What is Customer Retention and 8 Customer Retention Strategies that Work Like a Charm

What is Customer Retention?

Customer retention is the process of engaging existing customers to continue buying products or services from your business. Keeping customer retention rates high means your product is able to garner customer loyalty in the long term.

Using the customer retention rate formula can help reveal whether your customers are loyal to your business.

The customer retention formula

The customer retention rate formula is a really simple calculation for when you need to measure your retained customers.

You can measure retention with 3 pieces of data:

[(CE - CN) / CS] x 100

CE - the number of customers at the end of the period measured

CN - the number of new customers during the period

CS - the number of customers when the period started

In customer retention, you deal with your existing customers who know your brand.

They have used your product for a while now, but like any customer, their expectations can be hard to decipher.

But still, you have the advantage of knowing them, and if you read through our Customer Health Score article, you know what they need and what they don’t need.

The bottom line is that retaining customers will be easier and cheaper (16 times cheaper, to be exact) if you know what you are doing. 

But before that, let’s clarify why customer retention is critically essential for your business.

Why is Customer Retention So Important?

Gone are the days you acquire a customer and they indeed stick with you forever.

Especially since the rise of subscription-based products, churn has become a more real threat than ever.

Any customer can and will leave you when you stop serving their best interest.

That is the number one reason why you need to start investing in customer retention: you need a backup strategy for the otherwise inevitable churn.

But there is more:

1- Enhanced brand reputation

The main benefit of a good retention strategy is that it will turn your customers into fans.

And when you have fans of your product, they will do the marketing for you. Whatever effect you think referrals have on people, it’s more than that. 

Think of the last time you liked a service or product; your first instinct was probably to share it with friends and colleagues. It wasn’t? Well, that was the case for a good majority.

According to Review42’s report, 60% of customers like to talk to their friends and family about companies they had a good experience with.

You might be thinking, “So what?”

An even more important finding is that 92% of customers make purchases when their friends and family recommend them.

So, by focusing more on customer retention, you will not only retain your customers but also trigger customer acquisition—a total win-win.

2- Better your product through customer feedback

Feedback is crucial in every industry and at every level of business. Whether in a coffee shop or a B2B SaaS, you cannot profit with horse glasses on.

However, it also matters to get customer feedback from the right source.

It is crucial that the feedback comes from someone who understands what you do and how you can improve flaws according to their specific customer persona.

The good news is loyal customers are happy to give you feedback.

As you develop an ongoing relationship and connection with existing customers, they get closer to you and you to them. That then turns into a mutually beneficial relationship.

Companies will send loyal customers personalized emails and surveys to gauge their experience. When the customer has been with them long enough, they will know it’s not some annoying login survey for a product they may or may not end up purchasing.

They give informed, thoughtful feedback, and the company takes their feedback way more seriously.

3- Increased revenue as existing customers pay more

61% of small businesses report that over half of their revenue is generated by repeat customers.

Moreover, The Business Review shows that repeat customers are 5 times more likely to make a purchase than new customers. 

When that’s the case, you can’t ignore the impact of customer retention strategies in supporting your business, revenue, and profits. 

Even when the numbers seem lower than a new customer's initial contribution to revenue, the consistent flow from your existing customers will be a defining factor of profit.

4- Improved customer lifetime value

Customer lifetime value is a KPI you’ll need to keep a close eye on, especially for subscription-based SaaS businesses.

You’ll notice quickly that it has a direct correlation to customer retention, and often, the two will affect each other directly as well.

Think of it as a circle: the higher the LTV, the higher the retention, and vice versa.

As your loyal customers make repeat purchases and refer your business, you’ll realize the motion is circular. So remember to keep retention high for the sake of LTV as well.

5- Data analysis and data-driven insights

A very underrated benefit of putting effort into better customer retention strategies is just how much more real insights you get to get your hands on.

The math is simple: the longer a customer sticks with you, the more data you have on customer behavior from different angles.

Moreover, that practically means getting a blueprint of how a long-standing customer behaves, from the features and tools they use to how they upgrade and downgrade.

And then, you can apply that knowledge to other customers and direct them accordingly.

Now, how do you get that recipe for success? Let’s get to the main event ⬇️

10 Essential Customer Retention Strategies

There are many, many strategies for retaining customers, depending on your industry.

Then, there are the customer retention strategies that can work wonders for most businesses. Here’s a quick look to set you right on track:

1- Set the Right Expectations

What some companies fail to realize is that it is never a good idea to overpromise.

What you want to do is promise what you actually can and go beyond that once you acquire a customer.

This might sound like it belongs to a customer acquisition article, but the thing is, customer retention starts the moment customer acquisition starts.

You have to start delivering value the moment the customer interacts with your company, be it an ad or a social media post. 

And when a potential customer does interact with you, the last thing you want is for them to get the wrong impression about your company. 

You want to let your customers know what to expect from you from the very start so that their perception of your brand doesn’t affect the rest of their time with you.

Customer Retention Best Practice

It’s not super fun to talk to a bot. It’s even worse when the bot acts like it’s not a bot.

Our example below sets the record straight.

Personal Trainer Insurance chatbot isn’t afraid to admit that it’s a bot.

It’s good to know who you are talking to and know what to expect.

Also, notice the “typically replies instantly” above?

With that information, you know something is wrong if it doesn’t reply for some time. The experience instantly gets better by just setting the right expectations.

2- Onboard Users Effectively

Customer onboarding is a make or break situation for your customers.

If it takes too long, they are out. If it is not informative enough, they are out again.

Almost all customers interact with your brand with a goal in mind. They aim to use your product for one or two purposes.

But when you onboard them effectively and manage to get them to learn all the features of the product without boring them, you create a fan. 

Because you showed them that they can do so much more with your product, they automatically receive more than they expected. 

Therefore, they tend to stay with you for a longer time, which is the ultimate goal of any customer retention strategy.

Customer Retention Best Practice

For a long time, Netflix has been the most fun onboarding experience anybody on the street would recall having.

And that has been one of their best customer retention strategies for a long time as well.

Today, it’s not much different.

It tells you that you’ll be ready to go in 3 steps: you choose a plan, enter the payment method and choose 3 shows you like.

It redirects you to the main page of Netflix where you find suggestions according to what shows you chose in the last step.

Of course, B2B tends to be way more complicated, but Netflix is a great example to show us how we can minimize the process to perfection.

3- Offer an Excellent User Experience

I could talk on and on about how valuable good user experience is, but I will let the statistics do the talking for this one.

👉 90% of customers that had a good experience with a product or company tend to buy more than an average buyer.

👉34% of customers say they would never purchase something from a brand after just 1 bad experience.

👉41% of customers say they will pay up to 20% more for a better experience.

You would already know that good UX is priceless.

And that’s exactly why it matters so much.

If you show you understand what a customer needs on the very first level of interaction, it gives the message that you will understand them throughout their journey with you.

Customer Retention Best Practice

Airbnb is a fan-favorite for many, but its UX goes far and beyond that.

You could go on the website and find yourself booking a whole house in Copenhagen in a minute. It’s not only that it’s easy to use but fun to navigate as well.

And that’s exactly what you want to offer your customers.

Moreover, Airbnb’s customer service is 24/7, which means beyond UX, they also care about customer experience. 

Remember that customer service and retention go hand in hand, Airbnb sure does.

4- Do the Calculations and Improve Them 

When it comes to customer retention, getting lucky is not a thing.

You must be prepared, set priorities, and predict customer behavior beforehand. That’s why we have measurements like Customer Lifetime Value (CLV) and Customer Health Score. 

For better retention, every business must calculate and improve these.

Customer Lifetime Value (CLV) is a measurement of the total revenue you expect to acquire from a customer over their lifetime with your product or service. And that matters.

Calculating CLV can help you identify your VIP customers and see which ones you have a chance to upsell.

Likewise, Customer Health Score is a measurement directly relevant to customer retention. It helps you predict who could churn and who is especially satisfied with your product or service through specific metrics.

Although these calculations are more precaution than improvement, they are perfect to set you on the right track.

5- Follow-Up Right

An unspoken rule in business is that when a customer makes a purchase, you send them a confirmation email.

This way, you let them know that you see them and that you care. However, there are some things you need to be careful about in these follow-ups.

Never let your customers think that you sent them an automated message—unless you want them to cancel right away.

Of course, the message can be automated; just don’t make your customers feel like it. 

👉 68% of customers leave companies because they think the company doesn’t care about them. If more than two-thirds of customers have the same issue, you know you have to pay attention to personalization. 

Let them feel like they are a part of the community, address them with their name and use “human” language. Professionalism is cool and all but working with so many computers we all just need a bit of human touch.

Show them you care.

Customer Retention Best Practice

Netflix has a pretty cool end of subscription email that could turn potential churners into fans.

It tells you which features you’ve been using so that you can decide objectively whether you need it or not, do the math for you, and include a help center link.

They even call themselves “your friends at Netflix”.

Now of course, you know this is automated. But you don’t feel distant and cold thanks to all the ways Netflix minded how they sound.

How helpful and friendly is that?

6- Have Social Media Presence, But Don’t Overkill It

Today, like most of us, you probably check social media more often than your emails.

And that’s probably why even the most niche SaaS businesses have social media presence. 

At this point, it’s not a question of whether you should be on social media but how you should do it. And the answer is, with the right content and the right amount.

Most SaaS companies tend to share reports, articles, and new things happening with their brand. However, as you gain followers you must consider what they would want to see on their feed too.

Because social media is a public place that pretty much affects your company image, you don’t want to be that company that overshares irrelevant stuff. 

Keeping up company image is important on a whole another level of its own anyways.

As your company grows and becomes more respectable in the industry, the trust, and loyalty of your customers grow. So you not only attract more customers but keep the existing ones.

Once again, two birds with one stone.

Customer Retention Best practice

Grammarly's Twitter account is the epitome of SaaS on social media.

Now they are a grammar corrector and I am a writer: there is some natural bias there.

Yet still, their target audience goes beyond writers and their consistency shows that their content is how you do it for their niche.

7- Be There When Your Customers Need You

We’ve already talked about customer service retention strategies a bit, but let’s fully understand it.

People need customer support. and if they can't get proper support, it is goodbye.

Every company can come up with a great product and build the best user experience. 

But without the human side of the business, the only reaction they can get from the customers would be: meh.

Just how frustrating it is when you call the customer help center and you have to talk to a machine?

People quit their phone operators, delete their go-to food delivery service, and cancel orders just because they can’t talk to a human for customer service.

Now imagine how frustrating it must be for people who pay you some good amount of money.

Let me drop a quick stat to make it all clear.

👉 Businesses lose more than $75 billion dollars every year due to poor customer service.

Not millions, billions. Let that sink in.

Customer Retention Best Practice

With social media growing more and more every day, it is only natural that customer support expanded to Facebook, Twitter and Instagram.

It is not a rare occasion that people will let others know of a bad experience with you on social media. So that’s where you gotta keep a tight ship.

Amazon’s Twitter account is a good example here.

When someone asks for help, they are as clear as possible and they include the customer support specialist's name just so the customer knows they aren't talking to a wall.

And when they don't have to help, they reply to people's Amazon related tweets in the most personalized way possible.

Seems like Bezos knows what he's doing, huh?

8- When At Doubt, Ask for Feedback

I already said that feedback is one of the things that makes customer retention important but when done correctly, it is also a strategy to guarantee customer retention.

See, it all boils down to how you ask for feedback and what you do with the data afterward.

For one reason or another, new customers don’t like surveys and questions. They just want to explore the product, which is your cue to let them be.

But with existing customers, it’s a different case.

Let me say this again, your loyal customers want to give you feedback. Stress on the want part; they want to be heard and see their feedback makes a difference.

And when they do give feedback, it is the best possible feedback you could ever have because these people have been with you for a long time now. 

In the end, you receive quality feedback and the customers know you care about them and what they think. 

So, what are you waiting for? Go ask them!

Customer Retention Best Practice

If you know Slack, you probably know how much it improves team communication. Well, they didn't get there overnight.

Look at this survey email from Slack.

Nice greeting, short reading, and a CTA button. But overall, one thing stands out.

Notice how they specifically wrote "a small set of people"? 

They might have chosen a small set, or not.

What matters is that telling you that will automatically make you more inclined to take the survey now that you know you are special.

Kudos to that, Slack.

Wrapping Up

Customer retention is clearly one of the most important things companies should be focusing on, yet most don't.

Now, customer acquisition strategies as well as customer service retention strategies are important to apply to your business, but it’s important to see retention as a whole as well.

If you dig deep enough, you’ll find that there are pretty unique retention strategies.

Today, we listed a few retention strategies that can work for anyone. But if you’re willing to go the extra mile, check out our retention metrics guide here.

Good luck in advance 🍀