With high customer acquisition costs, you’re going to want to focus on decreasing your customer churn rate and increasing your customer retention. However, actually retaining customers is easier said than done.
The good news is that you can improve your customer retention strategy with the right information and approach and grow your business.
When and Why Does Customer Retention Matter?
It’s understandable that retaining your existing customers may not be a priority with so many different components involved in running a business. However, it definitely should be. This is because running a business goes beyond initially reaching customers and convincing them to make a purchase. Instead, you need to satisfy them and drive them to make repeat purchases.
Not only will this save you money on acquisition costs, but having a loyal customer base is the key component to a truly successful business.
So no matter where you’re at with your business journey — whether you’re just starting or are more established, you need to care about customer retention.
What Benchmarks Are Involved in Customer or User Retention?
There are several different metrics involved in customer retention that you need to know about:
- repeat customer rate
- purchase frequency
- average order value
- customer value
Let’s explore each one in detail to provide you with a complete understanding of this valuable business concept.
Repeat Customer Rate
The most important metric involved in customer retention is repeat customer rate. This metric calculates the percentage of number of new customers that end up making a second purchase from your company.
In order to calculate your repeat customer rate, you will need to use the number of unique customers over a period of time and the number of customers that made more than one purchase over that same period.
From there, you simply divide the number of customers that made more than one purchase by the number of unique customers and multiplied it by 100 to get your percentage.
Purchase Frequency
Another important metric involved in customer retention is purchase frequency. This metric calculates how often customers come back to your business to make another purchase.
In order to calculate purchase frequency, you will need to use the number of unique customers over a period of time and the number of orders placed over that same period.
From there, you divide the number of orders placed by the number of unique customers to get your purchase frequency.
Average Order Value
While rates are great, values are even better — which is where average order value, or AOV, comes into play.
The average order value calculates how much money current customers are spending on each transaction with your business.
In order to calculate the average order value, you will need to use the total number of orders placed over a period of time and the total revenue earned over that same time period.
From there, you divide total revenue earned by the number of orders placed to get your average order value.
Customer Lifetime Value
The last important metric involved in customer retention is customer value. This metric calculates how much each customer is actually worth over their lifetimes as customers based on their purchases.
In order to calculate customer long term value, you will need to multiply purchase frequency together with the average order value.
If you have laid the groundwork with your previous calculations, you can get a comprehensive picture surrounding customer retention with these four metrics.
How to Improve Your Customer Retention Rate?
Now that you have a better idea of how to calculate your customer retention rate let’s talk about how to improve any metrics that may be legging. Here are some of the best strategies that you can use to boost your customer retention rate and grow your business:
1. Prioritize Customer Service
If you want to improve your customer satisfaction, then you need to prioritize customer service. Even if you think that your customer service is good now, there are best practices that you can take to make your customer experience great. For instance, you can utilize a live chat tool on your website where customers can quickly and easily get answers to their questions about your products.
If you’re unable to swing live chat, there are other ways for you to make it easy for customers to reach out with questions or concerns. You can use things like Facebook messenger, email, text, or even old-school voice calls.
No matter which approach you go with, make sure that your customer service representatives are friendly, empathetic, and dedicated to finding a solution to the problem.
2. Invest in Multiple Marketing and Communication Channels
On a similar note, investing in various marketing and communications channels can help you improve your customer retention rate. In terms of communication, customers should reach out to you through social media to address their issues — whether it be on Facebook, Instagram, Twitter, etc.
You should also use these same channels to establish a brand presence through marketing materials — both paid and unpaid. Additionally, you should utilize an omnichannel approach to marketing by combining social media with other areas like Google, Amazon, email, text, influencers, and more.
Working with marketing experts like Greg Gillman can help you get the best bang for your buck in terms of marketing spend.
3. Launch a Customer Loyalty Program
Another thing you can do to improve your customer retention rate is to launch a customer loyalty program if you haven’t already. These programs effectively incentivize customers to come back and make repeat purchases. The good news is that these incentives do not have to be huge or costly.
For instance, you could use a point system wherein customers are able to earn points based on how much they spend. They can then use these points to purchase rewards. You can also use a tiered customer loyalty system to incentivize spending higher amounts for better rewards.
Finally, you can use things like birthday or anniversary freebies to provide value to your customers in the program.
4. Incentivize Customer Feedback
Speaking of incentives, you should also be using them to collect customer feedback. Customer feedback is an invaluable tool that you can utilize to identify potential issues within your business that you can then address to boost your customer retention rates.
Again, these incentives don’t necessarily have to break the bank. They can be as simple as offering a 10% off coupon or a free item with purchase. At the end of the day, the feedback you’re getting is well worth the cost of these incentives.
5. Track and Analyze Relevant Data Points
The last thing that you can do to improve your customer retention rate is to track and analyze relevant data points surrounding your business.
The customer retention metrics discussed above are just the tip of the iceberg when it comes to business key performance indicators, or KPIs, that you should be tracking.
Some other KPIs that you should be tracking include things like return on ad spend (ROAS) and customer acquisition cost (CAC) within the marketing realm. Additionally, things like conversion rates and shopping cart abandonment rates are also useful for online businesses.
Final Rundown on Customer Retention
Knowing your metrics and employing strategies to address the problematic ones is the first step to improving your customer retention rate. If you find that you need any help achieving a high retention rate, feel free to reach out to Greg Gillman for personalized expertise and guidance for sustained business growth.
Sources:
Why Customer Retention Is King: The Evolution of Retention Marketing | Forbes
What Is Customer Retention? 5 Strategies to Keep Customers | Shopify
10 Simple Ways to Improve Customer Retention Rates | Entrepreneur
