Remember the early startup days when your biggest problem was acquiring customers? As your business grows, your focus needs to shift to how to keep them. This article will cover different customer retention strategies to extend your customer lifetime value and ensure a sustainable business.
You already know it costs 7x more to acquire new customers than to hold onto your existing customer base. But you should also note an existing customer is more likely to buy again: the probability of selling to a new customer is only 5%-20%, versus 60%-70% for an existing one.
Statistics are only useful, though, if you use them to implement effective strategies. In this article, I will:
- Explain why customer retention is important for your business.
- Look at the essential drivers of an effective customer retention strategy.
- Share eight customer retention ideas for your business.
- Give examples of strategies for specific company models.
- Suggest a few metrics to pay attention to.
- Share tools to help you build your own customer retention strategy.
A customer retention strategy is an initiative that enhances the customer experience and encourages consumers to stay with your business. This may be repeat purchases, an ongoing subscription, or continued use of your product.
Table of Contents
- Why customer retention is critical to every business
- The drivers of an effective customer retention strategy
- 8 Customer retention strategies
- How to build a customer retention strategy
- Which customer retention metrics to analyze
- Tools to boost customer retention
Why customer retention is critical to every business
Your existing customers are your best brand ambassadors. Utilize their valuable and free word-of-mouth (or word-of-keyboard, in the case of social media) advertising.
Companies who don’t nurture their existing customers face serious consequences. Not only do they leave, but they can impact future new customers and sales.
- 52% of customers who leave or are disgruntled will leave a negative review.
- 92% of customers regularly or occasionally read online reviews, and 88% of potential new customers are influenced by negative reviews.
- It takes about 40 positive reviews to undo the effect of just one negative review.
There’s a domino effect at play here: Losing one customer isn’t a one-time loss; that customer can hurt future sales. On the other hand:
- 83% of customers will recommend a brand to others if they trust the brand.
- A 5% increase in customer retention can increase revenue by 25%-95%.
- Retaining and upselling customers can result in negative churn to offset your current churn rates.
Investing in your existing customer base can build growth and momentum for your business.
The drivers of an effective customer retention strategy
An effective customer retention strategy makes your customers want to stay with your brand. The concept is simple, but things get complicated when figuring out what drives your customers’ loyalty.
Customer loyalty can be influenced by a variety of factors, including:
- Value – Receiving something of worth for remaining loyal.
- Consistency – Receiving the same service they signed up for.
- Customer service – Having a helpful and responsive customer service team.
- Appreciation – Feeling valued as a customer.
- Personalization – Being treated as an individual rather than a number.
- Communication – Feeling heard as well as kept in the loop.
- Virality – Being exposed to a brand and its benefits through different channels.
To improve overall customer retention in your business, it’s important to adopt multiple strategies that cover different drivers.
8 Customer retention strategies
To see these drivers in action, let’s look at seven customer retention strategies that have helped businesses to reduce churn and improve customer loyalty.
1. Send exit surveys
Maybe it’s a little strange to talk about cancellations in an article about customer retention, but there’s a good reason: your canceling customers possess valuable insight on how to reduce churn.
By adding an exit survey into your cancellation workflow, you can ask an unhappy customer why they’re leaving your brand and what you could have done to retain them. You can’t get better feedback than that.
An exit survey gives you more information than a box asking, “Why are you leaving us?” below the final “close my account” confirmation. You need to ask strategic questions to get actionable insights. The link above goes into greater depth, but here’s a quick summary.
Focus on cancellation drivers
Ask what triggered the cancellation, and what they liked and disliked about your product. Sometimes people sugarcoat their reasons, or give an answer why they think it didn’t work out, but there was another underlying issue. These insights can help guide your product roadmap, customer onboarding process, and more.
Find the right format
Optimize your exit survey for different formats (like mobile, app, and desktop). Ask a mix of open-ended and multiple-choice questions to make it easy for respondents to answer while still gaining new perspectives that can challenge your assumptions.
Apply your discoveries
Your exit survey insights can increase long-term retention and prevent churn for the same reasons. Even if you can’t save an account from closing, this information can improve your overall business model and processes for your customers. For example, if someone churned because they logged in once and then forgot, you can create an email workflow to prompt them to check their account every few days, or build an integration into another tool they use often (for example, Slack).
Exit surveys aren’t all negative. Sometimes your business simply isn’t a good fit for a customer, but they would recommend you to others. In this case, an exit survey can provide valuable insight into who your ideal customer is, and help you refine your marketing strategies.
Drivers: Communication and Appreciation – asking customers for their feedback and listening to their views.
2. Improve your onboarding process
If your entire onboarding process consists of a confirmation email and a link to your help section, you’re doing it wrong.
You may not be able to create a 5-star onboarding process in a week, but you can take small steps to improve your customer experience as they learn to navigate your product or service.
Consider sending a separate welcome email as a follow-up to your payment or subscription confirmation. You could introduce your team, give them an introduction to the company’s history or values, or include contact details for specific types of queries so your customers can find the help they need, fast.
Timing is important, too. For example, you can schedule check-in messages after two weeks, once your customer has a chance to use your product. This check-in can introduce new features they haven’t used, or ask if they have questions.
A thorough onboarding process ensures customers know what to expect from you, how to use your product or service for their specific needs, and where to go for help.
Drivers: Consistency and Value – setting appropriate expectations and delivering product value through knowledge.
3. Launch a customer forum
Humans have an innate need to belong, which is why groups are popular and powerful. You only have to dip into Reddit or Facebook to see how people with common interests gather together.
By creating a customer forum on your support website, Facebook page, or relevant social forum, you can utilize this group psychology to retain your customers.
The benefits to this are multifaceted, including:
- Customers have a place to connect over a shared interest (i.e., your product).
- You have a platform for communicating updates.
- Customers can share ideas and make feature requests.
- You discover how your customers use and benefit from your product.
- Customers can ask questions and get answers from fellow users, helping you resolve problems without lifting a finger.
- You gain insight into what issues people have with your product or service, and can plan ways to resolve them.
Example: Monzo Bank, a FinTech disruptor bank in the U.K., has an online forum where they announce new features and products, undertake surveys to better understand customers’ priorities, and link to feature articles. Fellow customers are active on the forum to help peers and point them in the right direction – and the forum is on top of general FinTech news, pulling in customers who are interested in the technology and finance industries.
Drivers: Value, Communication, and Virality – satisfying your customers’ need to belong and providing them with a place to share and listen.
4. Create a communication calendar
Customer need for engagement doesn’t stop as soon as they make a purchase, and your communications shouldn’t either.
A communication calendar keeps you in touch with your customers by continually providing relevant information. Sharing knowledge gives your customers value beyond your product and convinces them that they should stick with you.
Tip: Use your communication calendar to encourage more user-generated content, which can in turn fuel your communication calendar.
For example, you can weave user-generated content (UGC) prompts into your email newsletter or onboarding campaign. Check in and ask if someone would be willing to review your product or tool.
Here’s an email from Fireflies asking if I would be willing to share how I use their tool for a case study.
What to include in your communication calendar
Use a communication calendar to plan and schedule regular customer contact points, such as:
- Newsletters – A monthly newsletter that updates them on the product, introduces the team, and makes customers feel like one of the family.
- Webinars – A quarterly webinar that uses guest or internal speakers to teach your customers something of interest.
- Blogs – A bi-weekly blog that delivers news, knowledge, and tips relevant to your customers.
- ebooks – A quarterly downloadable, in-depth piece on a topic of interest to your customers.
You can supplement the regular communications above with as-needed resources, including:
- Whitepapers – A deep dive on a specific topic to educate your customers, usually including original data and research.
- Case studies – Think of these as long-form testimonials where you can showcase your product or service in action and highlight the journey from customer need to customer achievement.
- Help center documentation – This is especially relevant if your product is a service, software, or tool that you need to show your customers how to use for best results.
- How-to videos – Studies show customers are increasingly engaging with video. The statistics are especially high for Gen-Z and Millennials.
- Checklists and infographics – Visual assets that help visual learners digest information and achieve their goals.
Drivers: Value, Personalization, and Communication – delivering knowledge and communicating with customers on a one-to-one level.
5. Start a loyalty program
It’s an old one because it’s a good one. More than half of customers will join a loyalty program with a company they like, and 57% of loyalty program customers will purchase from you more frequently. What are you waiting for?
Loyalty programs reward customers for their consistent business and give you a quick and effective way to identify engaged customers versus those who need a little more attention.
These programs don’t have to be complex; you can begin with a simple points program where customers accrue points to spend on future purchases. We all know the joy of finally filling up that punch card to get a free morning coffee, but customer bonuses aren’t limited to consumables.
If your business isn’t set up to give freebies, consider a referral program – a successful referral could give 10% off for your new customer as a welcome, and your loyal referring customer would receive a $10 store credit or 10% off their next purchase.
Drivers: Value, Appreciation, and Virality – showing customers you care about their loyalty by rewarding their purchases and encouraging them to share with friends and family.
6. Use feedback surveys
This comes down to the classic “you didn’t know because you didn’t ask.” It’s almost impossible to know when a customer is losing interest if you don’t check in.
A simple feedback survey shows you care about your customers’ opinions, while providing insights on what they like (or don’t) about your products or services. You can then make quick fixes that stop someone from leaving and instead turn them into your biggest brand ambassador.
Here’s an example of a feedback survey request I got from Mailchimp.
Upon completion, I got the following message:
Feedback surveys aren’t only retrospective; they can be a forward-thinking way to ask customers themselves what they’d like to see next. WILD, a natural deodorant company, asks their customers what new scents they want, and existing customers get first dibs to purchase the new scents when they launch.
When to send feedback surveys
Look for windows of opportunity to send a well-timed survey, such as:
Post-purchase – Give enough time for someone to use your product or service, then ask for a review while you’re fresh on their mind.
One-month check-in – Ask new customers how they’re enjoying the product, share your contact information, and invite them to reach out with any questions.
After contacting support – Send a follow-up to ensure their question was answered, or any issues were resolved. This shows you care about their experience and want to provide even better service.
Upon announcing a product or feature – Slip a feedback request into your latest feature announcement. Ask customers what features they most benefit from and look at creating adjacent features to enhance their experience.
Staying proactive about feedback serves two purposes: first, potential access to valuable insights, and second, to remind your customers you’re thinking about them.
For example, the Mailchimp survey I mentioned above also asked about other tools I used — I suspect so they could prioritize their integration roadmap.
For longer surveys, consider enticing customers to give you their time with a discount off their next purchase or being entered into a drawing for a larger prize such as cash or a gift card.
Tip: Don’t take all feedback at face value. The famous car maker Henry Ford said, “If I had asked people what they wanted, they would have said faster horses.” You need to draw your own conclusions and inferences based on the underlying motivations of your users and how they interact with your product or service.
Drivers: Customer Service and Communication – overcoming customer problems by seeking and listening to feedback.
7. Find creative ways to connect with your customers
Speaking to your users regularly helps you sense shifts in the industry to stay ahead of the curve. It also verifies your product or service meets their needs. By finding creative ways to reach out to customers and get them to book a call with you, you can prevent churn and learn what it’ll take to convert satisfied customers to avid fans.
For example, I took a feedback survey with Heap and opted to answer the additional questions. After I submitted it, Heap sent a prompt to book some time with their team.
8. Show your appreciation
Whether it’s winning the lottery, an unexpected bouquet of flowers, or an email from a company showing a little love and appreciation, surprise brings humans pleasure.
You can use your CRM system to send customers personalized emails on their birthday, joining anniversary, or just because. These emails can contain a custom offer or simply a positive message from your team.
Consider taking advantage of other occasions, too, such as relevant events and company milestones. Since your customers helped get you where you are, make them feel part of the celebration. Is it your business’s fifth birthday, or you’ve reached your 1,000th subscriber? Have you used two tons of recycled materials? Or maybe you’ve recently introduced extended parental leave to your employees?
Whatever the milestone, you need to make an effort to include your customers.
Reaching out to say hello – without directly soliciting a sale – is a pleasant surprise to land in anyone’s inbox.
Drivers: Appreciation and Personalization – connecting with customers on a personal level just by being thoughtful.
How to build a customer retention strategy
Customer retention isn’t a clear-cut initiative like launching a blog. It requires aligning the key factors of your business to elevate your user experience and delight your customers. No two retention strategies will look exactly alike.
Here are three examples:
1) A complex SaaS analytics company might learn churn is high because their customers are having trouble with setup. In this case, they would need to invest in better onboarding and a more robust help center. They might also launch weekly webinars where team members show new users how to get started and answer questions live.
2) A 4PL infrastructure company that handles everything across the eCommerce supply chain might find customers are churning because of expensive costs that cut into their margins. To resolve this, that company would need to readjust their business model and pricing to see where they can make processes more efficient.
3) A heat mapping tool might discover their customers are leaving because a competitor launched a series of new features. Their retention strategy would involve analyzing the competitor’s features to add, and, importantly, mapping other features to differentiate and elevate them beyond their competition.
You get the idea – there are different playbooks for different industries, companies, customers, and situations. You need to evaluate the drivers that are most relevant to your customers, then link to the strategies that will satisfy those needs.
Whether your business is service- or product-driven, everyone can benefit from customer feedback. Regular check-ins will tell you what you’re doing well and what you need to improve.
68% of customers leave because they believe the company doesn’t care about them. Businesses can safeguard against this by creating a customer retention strategy that targets their customers effectively.
A customer has a wealth of options, but they chose your product. Terrific. Now, how do you keep them coming back?
Entice your loyal customers with extras and make them feel valued. Sometimes it’s the small touches that can make a memorable difference. Make the customer feel like they’ve received a bonus, and you’ll find yourself with an easy win for your company.
Loyalty programs – Include referral rewards for your customer and a friend.
Subscriptions – Simplify your customers’ lives by eliminating the chore of having to remember to order more of your product when they run out.
Special occasion emails – Birthdays, holidays, a change in the seasons, and relevant world events are all opportunities.
Virality – Make it easy to spread on social media, such as sharing a pic to be entered into a prize drawing, or a particularly succinct infographic or how-to.
The key here is to acknowledge that your customers have customers of their own – and you care about them, too. Give them the tools to succeed, and your product or service will become invaluable.
Your business and corporate customers will appreciate the care and extra support, especially if you ensure a smooth integration. Soon, they’ll wonder how they managed without you.
- Onboarding – Help them understand how to incorporate your product into their business quickly and seamlessly.
- Learning resources – Invest in a robust, well-researched, and data-backed blog and whitepaper archive. These resources should provide ideas to help their business grow.
- Training center – Provide on-demand access to further training to improve their own roles, and teach them how to use new products and features from your company.
- Webinar series – Share best practices, how-tos, and tips and tricks from your company. You can even invite other businesses or customers to share lessons with your audience. As a bonus, you get to see what questions your users have, and solicit informal feedback using in-webinar polls.
SaaS customers can only benefit from a tool once they know how to use it and understand its features. Some companies need additional hands-on onboarding, whereas others are easy to jump into and immediately see results. SaaS companies that provide proactive and well-timed support throughout a customer’s journey are more likely to become an integral part of that customer’s business or lifestyle.
Onboarding – Help them hit the ground running with a firm grasp of the basics from the start.
Customer forum – Getting help from other users in the same situation is invaluable. No matter how basic or complex the question, someone on the forum is likely to have faced it before, making this a rich community for both new and long-term customers.
Communication calendar – Let them know of upcoming webinars and articles to plan staff training and point out features they might not have known about.
Feedback surveys – Keep aware of how well-utilized your tools and features are, how satisfied your customers are with your service and product, and any risk factors that could cause churn.
Which customer retention metrics to analyze
Before you dive into creating a customer retention strategy, take a moment to reflect on how you’re doing now. It’s important to have a baseline before you implement changes – how else will you know if your new strategies are effective?
Here are a few numbers to monitor to get an idea of your current status.
Customer retention rate
Your customer retention rate is a North Star metric to watch. This refers to how many customers from a previous period you were able to keep and bring over into a new period.
To find your customer retention rate, take the total number of customers you have at the end of a set period. Remove any new customers acquired during that time. This leaves you with the customers who have lasted throughout the period, ignoring new acquisitions.
Then, divide that number by how many customers you had at the start of your initial period. You want to be as close as possible to the number of customers you had at the start of that period, as this would mean there was no churn at all.
Finish off by multiplying by 100, and you have your customer retention rate.
For example, if you’re measuring retention rate annually, your formula would look like this:
(Customers at the end of last year – New customers acquired during last year / Total customers at the start of last year) x 100
So, an example of a 100% retention rate is:
At the start of 2020, you had 100 customers.
At the end of 2020, you had 150 customers.
You acquired 50 new customers during 2020.
150 current customers – 50 new customers = 100 customers
100 remaining customers / 100 original customers = 1
1 x 100 = 100%
Congrats, you didn’t lose a single customer!
An example of a 50% retention rate is:
At the start of 2020, you had 100 customers.
At the end of 2020, you had 100 customers.
You acquired 50 new customers during 2020.
100 current customers – 50 new customers = 50 customers
50 remaining customers / 100 original customers = 0.5
0.5 x 100 = 50%
You kept one in every two of your original customers from the start of 2020.
Customer lifetime value (CLV)
Your customer lifetime value refers to how much revenue your company typically generates from a single customer. There are different ways to calculate this based on your business model, but Smile.io has simplified it to: Customer Value x Average Customer Lifespan.
To get your customer value, multiply their purchase frequency by their average order value. In SaaS, this could simply be your pricing tiers.
The average customer lifespan is how long a customer is active with your company. This can mean how long they’re a paying customer in a subscription business, or how long they actively make purchases from your store.
Rate of churn
Churn refers to customers who decide to stop using your product or service. Look at how many customers don’t renew their subscriptions, how that compares to previous months, and how you’re pacing. In a SaaS company, if your rate of churn goes up, you risk losing more customers than you can bring in, resulting in negative business growth.
Rate of churn in eCommerce could also be measured through shopping cart abandonment. How many people browsed your website, made their choices, reviewed their shopping carts, then left? Look at where they leave (is it the page where you ask them to create an account?) and if there are any discernible patterns. Maybe they got distracted by their pet, or perhaps your check-out process was confusing, or shipping costs were more than they anticipated.
Communications response rate
Say you start an email campaign, but you expected a better uptake. It’s important to look at the average open rates and click rates.
Mailchimp has organized a detailed table by industry that can help you determine what counts as a successful campaign in your business area. If you’re relatively new to this, it may be surprising how low the numbers are – but consider the amount of promotional material that lands in your own inbox.
If you’re not getting the clicks and opens you want, consider your timing and frequency, and test your subject lines, article titles, and snippets. Those details are all meant to grab attention and give clear insight into the content.
Tip: If you have a consumable product, consider timing promotions when you know a customer will be running low. Throw in the occasional bonus to keep them feeling valued and that their money is well spent.
Tools to boost customer retention
You have an abundance of choice when it comes to effective CRM and marketing tools to help your business succeed.
The system you use is entirely personal to your business and preferences, but there are a few key tools you don’t want to miss:
HubSpot — To manage your emails and time your communications according to customer deal stage.
Yotpo — To collect reviews and testimonials you can use in your marketing materials.
Typeform — To run surveys and check-ins to reduce churn and gain insights into how you can improve.
Intercom — To manage your customer support teams and ensure your users feel guided and heard every step of the way.
Smile.io — To launch a loyalty program that rewards your customers.
Delighted by Qualtrics — To get a pulse on your NPS and overall customer satisfaction.
Remember to make your website and platform easy to use. A strong website and social media presence are signs of a robust company, while a poor site can do more damage than not having one at all. Studies show a user forms their first opinion of a website within just 1/20th of a second. That’s a small window of opportunity to either draw a customer in or lose them.
Wrapping up on customer retention strategies
Customer retention strategies aren’t a one-time initiative. They require ongoing effort to perfect and then to retain your customers now and in the future.
If you want to keep your customers, you need to work for them. After reading through this article, you should have a good idea of where to start.
Published: October 19, 2020
Updated: June 7, 2021