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

Back in 2018, I went to the same coffee shop for ten months straight just because they had loyalty cards.

True story. 

Now I might come off as a cheapskate, but in my defense, they had great coffee, I could share their location on my Instagram stories, and they started recognizing me, which made me feel like I belonged there.

This might sound like a cute little story to you, but I just gave you the ultimate recipe for perfect customer retention. And while we are at it, let me make something crystal clear:

Customer retention > customer acquisition

If you think otherwise, one finding from SaaS Scout’s 2020 report will change your mind. According to the report, 65% of the profits come from existing customers. 

If reading the finding above didn’t make you run to your customer success team to optimize your customer retention moves, let’s look at what customer retention really is.

what is customer retention

What is Customer Retention?

Customer retention is the process of engaging existing customers to continue buying products or services from your business. But that is the coursebook definition. Truth is, it goes far beyond that.

The customer retention formula

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

customer retention rate formula

[(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, the people you are dealing with are your existing customers, which means they know your brand. They used your product for a while now, and their expectations are possibly unpredictable. 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, retaining customers will be easier and cheaper (16 times cheaper, to be exact) if you know what you are doing. And I know just the right strategies to check if you know what you are doing.

But before that, let’s make sure why exactly is customer retention – critically – essential for your business.

Why is Customer Retention So Important?

What a world we would be living in if the customers we acquired once never left. But that is not the case, and they are, in fact, very willing to leave if you don’t keep your promises from when you acquired them. But above all, even if you aren’t in a losing customers trend right now, customer retention will only bring quality to your business.

why is customer retention crucial

Here are 3 main reasons why customer retention is important.

Have Customers Do the Marketing for You

It is great customer retention that turns 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, believe me, it’s more than that. 

I, for one, like to share it with my friends and colleagues when I have a good experience with a company or product, and in fact, most people seem to agree with me on that. According to Review42’s 2020 report, 60% of customers like to talk to their friends and family about companies they had a good experience with.

And an even more important finding is that 92% of customers tend to make purchases when recommended by their friends and family.

So by focusing more on customer retention, you not only retain your customer but also trigger customer acquisition. Great deal, I say.

Better Product Through Customer Feedback

Feedback is crucial in every industry and on every level of business. Be it the coffee shop or B2B SaaS; you cannot profit with horse glasses on.

But 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. And to top it all, loyal customers are happy to give you feedback. How cool is that?

As you develop an ongoing relationship and connection with existing customers, they become family to you and you to them. I might be getting slightly romantic on this matter, but it is true.

Companies will send loyal customers personalized emails and surveys to check up on their experience. When the customer has been with them long enough, he/she 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.

I say win-win.

More Profitability

We’ve talked about this, but hey, profiting is what keeps companies going.

Think of it like this, to acquire a customer, you utilize almost all branches of your company. You have to arrange ads, offer demos, set affordable prices and have a killer first impression with the user experience you offer. A whole lot of work to prioritize as the number one objective.

I am not telling you to stop doing all that; all companies need customer acquisition. What I’m trying to say is that prioritizing customer retention might be a better move when 65% of sales revenue comes from existing customers.

What’s more is that according to Review42, a 5% boost in customer retention increases profits by 25% to 95%. Some influential customers, huh?

Now that we are on the same page about the importance of customer retention, let us head to the killer strategies you can start using right away.

best customer retention strategies

8 Essential Strategies for Customer Retention

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 they do, 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.

Best Practice

Personal Trainer Insurance chatbot isn’t afraid to admit that it’s a bot and honestly, sometimes I wish they all did.

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. An instantly better experience by just setting expectations.

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 tend to stay with you for a longer time.

Best Practice

Netflix was the most fun and easiest onboarding I had, by far.

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.

customer retention strategies best practices netflix

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.

I know we all agree that a good UX is priceless, especially when it comes to making a purchase and navigating through a website. That’s exactly why it matters so much. If you can show that you understand what a customer needs on the very first level of interaction, it gives them the message that you will understand them throughout their journey with you.

Best Practice

I am a big fan of Airbnb as a concept alone, but the UX they have is just another thing to love by itself. I took a quick look into the website now and I almost booked a whole house in Copenhagen in just 5 minutes. It’s not only that it’s easy to use but fun to navigate as well. That’s what you want to do for your customers.

what is customer retention airbnb

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. Calculating it important to know which of your customers are your VIP customers and with which of them 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.

Follow-Up Right

It is a legit rule that you have to send an email to your customer after they have made a purchase. 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, and I mean never let your customers think that you sent them an automated message. Unless you want them to cancel right away, that is. It sounds pretty radical to cut ties just because of an automated message but hear me out.

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.

Best Practice

Recently my Netflix premium subscription came to an end but the warning email they sent me was so good I might as well keep paying premium. Now, look at this. 

They told me which features I’ve been using so I can decide objectively whether I need it or not, they did the maths for me, they included a help center link and they called themselves “my friends at Netflix”. How helpful and friendly is that?

how to retain customers netflix email follow up

Have Social Media Presence, But Don’t Overkill It

If you are not a hundred years old, you probably check social media more often than you check your emails. And that’s probably why even the most abstract 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 practices grammarly

Best practice

Grammarly’s Twitter account is the epitome of SaaS on social media. It might be slightly easier for them since their product is a grammar correcter, and my opinion might be a tad bit biased since I am a writer but their content is the type that gets you interested and informed. But the best part is that it talks to everyone, thus enhancing brand image through retweets and likes.

Be There When Your Customers Need You

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? I quit my phone operator, my go-to food delivery service, and canceled several orders just because they wouldn’t get me on the phone with an actual human being. 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.

Best Practice

With social media growing more and more every day, it is only natural that customer support expanded to Facebook, Twitter and Instagram. We, customers, feel the need to let other people know that we had a problem with a product, and since it is public, customer support needs to be its best on social media.

Personally, I really like Amazon’s approach on Twitter. When someone asks for help, they are as clear as possible and they include the customer supporter’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. Bezos know what he’s doing, huh?

customer retention strategies example amazon customer service

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, let them be. But it’s not the same case with existing customers.

Let me say this again, your loyal customers want to give you feedback. And when they do, 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. 

Ask. Them. For. Feedback. 

Best Practice

If you work in a company, you are probably familiar with Slack and 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 probably did choose a small set, but informing you about it goes a long long way because psychologically, you are inclined to take the survey now that you know you are special. Kudos for that Slack.

Conclusion

Customer retention is clearly one of the most important things companies should be focusing on, yet most don’t. Although some customer acquisition strategies work for customer retention as well, due to the fact that existing customers create more than half of the sales revenue, I think it deserves its own strategies.

There are very unique strategies for customer retention as well as established ones.

It goes without saying that it depends on the size, industry, and goals of the company to choose its customer retention strategies. I tried to list the ones that I deem the most crucial, hope you enjoyed it and ready to make some big moves for your customer retention.


Frequently Asked Questions


How can I calculate the customer retention rate?

Simply remove the number of new customers from the existing customers within a time period, and divide it by the number of customers at the start of this period. Then, multiply this number by 100 to get your exact customer retention rate.


What is a good customer retention rate?

In an ideal world, you shouldn’t lose any customers at all, making the %100 the ideal retention rate. However, in the real world where anything can happen, anything above your industry average is a good customer retention rate.


How do you increase customer retention?

To keep someone as a regular customer, you’ll need to simply offer them constant value. Keeping your customer experience smooth, your support active, and your overall value high will result in an increase in customer retention.

Serra Alban

Serra is a Creative Content Writer of UserGuiding specialized in user onboarding and UX. When she is not writing you can find her playing video games or throwing random movie trivia at uninterested people.

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