Improving customer retention rate

Table of content

Customer retention rate is the percentage of customers your company holds over a specific period. It helps you understand which customers will stay long and who will likely churn. So, if your churn rate is low, you have more loyal customers. That means your customer retention rate is high. 

There is a high chance that a loyal customer will make several purchases from your brand in a year. However, several users buy once and never repeat. A study from Smile.io shows that when a user buys for the first time from your online store, there is a 27% chance they will buy again. After the second and third purchases, there is a 49% and 62% chance they will buy from you again. 

Source

Importance of customer retention rate (CRR)

Customer retention is important for a brand‘s long-term and short-term success. Here are the reasons why customer retention rate is important for your brand. 

• Loyal customers become the repeated customers for your business. So, if you try to improve your customer retention, it will make your customer more loyal. As a result, they will repeatedly engage with your business.  

• Loyal customers are more likely to stay with you for a long duration. This increases the chance they will purchase from your brand more frequently, enhancing your sales rate. So, the customer retention rate guides you in understanding who will stay with you. 

• Happy and satisfied customers refer your brand to more people. This way, you gain new customers. 

Customer retention rate formula 

You can calculate the customer retention rate through a simple formula.  It requires three factors –

S = The number of customers at the start of the period

E = The number of customers at the end of the period

N = The number of newly gained customers during that period

The formula is, CRR = ((E-N)/S)x 100

So, let’s take an example to help you understand it. Suppose you have 150 customers at the start of a period. Meanwhile, during the month, you have lost 5 customers and gained 15 new customers. Then what would be the CRR? 

Now apply the formula CRR = ((E-N)/S)x 100 = ((160 – 15)/150)x 100 = 96.67 %

Strategies to enhance customer retention rate

Here you will learn some of the best strategies to improve customer retention rate –

1. Build a user-friendly onboarding

A major reason for churn is the complicated onboarding process. Yes! Many users don’t understand how to use your platform or product. Thus, it’s crucial to provide some training sessions for the users. These guide them through the workflows, features, benefits, and best practices of the products. Thus, these tutorials result in high customer satisfaction, which in turn leads to a low churn rate. 

2. Make your business easy to understand

Explain your business so people understand your goals, vision, products, and services well. There is a myth that the best product always dominates the market. This is not true at all. For instance, your competitor is selling the same product you have been continuing. But they have greater customer retention. But how? They have made their marketing materials and their explanations straightforward. Thus, their users can easily understand the products and services. It keeps them from making an informed decision about whether they will continue shopping with your brand or  your competitor. 

But avoid over-explanation. It confuses users about your service, and they refuse to shop. So, keep your explanation simple. 

3. Offer quick delivery options

Though many users wait a few weeks to receive the products, most prefer faster delivery. With their fast-paced lifestyles, most people become frustrated if they don’t get the product within 1-3 days. Thus, people rely on brands that provide faster delivery options. For instance, Amazon has strictly set a delivery time within the same day or the next day for many products. This service is available in only some areas of the USA. 

4. Prioritize customer feedback collection

User feedback is a great way to enhance customer retention. It helps you understand how users feel about your business and services. It also provides valuable insights about their overall experience with your brand and pain points. This data will predict whether users will remain loyal customers or leave. 

Now, let’s see an example from Zara to understand this strategy well. In 2015, a lady walked through a Zara store in Tokyo to buy a pink scarf. Unfortunately, the store did not have any pink scarves. The same incident coincided in Toronto, Frankfurt, and San Francisco. This way, many customers returned disappointed from the Zara stores. A week later, 2000+ Zara stores started selling pink scarves globally. They manufactured and dispatched 500,000 pink scarves, which sold out within just three days! 

5. Build easy workflows for return and refund

‘Return’ and ‘refund’ are sensitive factors. Users prefer businesses that have transparent return and refund policies. An efficient and faster return process minimizes the users’ waiting time. As a result, they trust the brand and again want to shop with the business. Thus, you should build easy return and refund procedures on your platform. The easiest method is refunding or exchanging through the original payment option. 

6. Social media support

Social media not only connects people, but it has also become an excellent customer support medium. Social media platforms quickly solve customer issues. Moreover, social media provides opportunities to chat directly and engage with the business’s posts. Also, you can offer several loyalty programs, quizzes, rewards, etc., through social media.

7. Bring a change

Sometimes, the users get bored with your brand. So, you can revitalize their experience by introducing a new product or returning an old one. For example, you should consider the ‘New Coke’ product of Coca-Cola. The brand was optimistic that the customers would be excited about the new product and purchase it. Instead the product failed due to the change in the flavour. Also, coca-cola received lots of requests not to change the original recipe. But they achieved a lot of publicity through the event. So, it can be concluded that sometimes the customers become excited about a change which ultimately doesn’t change anything. That means the initiative is enough to resonate with the users. 

8. Gamification 

Gamification is a vital factor in improving customer retention and boosting sales. The retail sector spends some dollars for customers that they get as points. These points encourage users to stay with the brand in the future, making them repeat customers. 

The gamification approach with reward is vital in creating a long-term user journey. The approach encourages users to shop more and collect more rewards. This mindset creates a long journey for the users.

9. Leverage personalized services with social media platform

Users expect personalized and immediate service from a business. Social media is an excellent method for leveraging personalized services for your clients. Many customers prefer social media for customer service rather than emails and phone calls. The benefit of using social media for customer service is that businesses need to spend less than on traditional call centre interactions. 

Your customers may communicate and post through several social media platforms. Thus, tracking their previous conversations and purchase history is necessary to provide better solutions. This approach will increase customer retention and loyalty. 

10. Segment customers

Customer segmentation assists you in delivering the right content to the right people at the right time. Sales CRM software such as Salesforce enables customers and prospects to be segmented into numerous groups based on how they interact with your brand. Later, you can use these insights to customize your marketing campaigns according to your users’ needs and level of awareness. 

Email segmentation would be the best approach if you’re looking to retarget your existing and old customers. If an existing customer doesn’t prefer to receive offers from the initial purchase, you should retarget them. It will deliver better results. For instance, Perkbox gains success by nurturing customer interaction through email segmentation and prospect data. 

11. Identify the customers who are likely to churn

Another easy way to improve customer retention is to identify customers likely to churn. There are many possible signs that a customer is expected to be churned. For instance, you might focus on why a user has not used a product for over 30 days. 

Many businesses also use traffic light symbols to understand the possibility of customer churning. For example, the green symbol indicates that the customers are happy and there is a low risk of churning. The red implies that the customers have the highest possibility of churning. The amber indicates that the customer has a non-serious issue. So, based on these outcomes, you have to put your effort into customer retention. 

12. Customer loyalty programme

A loyalty programme is nothing but providing rewards for the loyalty of your customers. With this programme, you can add points to their profile when they refer your products/services/business to their family or friends. Otherwise, you can send them emails offering discounts on the next purchase. 

But remember that your message should be short, crisp, and helpful so that these can easily resonate with the users. 

Did you know?

• Small e-commerce businesses earn 35% of revenue from their top 5% of loyal and repeat customers. (Smile.io)

• More than 40% of marketers prefer SEO for improving customer retention (Statista)

• The worldwide market size of the loyalty management market is expected to grow by USD 28.65 billion by 2030 (Fortune Business Insights) 

Conclusion

These are some vital strategies for improving your customer retention rate. You have to choose the plan based on the type of your business. For instance, there will be different strategies for a startup versus an established business or an online store versus a brick-and-mortar location. So, choose the plan carefully. 

FAQs

• What is the customer retention rate meaning?

Customer retention rate refers to how many customers stay with a business for a specific period.

• How do you calculate a retention rate?

You can calculate the customer retention rate through a simple formula –

CRR = ((E-N)/S)x 100

S = The number of users during the starting period

E = The number of users during the ending period

N = Total number of newly gained customers in this period

• What is KPI for customer retention rate?

The customer retention KPI measures the number of customers your organization holds during a specific period and drives revenue from existing users.