.

To keep as many of them for as long as possible, you must truly understand how they experience and feel about your product and service on every level.

You can “listen” without actively asking customers by analyzing detailed user data that you can fetch from session recordings and heatmaps. You can also generate predictive heatmaps using VWO’s AI-powered free heatmap generator to understand how visitors are likely to behave on your webpages. Or, you can actively ask questions with on-page surveys and user interviews.

Getting to know your customers better is the foundation for stronger customer relationships.

3. Prioritize testing and actively improving customer experience 

Customer insights are worth nothing unless you prioritize testing and making actual improvements to your app/website/product. Establish a dedicated team to analyze customer data and opinions and ideate potential solutions to bottlenecks and UX issues.

Over time this will help you improve every step of the customer experience, from signing up and using your product for the first time to expanding your product with necessary features as the market changes. Continuous development is key to outperform your sector and avoid silent customer churn.

4. Over-deliver on promises

If you want to lose a customer, promising them the world and not meeting their expectations from the get-go is a sure bet. That’s not to say that you should underpromise, as it can be hard to win new business in the acquisition stage.

Setting high but realistic expectations and then exceeding them is an excellent way to win customer loyalty. If you’ve promised your customers 24-hour response times on support requests, work hard to keep your responses well below that limit. Develop the necessary processes and infrastructure in areas that your customers care about the most.

5. Surprise and delight high-value customers

It might not be feasible for your business to send handwritten notes to every single customer. But the truth is, you don’t have to. You can focus on delighting a relatively small amount of your customers and reap most of the rewards.

eCommerce businesses can set order value thresholds that must be met before you include a gift or handwritten note. That way, you start relationships with potential high-value customers off on the right foot.

SaaS companies should focus on high-tier subscribers, surprise them with free offline workshops or sneak-peeks into new features/functionality, or even let them influence the development path. If they feel more like partners than customers, they will hesitate to look elsewhere.

9 customer retention metrics you should track

1. Customer lifetime value 

Customer lifetime value (CLV) refers to the measurement of average revenue generated from a customer over their entire lifetime as a customer with the company. CLV helps you segment customers into the retain and non-retain bucket and take actions accordingly. The metric further helps set a benchmark for customer acquisition cost (CAC) and customer retention cost (CRC). 

2. Revenue churn rate

When you offer a wide variety of products/ services at different prices, your revenue churn rate will surely differ from your customer churn rate. Revenue churn rate helps identify which products/services are not performing well and create strategies to improve their retention rate. 

3. Net promoter score (NPS)

Net promoter score (NPS) helps analyze the likelihood of a customer recommending your products/services to their family, friends, and peers. Crafted by Bain & Co., NPS has turned into one of the most critical metrics to track customer retention rate and gauge the customer-centricity of a brand in the market.  

4. Repeat purchase rate

Simply put, repeat purchase rate means the percentage of customers who shop more than once on your site. The metric helps to understand a customer’s returning tendency after their first purchase and, hence, design loyalty programs or discount schemes accordingly. 

5. Customer churn rate

Customer churn rate refers to the percentage of people your brand loses in a specific time period. This period could be a month, quarter, year. However, usually, most brands consider 30 days to calculate their customer churn rate.  

6. Average order value (AOV)

Average order value (AOV) refers to the average ticket size per order. It’s a simple metric that helps calculate the value of impact created by individual customers through their purchases. The more money a person spends per order, the cheaper it becomes to run ads for that particular customer.  

7. Profitability per order

As the name suggests, this metric lets you calculate the profits you earn on every order. It’s directly proportional to the overall profits earned by your brand in a set time period.

8. Customer satisfaction (CSat)

Customer satisfaction (CSat) is quite similar to NPS tracked by owners and experience optimizers. While NPS signals the loyalty quotient of a customer with respect to the brand, CSat helps gauge how satisfied a customer is with their product/service. 

9. Customer acquisition cost

Customer acquisition cost (CAC) refers to the amount spent by a company to acquire a new customer. The higher the customer acquisition cost, the lower the customer retention rate, and hence, lower will be business profits. 

VWO customer retention examples and case studies

Sportswear

Case Study: Bionic Gloves used VWO to address cart abandonment and increased online revenue by 25%

Bionic Gloves is a specialty gloves retailer for golf and other sports, based out of the United Kingdom. They maintain an active online presence and get a large part of their sales and revenue through their website and eCommerce store.

But they had identified a significant issue with abandoned carts. Website visitors would go all the way through their funnel, from the homepage to a product page, add items to cart, and then the majority of them would just leave.

Instead of implementing a major and expensive win-back remarketing campaign, they doubled down on stopping the potential customers from abandoning in the first place.

They used A/B testing extensively to improve their checkout experience, removed unnecessary items, and made it easier and more effortless to use. 

The test lasted for 48 days, and over 1,400 visitors used the updated variation during that time.

It was time to analyze the data, and the results spoke for themselves. Total revenue increased by 24.7%, and revenue per visitor also went up by an impressive 17.1%.

Retention doesn’t always have to be about marketing; you can avoid losing customers through cart abandonment and other factors by improving your user experience.

FinTech

Case Study: VWO helped Sweden-sased firm Northmill increase its online application conversions

Northmill is a financial technology company based in Sweden. It mainly focuses on consumer banking services and offers a variety of products. Their primary brands are Easycredit and Credigo, but they also provide an all-digital flexible credit line – Credway.

By 2018, they had reached over 300,000 active customers and started to realize the value of customer retention, versus just focusing on marketing and acquisition. 

They were spending a lot of effort on content marketing but were losing a lot of potential customers because they simply left the website and didn’t return.

They were looking for a way to win-back lost visitors, and keep moving them down the funnel, converting them to customers over time, as well as keep existing customers active and engaged. 

They tried traditional methods like building an email list, and it proved useful, but the opt-in rates were too low.

They decided to experiment with web push notifications. Without investing much effort, over 6,000 people quickly opted in for the notifications at a conversion rate of 15%. 

Early messages showed click-through rates as high as 27%, over ten times higher than the average CTR of email campaigns.

This experiment gave Northmill another effective channel for reaching their customers and prospects.

Computer/Tech parts 

Case Study – ReplaceDirect using A/B testing to reduce cart abandonment

ReplaceDirect is a very successful Dutch eCommerce site. It’s one of the leading retailers in the Netherlands for replacement parts for computers, cell phones, power tools, and other electrical equipment.

Their primary focus is on high-demand, easily replaceable products like batteries and power supplies, but their product catalog extends well beyond that.

Cart abandonment is an issue that plagues all eCommerce retailers, and Replace Direct was no different. They were unhappy with the completion rate of potential customers that added products to their cart and started to check out.

They identified potential usability issues with their checkout and went about creating a variation that addressed the problems. It showed the order and the price above the fold, along with a checkout button.

The new option removed excess scrolling from the experience of a typical customer, so they were ready to put it to the test.

Their theory was proven correct in a massive way. Cart abandonment was reduced by 25%. In other words, they were able to retain 1 in 4 potential customers that had previously just left during checkout.

When they implemented the variation to all traffic, it increased their total sales by 14%.

Health foods

Case Study – Buy Whole Foods increased their click-through rate by 15% by using web push notifications 

Buy Whole Foods Online is a family business run by two cousins, Arthur Martin and Joe Cooper, based in the United Kingdom. They launched the company out of a rented garden shed in 2007, but since then, it has grown to become the leading seller of whole foods, health foods, and superfoods in the UK. 

They were well aware that their existing customer base was their most valuable resource and explored new ways to bring existing customers back to their website. They had tried email, but the opt-in rates were low, and the CTRs and effectiveness of promotions left much to be desired.

By adding web push notifications, they quickly added hundreds of subscribers and gained a new channel to communicate directly with their most loyal customers. It proved to be a great idea.

One of their very first push notifications got a 15.2% click-through rate.

screenshot of the push notification that had a 15.2% click-through rate

But that’s not all. Since most of the subscribers were existing customers, it had a mind-blowing conversion rate of 73%. 97 people clicked the link, and a whopping 71 actually made a purchase.

Combining push notifications to existing customers with sales and promotions can be a great way to improve your returning customer rates as an eCommerce business.

Conclusion

Increasing the number of new customers seems like a natural choice if you want to grow your business. Digital channels make it easy to reach a large audience, and with access to unlimited data, it’s easy to customize your messages and optimize your ads.

But improving your rates of customer retention can be a more significant driver of profit and revenue growth than acquisition.

With this in-depth guide, you’re all set to start tackling retention issues within your own company.

Implement tried and tested strategies like personalized recommendations and loyalty programs to grow a loyal base of customers you can rely on for years to come.

Frequently asked questions on customer retention

What is customer retention and why is it important?

Customer retention is a phenomenon that covers strategies and tactics that businesses put in place to reduce churn. It is becoming highly important because acquiring a new customer can often be a long and expensive process for businesses, and advertising costs are high.

What is a customer retention strategy?

A customer retention strategy is a plan that companies put in place to ensure that customers keep coming back to them and to reduce churn.

How do you get customer retention?

To start off with customer retention, a business needs to implement a simple customer feedback loop that will help you find and apply insights that improve your retention rates. But this is only the starting point. Read our Customer Retention guide to know all about how you can plan out your own customer retention strategy.

What are the benefits of customer retention?

A couple of benefits of customer retention are that loyal customers spend more, it improves brand recall, and the cost for retention is much lower than the cost of acquisition of a new customer. To know how customer retention can help you move your north pole metrics, read our guide.

What are the KPIs of customer retention?

Some critical customer retention KPIs are as follows:

1. Customer lifetime value 
2. Revenu churn rate 
3. Net promoter score (NPS)
4. Repeat purchase rate 
5. Customer churn rate 
6. Average order value 
7. Profitability per order 
8. Customer satisfaction (CSat)
9. Customer acquisition cost (CAC)

Read through our section ‘9 customer retention metrics you should track’ to know more about these metrics in detail.

How does customer retention work?

Customer retention basically helps a brand convert customers into repeat buyers and keep them from churning. It indicates whether or not your products or services have the prowess to please your existing customers and make them buy items from your platform only. Listed below are 6 essential best practices that will help you keep your customers aboard. 

1. Offer surprise gifts and discounts to your customers
2. Provide excellent customer service
3. Use surveys to understand customer psychology and act accordingly
4. Be active and share updates around new product launches and promotions
5. Keep customers informed 
6. Educate customers about your offerings to increase sales

What are some customer retention strategies?

Listed below are 12 customer retention strategies to help you retain customers and increase brand value and business profitability.
1. Make customer experience your priority
2. Instantly respond to customer issues
3. Deliver real-time customer engagement
4. Draft personalized customer retention programs
5. Take customer feedback regularly to address areas of frictions
6. Deliver a consistent omnichannel customer experience
7. Keep a tab on customer journeys
8. Always delight your customers with discounts and vouchers 
9. Create interactive content that educates customers about your brand offerings
10. Listen and empathize with your customers
11. Build a healthy community to improve customer relationships
12. Constantly track customer retention metrics

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