How to Improve the Customer Retention Rate
The first step towards improving your customer retention rate is to have a clear understanding of what it is and then take action to reduce the churn and enhance loyalty. This is because it is far more expensive to acquire a customer than to retain an existing one. Therefore, in this post, we will discuss in detail all aspects related to customer retention. Let’s start.
What Is Customer Retention Rate?
Customer retention can be defined as the ability of your company to convert first-time customers and make them repeat buyers. This prevents them from moving to any of your competitors to buy the products or services that you provide. The metric customer retention rate refers to the percentage of your existing customers who continue to remain your customers after a specified period. It helps you to better understand what aspects keep your customers with your organisation and also indicates opportunities to improve your customer service. Once you get an idea as to how good or bad your organisation is at retaining customers, it becomes easier to work towards improving this metric.
Advantages of Customer Retention Rate
There are many advantages to improving your customer retention rate. They include both quantitative and qualitative benefits. Improving your customer retention rate contributes greatly toward enhancing the profitability of your business in the long term. Besides, it improves your brand’s image among your target audience. Having said that, some of the key benefits of improving the customer retention rate are:
- Customer retention is way cheaper compared to new customer acquisition
- Loyal customers enhance your company’s profitability
- Your brand will stay ahead of your competitors in your niche
- You will earn more referrals through word-of-mouth publicity
- You will receive more feedback from engaged customers, and this helps you improve products and customer service
- Loyal customers will explore your brand and buy a new product from time to time.
- Savings in ad costs as repeat customers trust your brand
- Improved profitability
Different Ways of Improving Customer Retention Rates
Customer retention efforts start whenever someone hears about your business or visits your website, not after they purchase something from you. As you focus on ensuring a great customer experience right through his/her journey, your customer retention rate will start improving.
#1: Reward loyal customers
You have to find ways and means to convey to your customers that you attach a lot of value to their loyalty. Furthermore, you should reward your loyal customers. You can reward your loyal customers in many different ways by:
- Offering discounts or freebies
- Providing additional services or products at a discounted price
- Sending invitations for events, launches, etc.
- Giving a new product experience ahead of launch
- Giving surprise gifts on special occasions
- Teaming up with other companies and offering discounts
#2: Improve customer service
Improving customer service helps you retain customers and enhance their loyalty. You have to make it clear to your customers that you have their best interest in mind so that the risk of losing them to your competitors does not arise at all. Providing assistance quickly goes a long way towards building good relationships with customers and they will continue to remain by being loyal to you.
#3: Create a loyalty program
Loyalty programs are helpful in eliciting loyal buying behaviour from your customers. Your loyalty program could give access to buying new products, free merchandise, or special sales coupons. Loyalty programs often encourage customers to shift from single-period to multiple-period decision-making. Well-conceived loyalty programs encourage repeated purchases. This, in turn, improves your retention rate.
#4: Define a drip marketing campaign
Appropriately executed drip marketing campaigns have the potential to dramatically increase returns on your ad spend, enhance client retention rates, and bring in additional revenue, which traditional methods are incapable of achieving. Drip marketing becomes very effective when you have a clear idea of your target audience and refine the segmentation of your email list.
#5: Upsell and cross-sell
Cross-selling and upselling have a key role to play in sales. While cross-selling encourages customers to buy complementary or additional products along with their purchase, upselling encourages customers to go for a superior version of some product they are intending to purchase. Cross-selling and upselling improve customer retention rate, enhance customer experience, and increase revenue.
#6: Offer a discount for a monthly subscription
If you are following a subscription model for your business, then you could offer discounts to customers who opt for monthly subscriptions. It serves not only to increase your cash flow but also to make it more predictable. In addition, it helps to increase the retention rate and average customer lifetime value.
#7: Thank you notes from Founder
Customer retention is by far the most important metric in order to run your business successfully. Thanking customers for buying something from you, giving valuable feedback, providing relevant suggestions, etc., often contributes to enhancing your customer retention rate. You can thank your customers in many ways. However, a thank you note from you, the founder of your business, can make a whole lot of a difference.
Key Customer Retention Metrics to look at
As an eCommerce business owner, the three key metrics you must take into consideration in order to understand your customer retention rates are:
Repeat customer rate: It represents the percentage of your customers that have made a minimum of two purchases during a specific time period. It tells you how much value you are adding to your customers. If 20 to 30% of your customers return each month and make a purchase, your business should do well.
Purchase frequency: This metric tells you the number of purchases made by your customers within a certain period of time, say a month. It helps you understand the customer retention rate, customers’ buying behaviours, and their degree of satisfaction.
Average order value: This is one of the most important metrics as far as your eCommerce business is concerned. It drives key business decisions like the advertising budget, product pricing, and store layout. If your customer retention rate is high, the average order value will also be high.
Now that you have an idea as to what customer retention rate and its benefits are, what metrics you should consider for improving the same, and how it impacts your success, you may put a plan in place to provide the best experience to your customers.