“Do what you do so well that they will want to see it again and bring their friends.” – Walt Disney
All of us have grown up to famous Disney characters, the same ones that our children are so fond of today, two or three generations later: Mickey Mouse, Goofy, Cinderella, and the other Disney princesses.
In fact, you can’t think of Walt Disney without thinking of the magnificent empire that’s been built upon generations and generations connecting and coming back to the iconic characters that they connect with.
Think of any iconic company today – Apple, McDonald’s, Airbnb, Sephora, Amazon – and you’ll realize that they all have one thing that keeps people coming back.
In the case of companies such as Apple & Walt Disney, it’s the product itself, while in the case of companies like McDonald’s, Amazon and Airbnb it’s the experience.
Companies like Sephora are where it gets interesting because these brands work very proactively to keep customers coming back, employing a number of tactics such as a loyalty program, promotions, wide product ranges, cultural relevance and marketing communication to maintain their standing at the top of customers’ minds.
What is Customer Retention?
The bottom line is that every successful company today has a well-planned customer retention strategy – their returning customers and loyal customers are the secrets to their success.
Customer retention meaning, then, can be defined as the act of engaging existing customers in a way that makes them want to keep coming back and making repeat purchases…either of the same product/services or from the brand as a whole.
It is the outcome of a successful product/service strategy, a keen understanding of the customer, and a conscious proactive effort to focus on keeping existing customers delighted in addition to (or instead of) focusing on getting new ones.
The Importance of Customer Retention
You may wonder, in this day and age when there’s so much competition and so much customer attention to go around, why is customer retention so important?
That thought, however, is a double-edged sword. While it may not be difficult to get leads, it’s a very expensive and lengthy affair to convert a customer from lead to sale, given today’s customers’ smaller attention spans and the cutthroat competition between brands.
Even FMCG companies are facing longer-than-usual buying cycles and having difficulty converting customers.
So, the customers you do have then, become your most valuable asset. If they’ve had an enjoyable experience with your brand and your product/service, they’re also more likely to buy from you again…they don’t want to spend the time looking for an alternative if you can keep them satisfied!
That’s a whole lot of advertising and marketing spends saved for you, because as we know customer testimonials and reviews are everything for getting new sales today.
And so, you eventually spend less time, effort, and monies on retaining these customers than you do in getting new ones. In fact, 82% of companies agree that retention is cheaper than acquisition.
Satisfied and returning customers are also a great source for new business – they’re more open to trying new things from your brand and more likely to recommend your brand to their circle of friends & family. In addition, a 2019 research mentions that existing customers are 50% more likely to try your businesses’ new products.
All this information makes it is quite evident – customer retention is critical for growth.
Quick Revision: Importance of Customer Retention
1. Retaining customers is less expensive and time-consuming than finding & converting new prospects
2. Upselling or cross-selling to returning customers is easier than finding new leads
3. Customer retention helps reduce the churn rate and prevent avoidable revenue loss
4. Returning customers are a great source of new leads and sales
5. Retained customers are more likely to become brand advocates and increase your market share
How Customer Retention can benefit your Small Business?
1. A Way to Increase Revenue
Marketing and sales are usually the first functions any small business sets up to increase revenue, and that’s where most of the focus goes on a daily basis. But an often-overlooked channel for most small businesses is the customers they’ve already taken the effort to convert.
Working on upselling and cross-selling to existing customers is an easy way to increase revenue because it involves activities with minimal spending and an audience that’s already involved with your brand.
Email (free), SMS (free), product inserts for cross-selling (with a minimal cost of creating the insert), are some very cost-effective ways to upsell and cross-sell to customers, helping small businesses increase revenue.
2. A Way to Cut Costs
As we mentioned, customer retention is a budget-friendly initiative that keeps on giving. While advertising and marketing can take up huge amounts of your annual budget to be done well, customer retention is simply good sense.
There’s a reason why your sales executives try to make the buying process as pleasant and seamless as possible for the customer – to leave a good impression and increase their chances of buying your product. There’s a reason why you have a customer support team, to address any queries your customers might have about using your product.
These exercises have, over the years, turned into hygiene practices for every business, but they are in essence exercises in customer satisfaction that help you save the cost of customer churn.
Today, when you use your customer testimonials on your website when your Google My Business account displays your customers’ positive reviews, and when your satisfied customers go out and talk to people about your product/service, it’s saving you the cost of marketing.
When your customer satisfaction is high, you need to invest less and less in other marketing activities.
3. Increasing Market Share
One of the biggest challenges for every small business is making a mark and increasing share of voice and market share. Even when you’re not going up against several existing competitors, you’re struggling to showcase and convince people of the worth of your product/service.
Essentially, whether you’re trying to break into a well-established market or create a new one, you’re going to face an initial pushback in capturing the market.
As we all know, customers make all the difference today – their published opinions about your brand can move the needle further than any marketing activity. Investing in customer retention activities, then, is the smartest way to spread the word about your brand and capture eyeballs.
As we mentioned earlier, it’s also the most effective way. And while you might think reviews/testimonials are only important for consumer goods and D2C brands, think again: According to a B2B Sales & Marketing Report by G2, 92% of B2B buyers are more likely to purchase after reading a trusted review.
4. Boosting Brand Loyalty
Customer retention strategies are usually based on some sort of rewards & incentives system. For example, you may try to retain customers by rewarding them to continue to shop at your brand or offer them discounts on consequent purchases or newly launched products.
As a result, customer retention strategies, when done right, often result not only in returning customers but also a certain amount of brand loyalty.
Not to confuse the two: customer retention is a measure of how many customers come back to make repeated purchases (even just one) from your brand, while customer loyalty measures your customer’s affinity and preference for your brand.
But a successful customer retention strategy can nudge customers from simply being repeat buyers to being brand loyalists. If nothing else, a customer retention strategy will at least boost your chances of increasing brand loyalty! Better than simply hoping for a small measure of loyalty, isn’t it?
5. Keeping Your Team Lean
A strong customer retention policy is woven into the fabric of the culture of the company. Take Amazon, for example – the fact that they put customers first is a notorious hallmark of their culture and drilled into every employee’s job description.
As a small business without a multi-billion-dollar operation to run like Amazon, making customer satisfaction part of your core means that you can go lean in other areas that focus on customer acquisition.
You can run a small, lean marketing and advertising team, outsource work, and run a more tight-knit organization that moves cohesively. All because you hold the reins of what drives your success – customer satisfaction and retention.
How Do You Measure Customer Retention?
There are three key metrics that can come in handy while calculating customer retention.
1) Customer Retention Rate
2) Customer Churn Rate
3) Customer Lifetime Value
All the above metrics are mathematical and require data from your previous customers in order to be calculated.
Measuring Customer Retention Rate:
One can define customer retention rate as the percentage of previous customers that stayed loyal to the brand.
You need three variables to calculate this rate:
- Number of customers at the start of a given time period (S)
- Number of customers at the end of the given time period (E)
- Number of new customers added over the duration of that period (N)
Your Customer Retention Rate = ((E-N)/S) *100
Measuring Customer Churn Rate:
This metric can give you the percent of customers lost during a period of time. Generally, businesses with lower customer retention rates have high churn rates.
Customer Churn Rate = (Customers Lost over a period of time)/(Total number of customers during that particular period of time)*100
Note that Low Retention Rates and High Churn Rates are the signals that your customer experience isn’t going well. However, there are certain things you can do to turn this around. We will talk about them later in the blog.
Customer Lifetime Value
The total revenue that you can expect from a customer, during their collaboration with you is their customer lifetime value. As a business, this metric can help you determine who are your most loyal customers.
5 Tips on How to Achieve Customer Retention for your Small Business
Ready to get started on your customer retention strategy? While it isn’t difficult, you won’t see exponential results unless you do it right. Here’s what we recommend: Ready to get started on your customer retention strategy?
While it isn’t difficult, you won’t see exponential results unless you do it right. Here’s what we recommend:
1. Make It a Part of Your Company Culture
Ask any small business how often they discuss campaigns, sales activities, and sales numbers, and the answer probably won’t surprise you.
However, most small businesses tend to sideline an important part of getting new customers – retaining them. Customer retention strategies aren’t an initiative to be put into motion halfway up the growth curve; they’re meant to be activated during the sales process to any new customer.
If you look at the successful companies we listed at the start of this post – Apple, Airbnb, Amazon – none of those companies wait to delight and retain their customers. Their customer retention strategy is part of the sales strategy.
2. Go Out of Your Way to Make It Happen
Customer retention isn’t an initiative you can leave up to mid-level management or a few ideas you can string together. The good news is that the biggest investment you’ll be making in customer retention is that of time.
Customer retention is not a very capital-heavy investment, at least not for small businesses to begin with…but it does require you to take out time and understand what’s working in your sales process, what customers are liking about your product, which customers are coming back and why, and then creating a strategy based on your learnings.
We recommend starting with meetings with your field executives (who get the most face time with customers) to understand what customers actually like/dislike/want, then an audit of your sales process, a meeting with your sales leaders to understand the churn rate, and the reason behind it, and finally a meeting with your sales and operations heads to understand what can be done to increase satisfaction and retention.
3. Revisit & Edit: Don’t Let the Chips Fall Where They May
Customer retention isn’t a done and dusted kind of process – it will continue to evolve and grow with your company. That means you need to continually go back, month on month and quarter on quarter, to understand what’s working, how many customers are getting retained, and how high the churn rate still is.
While you might not see great results right away, it shouldn’t take more than a few months for your retention strategies to start bringing in some kind of response. Whether the response is as good as you expect or not, there’s always room for improvement and optimization.
We recommend constantly asking what you can do to keep customers satisfied, and why the customers that are leaving are choosing to do so. You can’t keep everyone happy, but it always helps to understand the psyche of the customer!
4. Create Documents and Guidelines That Standardize Your Thought Process
You can’t make an approach a part of company culture without standardizing it in some way. Amazon, for example, has a list of “Customer Service Tenets”, the first of which is “Relentlessly advocate for customers.” Isn’t that beautiful? It reminds employees to root for and support customers’ happiness in every way possible, day in and day out.
You too can create tenets and guidelines that turn your approach or thought process into something that’s easy to follow and turn into action. The vaguer the idea of how your customers must be satisfied & supported, the more difficult it will be for your employees to achieve – and it will definitely impact customer retention.
After all, no matter how many discounts and promotions you run to retain customers they will walk away if they have a less than pleasant experience with your company.
5. Reward Employees Based on Customer Satisfaction & Retention
Plenty of sales teams today employ an incentive model that depends upon customer retention, not acquisition.
That’s because more and more companies are realizing that with a high churn rate, sales numbers mean nothing unless customers can be retained – in fact, it often means losses that pile high.
For small businesses, we recommend tying in customer retention to rewards & recognition programs, and later, incentives when you really want to go aggressive on your customer retention strategy. You’d be surprised how motivation can be a simple act of recognition in a small, lean team!
Ready to get started on customer retention strategies for your small business growth? Don’t forget tip #2 and give it the due time and consideration it needs! If you have any questions, ideas to validate, or generally want to chat about customer retention, we’d be happy to get into it with you. Simply drop a comment below!