It doesn’t matter what kind of business you operate; the odds of succeeding without a steady and devoted client base are slim to none. That’s where customer retention comes in. Defined as the process of keeping current clients engaged so they continue to buy your products and services, customer retention is especially crucial in the small business community. Not only is retaining current customers easier than finding new ones, but it’s also far less expensive. Fortunately, many customer retention strategies are relatively easy and inexpensive for small businesses to implement.
Why Customer Retention Matters
If you’re not investing in customer retention efforts, then you’re missing out on a valuable opportunity to boost revenue. In fact, a study by Frederick Reichheld of Bain & Company reveals that increasing retention by 5 percent results in a profit increase between 25 percent and 95 percent. Moreover, the cost of acquiring new customers is significantly higher than the costs of retaining customers. A Harvard Business Review report indicates that it’s five to 25 times more expensive to attract a new client than it is to keep an existing one engaged.
How do those percentages equate to dollars and cents? A Wordstream report on online advertising costs shows that the average costs per click on Google Ads is $2.32, and the average cost of per action (ex:making a purchase after clicking on an ad) is $59.18. Considering those costs, paying attention to customer retention could have a significant impact on your bottom line.
Additionally, repeat customers are more likely than new ones to recommend your services to others. This word-of-mouth advertising can save you money while increasing your prospective client base. As a bonus, ensuring current clients are engaged and familiar with your services means you can spend less time on customer support down the line.
How to Measure Customer Retention
If you’re committed to improving customer loyalty, the first step is measuring current retention rates at your business. To do that, you need to account for the number of customers lost in a given period as well as the number of new customers acquired. Businesses use the following data when calculating customer retention rates:
- The number of customers you have at the end of a given time period (E)
- The number of new customers you acquired during that time (N)
- The number of customers you had at the start of a period (S)
Calculate retained customers by subtracting the value of N from the value of E. Then find the percentage by dividing that result by the total number of customers at the start of the period. Multiple the answer by 100. Thus if you and ended up with 115 customers (E), acquired 20 new customers (N), and had started out with 102 customers (S),you’d have a 93.13% retention rate.
95/102 = .9313
.9313*100 = 93.13%
Once you understand your current customer retention issues, you can take steps to improve the situation and boost your business’ profitability in the coming months.
Top Strategies for Improving Customer Loyalty
Retaining customers in today’s competitive marketplace can seem like a daunting task. Still, there are some tried-and-true techniques small business owners can use to increase loyalty and keep customers coming back.
Provide an Onboarding Program
The process of onboarding might not seem like it relates directly to customer retention. However, the truth is that this tactic is essential to customer retention. By teaching customers how best to use your products and services, you increase their overall satisfaction with your business while minimizing stress and frustration. The end result is that clients are more likely to meet their own goals and deadlines. Not only are they happier with your company, but they may be more likely to recommend you to friends and co-workers. An added benefit, if you post how-to and other explainer videos on YouTube, they may wind up attracting new business as well.
Use Email Marketing to Stay in Touch
Sometimes, the only thing that stops a customer from being a repeat customer is that they don’t think of you when they’re ready to buy again. So, they buy from someone else. Solve this problem by keeping your company name top of mind with email marketing. You can send product information, industry news, timely tips related to what you sell, and other materials that would be interesting to your customers. The communications will help keep your company in mind.
Reward Customers for Their Loyalty
You’re grateful to your clients for continuing to choose you over the competition. Why not reward their loyalty while encouraging them to select your products again in the future? The top 10 percent of business customers spend an estimated three times as much as the rest of your clients. So, it pays to give those high-spending customers a reason to come back again and again. The best rewards programs give customers free products or services, rewards, coupons, or even the opportunity to purchase goods before their official release.
As a business owner, it can be difficult to know exactly what your customers are thinking. If you want to take the first step toward building retention, consider asking clients to fill out an online survey. Along with identifying pain points, surveys can suggest areas of improvement or reveal what products and services your clients hope you offer in the future.
Offer Thoughtful Discounts
Falling into the trap of discounting your products can have negative consequences. After all, you don’t want to offer such low rates that you’re consistently losing money. Still, the occasional promo code or coupon offer can be a useful tool in keeping customers engaged. In particular, consider sending these deals to first-time buyers after they complete a purchase. You can encourage them to consider purchasing from you again while your memory is still fresh in their mind.
Customer retention isn’t just about encouraging people to make more purchases. It’s also about supporting customers when things go bad. For example, sometimes products break shortly after purchase or customers neglect to use items correctly. Take time to contact clients by email or social media message to ask how you can help address the issue and resolve the problem. The good will this generates is likely to motivate customers to come to you in the future when they need your goods and services.
Follow Up on Abandoned Shopping Carts
Sometimes customers fully intend to buy something only to get distracted before they can hit the “Complete Purchase” button. If you find that a lot of customers are leaving products in their shopping carts, think about doing something to cut down on abandonment rates. For example, you could send out a follow-up email reminding them that the item is still available. You might even want to offer a coupon code, such as a free shipping offer. Sometimes this little push is all your client needs to complete the sale.
Make Customers Feel Welcome
This is particularly important for brick and mortar businesses. We live in an increasingly impersonal world. When customers see that you care about them, like them, and are willing to help them, they are more likely to keep coming back. A smile and words like “How are you doing today?” “Is there anything I can help you with?” and “We’re so glad to see you back ” cost you nothing and can go a long way towards building customer loyalty and repeat business.