- Customer acquisition is significantly more difficult and expensive than customer retention.
- Returning customers typically spend 33% more than new customers.
- To retain customers during COVID-19, you can pivot your products or services to fit consumer needs, and use technology and social media to share personalized, helpful resources.
Many business owners and growth strategists are familiar with the age-old statistic that acquiring a new customer can cost five times more than retaining an existing customer. This makes customer retention especially important for every business to master, especially during the coronavirus pandemic, when customer spending is at an all-time low. Read on to learn how to calculate customer retention and the 10 easy and affordable ways to keep your customers coming back to your business.
What is customer retention management, and who handles it?
Customer retention management is not a one-person job; it is a team effort across your entire organization. However, Drew Donaldson, founder and growth strategist at Grohaus, said there are three primary groups that play an integral role in customer retention management: sales, marketing and product.
"All three groups should always be involved in this process, as they will each need to adapt their operations to better optimize customer engagement," Donaldson told business.com. "Is marketing addressing pain points? Is the sales team able to demonstrate the value? Is the product solving the client's problem? Knowing and tracking those metrics are critical to optimizing your business to retain customers."
Why is customer retention important?
Retaining customers is important for the long-term success of your business, because it is far more expensive and difficult to acquire a new customer than it is to retain a current one. For example, SignalMind reports that the probability of a sale from a new customer is only 5% to 20%, whereas the probability of converting an existing customer is between 60% and 70%. Additionally, repeat customers spend an average of 33% more than new customers.
Customer retention is especially important now, as the coronavirus pandemic has caused many consumers to pull back on spending and reconsider how and where they spend their money. This is making it nearly impossible to recruit first-time buyers, resulting in a greater need to retain current customers to keep revenue flowing. Angelique Rewers, CEO of The Corporate Agent, said customer retention is particularly important for corporate customers, since some of them are likely to undergo directional shifts after the economy reopens.
"If [corporate consumers] hit the pause button now, it's very likely they won't come back, because they will go in a whole new direction as we come out of this situation," said Rewers. "There will be mass disruption to buying behaviors."
How to calculate customer retention
You can calculate your customer retention using a scoring system that is unique to your business, like looking at the number of ongoing memberships or repeat purchases during a given time period. If you do not have a business-specific way to measure your customer retention, you can use the general retention rate formula.
Customer retention rate = ((CE-CN)/CS) x 100
- CE = Number of customers at the end of period
- CN = Number of new customers acquired during period
- CS = Number of customers at the start of period
It is standard to calculate and record your customer retention rate both quarterly and annually; however, your business may require calculation more or less often, depending on your customer life cycle. For example, Rebecca Fairbanks, director of marketing at Coalition Technologies, said that her company evaluates its customer retention on a monthly basis to determine its current success rate and to set expectations for the following month.
On the other end, Rewers said that corporate clients move slowly, so it is not uncommon for them to work with a consultant or service provider and then take a multi-month pause while they prepare for their next big initiative.
Customer retention strategies
There are several retention strategies you can use to separate yourself from the competition and keep customers engaged with your business – especially during this economic downturn. We spoke with small business owners, marketing experts and growth strategists to compile the best business strategies for improving customer retention.
1. Promote your brand initiatives.
People are more likely to buy from brands that they believe in and feel personally invested in. Use this time to promote the "why" behind your company and connect your customers with your company mission. To build brand loyalty and customer support, Donaldson suggests promoting your company history, your commitment to your employees and clients, and any sustainability efforts or charities you have supported.
2. Communicate your company's value.
It is also important to communicate your value to your existing customers. Instead of filling their inboxes with generic emails about how "we're all in this together," limit your communication to valuable insights that can help them during this time of need. Providing valuable resources is a great way to remind your customers that you are there to help them.
3. Pivot your products and services as needed.
According to Fairbanks, a great way to stand out amongst competitors at this time is by assessing how your business can uniquely pivot to address a greater concern or need. Instead of trying to sell a product that is currently irrelevant to consumers, analyze what you can do differently to meet consumers where they are now and address their immediate concerns.
4. Offer virtual products or services.
Pivoting your product or service may mean offering it virtually. Technology, like telemedicine and video conferencing software, has made it possible for many businesses to continue connecting with their existing customers virtually. For example, some hairstylists have started offering virtual services over video chat, walking their clients through DIY haircuts. Analyze your business to see how you can use technology to continue supporting your loyal customers remotely. [Read related article: Pivoting Your Business in Response to COVID-19]
5. Create helpful content.
Publishing online content can bring you to the top of your customers' minds, but the key here is to create content that is helpful. Offer webinars, podcasts and online tutorials to teach your customers something that solves their current needs. Consider hosting online events or live video streams to connect with your community and keep them engaged. This content can be informational as well as entertaining.
6. Increase your presence on social media.
Social media plays an integral role in consumerism today, so use it to your advantage. Since your customers are already scrolling through Facebook, Instagram and Twitter, create engaging social posts across your various social channels to bring your brand to the top of their news feeds. Matt Edstrom, chief marketing officer of GoodLife Home Loans, said businesses should post at least once every other day and should interact with customers by answering comments and responding to direct message requests.
7. Add a personal touch.
Remember that the coronavirus crisis has personally impacted your customers on multiple levels. As you speak to your customers, create messaging that is personal and compassionate. Fairbanks said that business owners can deliver personal touches through handwritten cards, customized emails and check-in phone calls to see how their customers are doing.
8. Incentivize purchases.
You can incentivize returning customers through various measures, like gift cards, free trials or discounts. In addition to offering special buying incentives, Fairbanks recommends extending pay option programs and promoting products that people are more apt to buy at this time. To increase brand loyalty and client retention, consider implementing a customer loyalty program.
9. Use contests to increase customer feedback and engagement.
You can enhance customer relationships by holding contests and fun events. Getting your community involved in your company through these types of interactions can drive interest in your business. If your contest elicits customer feedback, you can double down on the benefits of this and use it to improve your practices and customer service.
10. Audit and adjust your customers' experience.
Now is the time to analyze the customer experience with your company and identify what measures you can take to improve. Donaldson said you can do this by personally engaging with your past and current clients to see how you could streamline your products and improve customer satisfaction. He said you should conduct this customer journey analysis on a one-to-one basis instead of using mass surveys or other online polls.
Throughout this crisis, it is important to keep your customers' immediate needs top of mind. Instead of attempting to continue with "business as usual," modify your product and marketing strategy to reflect the current demand. When you provide value to your existing customers, you have a better chance of maintaining long-term relationships with them.