A high customer retention rate means more loyal customers, a competitive edge, earning more referrals, and access to more feedback. And, of course, retaining existing customers is much cheaper than acquiring new ones.
We understand that increasing your customer retention rate is the gold standard for growth, but how do you achieve that? This guide comprehensively answers that question by sharing eight actionable ways to increase customer retention with examples of global brands.
What is customer retention rate?
Customer retention rate is the percentage of repeat customers your business maintains out of all the acquired customers. A high retention rate means high profits; your business gains users when your retention rate is higher than the acquisition rate. Customer retention rate also indicates customer loyalty, customer satisfaction, and product value. The higher the retention rate, the better these related metrics.
This is a crucial metric as it directly ties to customer loyalty and profitability. Loyal customers make repeat purchases and advocate for your brand. This reduces marketing costs and fuels growth.
What is the importance of customer retention rate?
Retention is five times cheaper than acquisition. A good retention rate indicates customers repurchase from brands and, over time, become loyal. It’s easier to upsell and cross-sell to such customers and increase overall revenue. Retention paves the path for loyalty and advocacy. Advocacy means customers are happy and refer other customers to your brand, leading to more sales.
How to calculate customer retention rate using a formula?
You need three data points for measuring customer retention rate:
1. Number of customers at the beginning of the period (S)
2. Number of customers at the end of the period (E)
3. Number of new customers gained during the period (N)
The customer retention rate formula is:
(E-N)/S x 100
Suppose you acquired 100 customers at the beginning of the period (S), gained 10 new customers (N), and had 95 customers at the end of the period (E).
So, your customer retention rate = (95-10)/100 x 100 = 85%
What factors affect customer retention rate?
While good product quality is fundamental, other factors affect customer retention.
- Customer satisfaction: Customers are more likely to be retained if their experience meets or exceeds expectations. NPS surveys are a great tool for measuring this.
- Customer service: Customers are more inclined to stick with a product or service if they feel supported post-purchase.
- Communication: Good communication can encourage loyalty and build trust. This includes timely order updates and updates if there’s a delay or unforeseen circumstances in delivering what was promised.
- Switching costs: If customers value comfort and satisfaction more than switching costs, retention is more likely. This is more applicable for industries like finance but not so much for ecommerce, where purchasing and switching individual products is easy.
- Loyalty programs: Loyalty programs build rapport with customers and improve customer retention.
What is a good customer retention rate?
According to Sprinklr, the average customer retention rate in ecommerce is 38%. For BFSI, it’s 78%, which is relatively high since switching brands in such industries is tedious. The same goes for telecom. Shopify says the ecommerce retention rate is around 28.2%.
So, ecommerce sites retain about 28-38% of users. Given this and the expense of new acquisition, increasing your customer retention rate becomes quite important. Let’s see how.
8 ways to increase customer retention rate
Here are eight customer retention strategies marketers should consider implementing to keep customers returning for more.
1. Measure customer value
The first step in retaining customers is measuring their value. This includes measuring and improving customer lifetime value and tracking and reducing churn rate.
Customer lifetime value
Setting a specific activity like “Product Purchase” in RFM analysis allows you to save these customers as a segment or download them in an Excel file. To find long-term value, simply change the interval to a longer one.
Customer lifetime value doesn’t just measure the lifetime sales generated by an average customer but also indicates the customer’s relationship with your brand. The better the relationship, the higher the retention.
From increasing average order value via cross-selling and upselling to offering personalized discounts, there are many ways to increase CLV.
Measure churn rate
The churn rate is when your customers stop doing business with you or stop using your company’s products. The lower the churn rate, the higher the retention, so you want to track it.
Churn can simply be users who have not purchased from your app or website in the last 90 days. Of course, you can drill down by setting more advanced filters to segment customers even better. Importing data from these segments and all contacts into data tools gives a complete picture of churn.
2. Retain dormant customers with campaigns
Dormant customers haven’t purchased in a while and are at the initial stages of churn. For example, customers who haven’t purchased from you in the last 90 days.
To re-engage them, create re-engagement campaigns through omnichannel marketing campaigns across channels like email, SMS, push notifications, etc. Here, we’re building a journey to re-engage at-risk customers with a journey goal that the customer adds products to the cart in the next 24 hours:
For example, Yoox, a fashion brand, sends Another reason to return to us a re-engagement email to its dormant customers offering a time-sensitive discount.
Some best practices to create re-engagement campaigns for customer retention are:
- Offer personalized recommendations, offers, and discounts.
- Offer incentives to gather feedback. While the incentive alone might bring them back, feedback will clarify what caused them to go silent.
- Reinforce your app’s core value and highlight new updates and features that might benefit them.
3. Segment and target at-risk customers with relevant campaigns
Create different segments for at-risk customers depending on their CLV and approach them with targeted campaigns to arrest churn.
Use RFM to gain such insights:
With these micro-segmentation strategies, you can invest more resources to retain high CLV customers.
For example, Myntra offers personalized discounts (based on users’ behavior) to re-engage its at-risk customers.
You don’t have to send them a mass segmentation email, either. Use Personalization and email automation to schedule and send emails on specific dates. For example, send birthday emails with a special discount coupon.
4. Retaining users on your app
There are many ways to increase user retention on your app. Let’s take a look at some of them:
App churn management for retention
Leverage cohort retention analysis to reduce churn—create cohorts based on the date users joined your app.
Leverage Cohort Retention Analysis to Reduce Churn: Insights into customer retention strategies
Now, analyze when users churned and create behavioral, demographics, or acquisition channel cohorts to understand why users churned and improve those issues.
Predictive segments to retain users
Get accurate predictive insights on users most likely to churn. Use these insights to deliver relevant and personalized re-engagement campaigns just in time to arrest churn.
Pro tip: Netcore’s Raman AI engine helps you manage app churn. It creates predicted segments—most likely to churn, moderately likely to churn, and least likely to churn in the next 7/14/28 days.
With this information, target your desired segment using actionable and personalized re-engagement campaigns to arrest churn:
Studying user paths and real-time predictive segmentation is also effective. It understands the user behavior in detail and predicts the next best action users are most likely to take. You can tweak your retention strategies accordingly.
5. Personalized experiences help retain more customers
According to Epsilon research, 80% of consumers were likelier to purchase brands offering customized experiences. In another study, more than 49% of the survey participants bought a product they didn’t plan to buy due to customized experiences.
Consider data points such as a customer’s purchase history, region, age, gender, personal preferences, product interaction, etc., to recommend contextual and personalized products and offers. Choose the right audience:
For example, Nike personalized its products and product recommendations based on customer interests.
Remember, personalization is not limited to one point but applies across the customer’s journey. Personalized experiences can be implemented across on-site and off-site web and app channels.
With an AI-powered personalization platform, you can offer accurate, personalized recommendations and consider thousands of data points without manual effort.
6. Introduce loyalty programs
58% of customers who belong to a brand’s loyalty program buy from that brand at least once monthly. And 83% reveal they’ll keep purchasing from a business if they join its loyalty program. As customers keep coming back for more, the retention rate goes up.
For example, DSW VIP, a designer shoe brand’s loyalty program, gives additional points for donating nearly new shoes to someone in need. Most successful loyalty programs involve a community cause.
Here are the top three loyalty programs’ best practices:
- The best loyalty programs are personalized, meet customers’ needs, and are data-oriented.
- 57% of customers participate in a loyalty program to save money. Exclusive discounts and custom products encourage customers to engage frequently.
- Also, consider rewarding non-monetary activities like writing reviews, watching videos, and following your social media accounts.
7. Upsell valuable subscriptions
Subscriptions are an excellent way to keep customers paying and returning to the product, just like B2B and OTT brands offer. However, retaining customers isn’t as straightforward for consumer brands where individual purchases happen.
Ecommerce, edtech, and fintech brands can offer additional value with subscriptions. Offerings include additional discounts, faster delivery, free shipping, exclusive offers, early access to new features, early access to sales, and so on.
For example, Amazon subtly upsells its Prime membership at checkout. The multiple compelling benefits it offers make the subscription a considerable success.
8. Pay attention to customer support
88% of consumers are more likely to purchase after positive customer service experiences. Stellar customer support significantly increases retention rates. Conversely, 73% of consumers switch to competitors after more than one bad experience.
When we look beyond marketing, customer support emerges as essential in your retention strategy.
For example, Amazon categorizes its customer support section based on common issues so users can get quick assistance via an existing knowledge base or live chat.
Providing prompt assistance, eliminating recurring issues, gathering and addressing feedback, communicating clearly, and acknowledging and compensating when things go wrong—all add to excellent customer support.
For example, Amazon has an astonishing retention rate of 91%. Besides other strategies, Amazon, being a leader in customer service, is a significant contributor.
Hassle-free delivery, returns, and refunds significantly enhance Amazon’s customer service.
Conclusion
It’s no surprise that retaining customers has become more challenging in recent years. Customers tend to sway as more companies start offering more services and getting competitive with discounts. But you can still retain a large chunk of your customers if you actively implement their feedback, provide an unmatchable app experience, and take all the right steps mentioned above.
To know more about how Netcore Cloud can help you with this, visit our customer engagement page.
