You would have heard the Pareto principle umpteen times that 80% of conversions come from 20% of campaigns. While this is true for customer acquisition campaigns, the same concept applies in customer retention campaigns as well.
Research indicates that increasing customer retention by 5% can increase profits by 75%. Even a slight improvement in repeat purchases can boost your business’s bottom line significantly.
What will keep bringing them back? The key is consistently delivering value, meeting their expectations, and communicating effectively.
In short, focusing on customer retention strategies is critical to increase repeat purchases.
In this blog, we discuss why it is essential to invest in customer retention and offer 15 practical customer retention strategies with examples. These strategies are designed to help you delight your customers, foster loyalty, and reduce churn.
But before we get started, let’s understand customer retention better.
What is Customer Retention?
Customer retention or customer retention management focuses on turning your existing customers into repeat buyers. They extend beyond the quality of your product/service. They are about maintaining a genuine relationship with your customers, understanding their evolving needs, and resonating with their core values.
Focusing on customer retention ensures that customers recognize your product value and consistently choose your brand over competitors.
Why Is Customer Retention Important?
The current market sentiment prioritizes short-term profitability over long-term gains. A single sale increases cash flow, but the cost of making a single sale is significantly high.
Research from the Harvard Business Review reveals that acquiring a new customer can cost 5 to 25 times more than retaining an existing one.
While several tactics exist on how to reduce CAC, customer retention is one overlooked aspect. Think of it this way: Why spend extravagantly to win over new customers when you already have a loyal audience that trusts and values your offerings?
Loyal customers are the fuel that runs your business.
Here’s why customer retention matters so much.
1. Higher Average Order Value
The probability of selling to an existing customer is around 60-70%, compared to just 5-20% for new prospects. This results in higher average order value as customers who are familiar with your brand tend to purchase more products.
Cross-selling and upselling other products become easier for your brand. Additionally, a study shows that the longer a customer had a relationship with your brand, the more they spend over time. This makes customer retention a smarter move for maximizing ROI and optimizing your marketing spend.
2. Loyal Customers Spend More
Once you establish trust with your customers, they will spend significantly more. In fact, on average, repeat customers spend 67% more than new ones. It is primarily because they have realized the value in your offering, and are more inclined to explore additional products, leading to an improved customer lifetime value.
3. They’re Your Brand’s Advocates
Loyal customers are your brand advocates. They drive word-of-mouth marketing for your brand. Around 60% of customers who love a brand will recommend it to friends and family. With close to 86% of consumers trusting peer recommendations, advocacy can significantly boost your bottom line.
4. Retention Fuels Business Growth
Did you know increasing customer retention rates by just 5% can boost profits by up to 95%? Retained customers reduce churn and ensure revenue growth by continuing to engage with your business.
5. Indispensable for Subscription Businesses
Subscription businesses rely on their ability to retain customers, making retention strategies a key driver of success. Focusing on customer retention is not just about keeping customers—it should lead to meaningful, lasting relationships that benefit your business and audience.
What are the most important customer retention metrics to know?
1. Customer Retention Rate
Customer retention rate or CRR is the percentage of customers retained by the company over a given period. The time duration could be as long as a month, a quarter, a year, or any period.
Here’s how you calculate CRR:
EC – Total customers at the end of the given period
NC – New customers acquired during the given period
SC – Total number of customers at the beginning of the given period
CRR = [(EC – NC)/SC] x 100
2. Customer Churn
A critical metric, customer churn rate measures the rate at which customers discontinue their relationships with a brand.
For instance, if a company starts the quarter with 400 customers and concludes with 280, it experiences a churn rate of 30%. This indicates that for every 100 customers at the start of the quarter, 30 were lost by the end. This figure not only reflects customer attrition but also the potential loss in recurring revenue.
The churn rate is calculated as: [(Initial customers – Final customers) / Initial customers] * 100.
3. Revenue Churn
Revenue churn measures the rate at which revenue from existing customers is lost. It’s calculated by comparing the loss of monthly recurring revenue (MRR) due to cancellations against the total MRR at the start of the period. This rate is influenced by factors like subscription cancellations, which typically occur when customers perceive insufficient value in the service. Here’s how you calculate it:
Monthly Revenue Churn Rate = [(MRR at Start of Month – MRR at the end of Month) – MRR in Upgrades during Month] / MRR at Start of Month.
4. RFM Analysis
RFM analysis is a segmentation technique that analyzes your customer behaviors and categorizes them into different buckets ranging from the most active ones to the most disengaged ones or dormant customers.
It indicates your customer’s average lifetime value, engagement and retention value.
The graph above guides your decision-making by pinpointing which customers need the most attention.
These metrics act as indicators of who your most loyal customers are, and those that are are disengaged and require attention. It gives insights into what customer retention strategies need to be crafted to keep them engaged with your brand.
Now that we understand customer retention better, let’s look at some practical customer retention strategies and real-life use cases where they worked effectively.
15 Customer Retention Strategies You Should Use (with Examples)
Here are 15 practical customer retention strategies to help you develop a foolproof customer retention plan.
1. Create a memorable first impression
This pivotal moment could define your relationship with customers, especially for app-based brands. The smoother this interaction, the more favorable your brand’s perception becomes. Fostering genuine connections with customers is more than providing a product or service. Here’s what you can do
- Send a welcome email after a customer makes a purchase or creates an account.
- Create an email marketing campaign to highlight new launches along with incentives.
- Keep them engaged in your website or app throughout the shopping process.
Example:
Fashion brand, Andamen, created and deployed an email drip marketing campaign for customers who made their first purchase or created an account on their website.
Apart from incentivizing customers with discounts, this email series empahsized on the story of Andamen, why it was made, their purpose, and the difference they want to make.
2. Regularly Interact at different touchpoints
Embracing an omnichannel approach is essential today. Your customers engage with multiple channels to discover, explore, and purchase. If your brand isn’t present across these platforms, you risk missing critical conversion opportunities.
Mapping the customer journey helps you identify key channels where customers interact with your brand, allowing you to deliver consistent value at every stage. The best omnichannel marketing examples done by brands have these points in common
- Analyzing Touchpoints: From discovery and onboarding to post-purchase, understand where and how customers engage with your brand.
- Engaging Frequently: Maintain a regular dialogue with your customers through onboarding journeys, newsletters, social media updates, or check-ins.
- Seeking Feedback: Use touchpoints to ask for feedback and show you’re listening.
Example:
Continuing with Andamen’s brilliant email onboarding, they further deepened their relationships with their customers by engaging with them through critical communication channels like WhatsApp, emails, web push notifications, SMS, and more.
The result? Andamen achieved 800% ROI with a 30% surge in revenue.
3. Know What Your Customers Think About You
Customer surveys are a direct way to understand customer satisfaction levels, expectations, and gaps. It helps you:
- Focus on Relevance: Gain actionable insights on your product or service by asking relevant questions that are quick to complete. Campaigns such as NPS surveys should be conducted to gauge the level of satisfaction with every interaction.
- Act on Feedback: Show customers feedback is valued by implementing changes and communicating those updates.
Example:
Redbus conducted feedback campaigns using NPS surveys via interactive AMP emails, which can be incorporated and collected directly via emails.
4. Communicate Your Product Value Efficiently
Clear communication of your product’s value ensures customers understand how your offering addresses their needs and goals and helps them realize the actual value of your product. It helps you:
- Highlight Benefits, Not Just Features: Show how your product improves their life or business outcomes. Use tutorial videos and interactive product journeys to help them understand how the product benefits them.
- Personalizing Interactions: Tailor your communications and experiences to each customer. Use their names, reference past interactions, and offer personalized recommendations based on their usage.
- Use Case Studies and Testimonials: Share real-world examples of how others benefited from your product.
- Consistent Messaging: Ensure your value proposition is conveyed consistently across all touchpoints.
Example:
ONLY, a global fashion brand achieved a 14X ROI by deploying AI-led personalized product recommendation widgets, communicating product relevance to customers. Read more
5. Provide Proactive Customer Support
Proactive support anticipates and addresses customer issues before they arise, enhancing satisfaction and reducing churn. By doing so, your customers can rest assured that you have their best interests at heart.
You can start by:
- Monitoring Customer Data: Use analytics to identify and resolve common challenges preemptively.
- Sending timely notifications: Notify customers about potential issues like expiring subscriptions or new updates.
- Offering Resources: Provide guides or FAQs to help customers address common concerns independently.
Example:
Fabindia leverages WhatsApp as a channel to provide customer services such as order status, order tracking, order cancellation and lots more.
6. Focus on Omnichannel Customer Experience
Provide a consistent experience across all platforms where your customers spend most of their time. Ensure that you design it so customers can pick up where they left it, prompting a direct, real-time engagement.
You can do this by:
- Integrating experience across platforms: Use tools that unify customer data across email, chat, and social media.
- Engaging on Social Media: Respond to comments, host live sessions, and share user-generated content.
- Measuring Performance: Regularly review engagement metrics to refine your strategy.
Example:
Sephora integrates its mobile app with in-store experiences, allowing customers to access loyalty points, make purchases, and interact with the brand across channels.
7. Build an Online Community
Communities encourage customers to engage with your brand and each other, creating a sense of belonging. It brings together like-minded people who help each other, discuss their issues, and share their use cases. A thriving customer community also reduces the burden on support teams by stepping in to help other customers with solutions and workarounds. You can engage your community by:
- Hosting Forums or Groups: Use platforms like Facebook or Slack to discuss your product and industry.
- Sharing Valuable Content: Post educational resources, success stories, and updates that engage the community.
- Encouraging Participation: Organize contests, Q&A sessions, or webinars to foster active involvement.
8. Customer Loyalty Program
Make your customers an active part of your product growth. Create loyalty programs encouraging customers to continue with your brand by incentivizing repeat business. Drive this further by incentivizing community participation in terms of points and offering discounts, beta access, or early access to new products. Here are some activities you can do as a part of the customer loyalty program:
- Reward Frequent Purchases: Offer points, discounts, or exclusive access based on spending.
- Make It Tiered: Create different tiers to encourage customers to aim for higher rewards.
- Personalize Rewards: Use customer data to tailor offers based on usage and preferences
Example:
A loyalty program is a standard example of customer engagement. Starbucks’ loyalty app offers free drinks, personalized rewards, and exclusive offers, encouraging repeat visits and purchases.
9. Identify and Monitor Relevant Customer Retention Metrics Periodically
Identify different retention metrics that provide insights into your business’s health and help refine your strategies. Some of the key metrics to track:
- Churn Rate: The percentage of customers lost over a specific period.
- Customer Lifetime Value (CLV): The total revenue a customer generates during their relationship with your brand.
- Repeat Purchase Rate: How often customers return to buy.
Example:
Netflix analyzes churn metrics like subscription cancellations and usage patterns to refine its offerings and ensure continued engagement and retention.
10. Make Use of Email Marketing for Customer Retention
Although there’s a lot of noise around how email marketing is dead, we think otherwise.
If you understand your customers well and, when blended with the right amount of creativity and planning, email marketing is still effective, making it a powerful tool for staying connected and fostering loyalty. Ensure that you are sending the right message, to the right audience and the right time.
Here are some campaigns you can think of:
- Thank-You Emails: Show appreciation for purchases or feedback.
- Onboarding Emails: Ensure your customers realize the full potential of your product through onboarding emails.
- Newsletters: Engage with your customers regularly, update them on your progress, share relevant reads, and send webinar invites that can help them perform at their best using your product.
- Re-Engagement Emails: Reach out to inactive customers with offers or updates.
- Personalized Recommendations: Use purchase history to suggest relevant products.
Example:
Customers excitedly look forward to Spotify’s end-of-the-year ‘Spotify Wrapped’ emails highlighting users’ most-played tracks and stats, creating excitement and reinforcing brand loyalty.
Source: Google images
11. Reevaluate Your Pricing
Pricing is a crucial factor in customer retention. It talks about how customers view your product and how they evaluate the value to decide on retention. To price your product right, you need to:
- Understand what each customer values: Use data analysis and segmentation to understand different customer needs and develop a personalized approach that fosters customer satisfaction.
- Use Value-Based Pricing: Once you identify what is essential for your customer, you can align prices with the perceived value of your product. Avoid pricing extremes that can alienate customers or undermine your offerings.
- Offer Flexible Plans: Provide options for different customer needs and budgets.
- Monitor Competitors: Ensure your pricing remains competitive without undervaluing your offerings.
Example:
HubSpot offers customized pricing to match the perceived value for businesses of different sizes, making their offerings accessible while maximizing retention.
12. Let customers know about other product offerings through upselling
Once you have established trust with your brand, customers consider you first to meet their evolving needs. As a result, it is crucial to innovate and upsell your new products to meet their needs.
You can start by:
- Focussing on Value: Highlight how upgrades or add-ons solve specific challenges.
- Leveraging Data: Use purchase history and preferences to make relevant recommendations.
- Avoiding Aggressiveness: Present upsells as helpful suggestions, not pushy sales tactics.
Example:
Amazon’s “Frequently Bought Together” and “Customers Also Bought” features use data to upsell complementary products.
13. Automate, Automate, and Automate
Unless you live under a rock, automation is the way to go. Automating marketing activities such as omnichannel marketing, product experience, and email marketing ensures that your customers receive consistent and efficient service while offering your marketing team more time to focus on more strategic tasks.
Here are some opportunities you can think of:
- Trigger-Based Emails: Send reminders or offers based on customer behavior.
- Live Chat Bots: Handle routine queries instantly while freeing up human agents for complex issues.
- Data Analysis: Automate retention metric tracking for real-time insights.
14. Continue to Innovate
Building an extraordinary experience is all about knowing what your customers need even before they do and providing solutions for it. By innovating and updating your product regularly, you keep your offerings fresh and competitive and ensure your customers remain engaged.
You can take it a step further by:
- Staying Ahead of Trends: Monitor industry developments to anticipate customer needs.
- Encouraging Experimentation: Foster a culture of innovation within your team. Gather product usage data and brainstorm ideas that can make customers’ lives easier.
Example:
Apple continuously innovates its product lineup, offering new features and updates that excite its customers.
Courtesy: Apple
15. Align Employee Goals to Customer Retention Strategies
Your team plays a crucial role in making retention a successful strategy. Align their goals with your customer-centric objectives.
You can focus on:
- Employee Training: Regularly train employees on retention strategies and customer empathy.
- Setting Retention KPIs: Link employee performance metrics to retention outcomes.
- Fostering Engagement: Motivate employees with recognition and rewards for contributing to retention efforts.
Closing thoughts
Improvising on the pareto principle in terms of customer retention, 80% of revenue comes from 20% of customers. That’s why it’s important to continuously engage with customers who are already associated with your brand.
From TVS Credits’ personalized communication journeys to ONLY’s 14X ROI, AI-led innovations has effectively connected and retained customers.
The key to retention lies in delivering consistent value, providing great omnichannel customer experience, leveraging tools like Netcore’s AI engine, and tracking the right metrics. By implementing these strateWhile acquiring customers is important initially, customer retention is the only way to achieve long-term growth.