Introduction
Marketers have traditionally focused their marketing efforts on customer acquisition; however, this strategy is expensive and unsustainable in the long run.
According to Forbes, businesses frequently spend five to twenty times more on acquiring new customers than on retaining existing customers.
However, given the current economic downturn, a sharp focus on customer acquisition isn’t necessarily the best move. To ensure sustainable growth and a profitable marketing program, brands need a full-funnel marketing strategy. They should focus on all stages of the shopper lifecycle, ranging from acquisition, and activation, to retention.
According to Bain & Company, a mere 5% increase in customer retention can create at least a 25% increase in profit. Why? Returning customers are 67% more likely to spend on your products and services.
Therefore, customer retention is one of the most important metrics (especially for growing businesses). This blog discusses “retention” as a critical lever in a business’s strategy to increase revenue and marketing ROI while also covering both the fundamentals and practical tips surrounding retention.
What is customer retention?
Retention simply refers to customers’ repeated purchases of a brand’s products/services over a given period. It can be defined as a brand’s fundamental ability to retain its customers over a long period of time.
Here are some interesting insights from a Semrush poll:
44% of businesses focus on customer acquisition, while only 18% focus on customer retention.
How do you calculate retention rate?
To calculate the customer retention rate, we divide the number of new customers by the number of customers acquired at the start of the period. The formula is as follows:
(Total # of Customers at the end of the Period – New Customers Acquired)/(Customers at the Start of the Period) = Customer Retention Rate
While customer retention rate is an important metric, here are five other metrics to leverage while evaluating their retention initiatives:
5 Important Retention Metrics:
a. Customer Churn: The rate at which customers stop doing business with a brand.
Let’s say a company had 400 customers at the beginning of the quarter and ended with 280. Then, for the quarter, the churn rate is 30%. The company lost 30 out of every 100 customers in one quarter. This metric can show how many customers were lost and how much recurring revenue was lost because customers dropped off.
Formula: [(Number of customers at the start of the year-Number of customers at the end of the year)/ Number of customers at the beginning of the year]*100
b. Revenue churn: The rate at which revenue is lost from existing customers.
The ratio of revenue lost through cancellations in a given period to the revenue available at the start of that period is known as revenue churn. How do we interpret revenue churn?
Revenue churn is brought on by various factors, such as subscription cancellations which themselves are brought on by a lack of perceived value.
Formula: 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
c. Repeat Purchase Ratio: The rate at which customers return for another purchase.
Repeat purchase rate measures the percentage of a company’s customers that make multiple purchases. The customer (and the transaction) is labeled as a “repeat purchase” because they returned to finish another transaction later.
Formula: Repeat Purchase Ratio = Number of Returning Customers / Number of Total Customers
d. Net Promoter Score(NPS): Measures customer satisfaction and how likely customers are, to refer your business to others.
The Net Promoter Score®, or NPS®, gauges customer satisfaction and forecasts business expansion utilizing a 0–10 scale; this validated metric revolutionized business and serves as the primary yardstick for customer experience management initiatives worldwide.
Formula: Net Promoter Score = % of Promoters – % of Detractors
e. The time between purchases: Measures the average time customers take to buy from you again.
This metric reveals how frequently the average customer shops before returning for more purchases. Using this metric, brands can tailor their marketing campaigns to their customers’ preferences. If the typical customer takes seven weeks between purchases, you can send promotions in week five or six to get them back a little earlier than usual.
Formula: Time Between Purchases = Sum of Individual Purchase Rates / Number of Repeat Customers
Now that we’ve covered the basics, let’s discuss the impact of customer retention on your company’s bottom line.
How does customer retention affect a business’s bottom line?
Businesses shouldn’t prioritize short-term profits over long-term sustainability. A single sale can result in a significant increase in cash flow, but what if we could persuade the customer to keep making additional purchases in the future?
Brands need to know why customers leave, specifically why the initial churn rate is typically so high (nearly 90%), and how to prevent it.
How? Maximize product value via a smooth customer experience throughout all customer touchpoints and provide helpful content through your brand communication.
These initiatives also boost brand advocacy, repeat business, retention, and brand loyalty, which subsequently boosts marketing ROI and cuts down on marketing expenses.
The graph above shows the average customer, almost ready to purchase, needing a little more convincing. When a business is prepared to convert customers on the fence, it must provide them with messaging around value enhancement – increasing their confidence in the product and increasing loyalty.
Brands that implement a system of building loyalty can expect guaranteed returns. Such a system can be founded on marketing initiatives and personal messaging tactics that simultaneously decrease churn and increase revenue.
Nine ways to improve customer retention
1. Treat customers as individuals and build relationships
Instead of simply automating customer-facing functions, businesses must harness the power of customer behavioral data and transactional data to foster meaningful conversations with them. This can produce more customer-centric messaging and lead to repeat purchases and, ultimately, higher customer retention rates.
What to avoid?
Artificial intelligence is widely used in customer-facing tasks – In some cases, poorly designed chatbots which do not connect marketers to customer service representatives, are being used to automate returns, address wrong orders, etc. However, they can only respond to specific keywords, so it doesn’t capture the broad spectrum of customers’ needs, leading to frustrating experiences.
Did you know?
Marketers can now continuously analyze customer interactions across all marketing channels with Netcore’s Customer Data Platform (CDP). It combines all customer data to produce a detailed and unified profile and is used for measuring channel attribution with accuracy.
It uses AI and ML technologies to continuously analyze and learn data trends that give marketers helpful insights into customer behavior.
Read this blog further to understand the importance of CDP and data-driven marketing.
2. Provide a personalized customer experience
Does personalization have a direct correlation with customer retention and loyalty?
Yes! 44% of surveyed shoppers said they become more loyal to a retailer that provides personalization. The 90-day retention rate increased by over 70% when applying the same.
Personalization can also help marketers achieve long-term retention goals by trapping customers in a cycle of offering new products through rebates, loyalty programs, and rewards; smartphone manufacturers have generally used this retention marketing strategy to increase sales.
Did you know?
Marketers can now improve user engagement, increase customer loyalty, and boost conversion for their business with 1:1 personalization with Unbxd.
The AI models that create personalized and unique search and discovery experiences for each shopper continuously learn from 200+ signals in real-time. The algorithms also analyze demographics, browsing behavior, recent purchases, and affinities for each shopper to understand shopper intent better and dynamically curate results to display products which the shoppers are most likely to buy,
What’s more? Marketers can expect a 20% uplift in conversion thanks to Unbxd.
Visit Unbxd Today! , you can also read this blog to get an in-depth view of personalization in retail.
3. Make your customer’s first experience truly memorable
Today, a smooth onboarding process is essential. During onboarding, your client will get their first real interaction with your product. Customers remember the initial hiccups, mishandling of information, or not having a point of contact while getting onboarded.
An excellent first experience exceeds customer service prowess. But brands need to understand that a good experience continues after a smooth initial interaction. To keep their customers engaged, brands must have marketing workflows that send out email triggers, rewards, tailored follow-up messages, and access to self-service knowledge bases for customers.
An example demonstrating the power of a memorable first experience:
When shopping for shoes online, size selection becomes difficult since you can’t try the shoe on as you would in the store. This uncertainty can prevent customers from making a purchase. Shoe retailer – Inez went above and beyond to solve this problem.
They decided to incorporate a try-at-home program into the Inez online business model. It works as follows: Buyers can try the same product in two different size variations for the price of one. The buyer keeps the size that fits best and returns the other pair for free. By introducing the try-at-home model in a new vertical, Inez is repurposing a customer experience booster popular in the realm of eyewear (Warby Parker) for use in the context of footwear. As a result, customers are happier and more satisfied, with a dash of hard-core brand advocates for Inez in the online space swearing for their brand’s convenience.
4. Identify the best channels of communication
Customers these days communicate through various mediums and channels, including email, social media, websites, mobile apps, etc. Thus, developing a multichannel marketing strategy is no longer an option but a requirement for modern marketers.
Marketers must pay close attention to each channel and identify where they spend most of their time, as each and every channel contributes to the overall customer experience. Furthermore, customers leave a trail of data on every channel they utilize. This creates opportunities for marketers to analyze the data and improve their marketing strategy and ultimately, create better campaigns.
Did you know?
With Netcore, you can automate push notifications, emails, SMS, and more without requiring intricate engineering. You can optimize your channel mix to deliver personalized recommendations. Additionally, we promise a 30–60% increase in CTR.
Experience personalization today!
5. Implement a customer-client feedback loop
To retain customers, marketers must understand how they feel about their products or services. Businesses must establish a mechanism for collecting customer feedback and share it with internal analysts to understand their input better and leverage the analyst’s actionable insights.
Marketers have used various methods to collect customer feedback. These include hosting surveys, tests, and focus groups. However, this is a step from the traditional process of calling customers individually to gauge their reactions to the product. After the data is collected, analysts examine trends in customer behavior to improve user experience and distribute this knowledge to appropriate teams. One such example is the product reviews sent to tech and development teams.
By using such a system to collect and share customer reviews, companies can address criticism and improve the customer experience.
6. Leverage the power of predictive analytics
From steel cabinets storing paper files to CRMs, the world has evolved, but in today’s time, being proactive with your customer data is critical for running a business.
Businesses must be able to predict which users will likely abandon their purchases – not just through a single channel but across all channels. They must use customer engagement platform and predictive analytics to identify customers most likely to engage or reengage, thereby increasing customer retention, CLTV, marketing ROI, and so on.
Did you know?
Marketing teams can instantly create unlimited numbers of segments, with no-code, to target the right user at the right moment. What’s more? Businesses can build features based on user events and historical user behavior (clicks, views, and scrolls). These can be based on real-time user attributes (location, name, and age), or a combination of both.
Visit Netcore for a deeper understanding of this functionality.
7. Nudge customers and provide walkthroughs
Around one in five users quit using a mobile app after engaging with it once. This underscores the need to deliver an excellent app experience.
Marketers can use nudges and walkthroughs to engage with customers dropping off from a particular point. These customers can be notified and reminded of a commitment or task, and thereby increase overall engagement. Fitness and health apps have mastered using nudges and product walkthroughs for seamless onboarding experiences. Once the user signs up, they introduce vital features to quickly activate customers and trigger a series of guided messages showing users how to book appointments and avail discounts, among other things. After users complete their first consultation, the app nudges them to book a lab test or order medicines – another step towards improving retention.
Did you know?
With Netcore, marketers can reach out to users with the appropriate nudges and walkthroughs without waiting for app release cycles or relying on developers. ‘No code’ entails flexibility, speed, and action on demand! Walkthroughs also help direct users, to the appropriate sections according to where they are in the user lifecycle, one step at a time.
8. Leverage gamification to keep users interested
Gamification taps into the desire of customers to feel engaged and rewarded. Today, retailers invest heavily in gamification by converting the money spent in their online stores into points which customers can use to make future purchases. This allows shoppers, especially repeat customers, to use the money they spent in the past to get a discount on future purchases.
Retained customers make purchases frequently when they can witness value in their day-to-day shopping experience. Through games and missions, marketers can transform the shopping experience into an exciting experience for shoppers.
Can you perform gamification in email?
You’re probably familiar with marketing emails that redirect the user to the company’s website, where the customer spins the wheel, expecting a reward, but is kept waiting for something to happen. Instead, what if we say you don’t need to redirect your customers to external websites to deliver such experiences? Use AMP-powered marketing emails.
This can be a game-changer in a business’s email marketing strategy, as brands can significantly remove friction by reducing user click-throughs. Here is your ticket to the magical world of AMP!
9. Create experiences that make you irreplaceable
Being unique and hard to match can be a great customer retention strategy. Since customers understand they won’t be able to replicate your positive experience anywhere else, it becomes easier to retain customers. Satisfied customers return; dissatisfied customers do not. Whether you create a profile, use gamification, or completely overhaul your customer service, these actions improve the customer experience.
Utilize all of the aforementioned customer retention strategies. Capitalize on the theoretical and practical knowledge gained. Gain mastery at retention marketing. Futureproof your marketing initiatives for 2023, and achieve a sense of security – especially in light of the possibility that ‘customer acquisition only’ strategies could prove fatal in the current economic climate.
