A business' customer retention strategy is key to its success. After all, in the acquiring vs. retaining customers battle, it's generally easier (and less costly) to keep your current customers than find new ones.
That being said, it's essential to periodically assess your customer retention strategy to ensure that it works as effectively as possible. With various marketing channels and customer service approaches, there are several ways to keep your customers engaged.
In this article, we'll give you tips on assessing your customer retention strategy using key business metrics as well as some of the top strategies to consider. By the end, you’ll know how to do everything possible to keep your customers happy.
Let's dive right in.
Define Customer Retention Metrics To Track
Solving a business customer retention problem typically comes down to utilizing data analytics correctly. However, with various metrics that businesses can track and focus on to improve customer retention, it can be challenging to decide which ones to monitor.
Here are a few key customer retention metrics on which you should keep an eye.
Customer Retention Rate
The most crucial thing you could do when it comes to customer retention is track your customer retention rate meticulously. This measures the percentage of customers that stick with your business over a certain period.
There are a few different ways to calculate customer retention rates. Still, the most common method is to take the number of customers at the end of a period and divide it by the number of customers at the beginning. This will give you your customer retention rate for that specific timeframe.
Tracking customer retention rates over various periods (weekly, monthly, quarterly, etc.) is best to get a more accurate picture of customer retention. This will help you identify any trends or changes in customer behavior.
Net Promoter Score
Another critical metric to track is your Net Promoter Score (NPS). This measures customer satisfaction and loyalty and indicates how likely your customers are to stick around.
To calculate your NPS, ask your customers how likely they are to recommend your product or service on a scale from 0-10. Customers who respond with a 9 or 10 are considered "promoters," those who respond with a 7 or 8 are "passives," and those who respond with a six or below are "detractors."
NPS is a good metric to track because it gives you a clear sense of how satisfied your customers are with your product or service. Your customers are likely happy and engaged if you have a high NPS. On the other hand, if you have a low NPS, it could be an indication that your customer retention strategy needs some work.
Another metric that's closely related to customer retention is the churn rate. Churn rate measures the percentage of customers who cancel or stop using your product or service over a certain period.
Whether it's because they're unhappy with your product or they found a competitor's offering to be better, the churn rate will give you valuable insights into why customers are leaving.
Various customer retention strategies focus on reducing the churn rate and might be the key to solving your customer retention problem.
Calculating your churn rate comes down to:
(Lost Customers ÷ Total Customers at the Start of Time Period) x 100.
Product Return Rate
The product return rate measures the percentage of customers who return your product or service over a certain period.
The product return rate can help you identify trends or changes in customer behavior. If you see a sudden increase in your product return rate, it could indicate that something is wrong with your product or service, triggering customers to return it.
You'll then need to investigate further to find the root cause of the problem and take steps to fix it.
Daily, Weekly, and Monthly Active Users
Whether you learned how to start to reverse dropshipping and are now implementing it or have had a store for years selling various products, knowing how many people regularly use your product is key to optimization.
This is most commonly seen with mobile apps and social media platforms, but it can be just as crucial for ecommerce stores. Monitoring how many people use your store daily, weekly, and monthly is one of the easiest metrics to consider, yet it can give you a good idea of how well your store is performing and where you need to make changes.
To calculate Daily Active Users (DAU), take the number of unique users who visit your store in a day and divide it by the total number of days in the month. For example, if you had 10,000 unique visitors in January and 31 days in the month, your DAU would be 322.5 (10,000/31).
To calculate Weekly Active Users (WAU), take the number of unique visitors who visit your store in a week and divide it by the total number of weeks in the month. For example, if you had 10,000 unique visitors in January and four weeks in the month, your WAU would be 2500 (10,000/4).
To calculate Monthly Active Users (MAU), take the number of unique visitors who visit your store in a month and divide it by the total number of months in the year. For example, if you had 100,000 unique visitors in a year, your MAU would be 833.33 (100,000/12).
If you see a sudden drop in any of these metrics, it could indicate that something is wrong with your customer retention.
Customer Lifetime Value
The customer lifetime value (CLV) measures the total revenue a customer will generate over their relationship with your business.
There are a few different methods for calculating CLV. The most common way is to take the average order value and multiply it by the number of orders placed by the average customer over their lifetime.
Customer lifetime value is a good metric to track no matter which industry you're in because it can help you understand how valuable customers are to your business, which can help you understand how much you can spend to acquire a new customer.
The CLV metric is also a practical way to assess customer engagement in any industry—from a custom home building solution that streamlines the entire process of building a new house, to a home entertainment business that offers the best in class quality, anyone can benefit from tracking this metric.
Identify Which Customer Retention Strategy Is Best For Your Business
While the above metrics might seem like a lot to track, you don't have to focus on all of them at once. Instead, start by tracking a few key metrics that are most relevant to your business. As you better understand your customer retention strategy, you can add additional metrics to your tracking regimen.
Over time, you'll develop a customer retention strategy tailored to your business needs. And by tracking the right metrics, you'll be able to measure the success of your efforts.
That said, knowing your business metrics will allow you to choose the right customer retention strategies that will work for you. The following are some of the most common and effective methods to consider.
Using Loyalty Programs
Loyalty programs are one of the most popular customer retention strategies. And for a good reason—they work.
A loyalty program is a rewards system that gives customers points, discounts, or other perks for making purchases at your store. The more they spend, the more rewards they earn.
There are a few different ways to set up a loyalty program. The most common approach is to give customers points for every purchase. These points can then be redeemed for discounts on future purchases.
Another approach is to offer tiered loyalty levels. Customers start at the lowest level and move up to higher levels as they make more purchases. Each group comes with its rewards, such as exclusive discounts or early access to new products.
Focusing On Developing The Right Content
Compelling content drives sales and customer loyalty. This has been proven time and time again.
The right content will educate your customers and prospects on your product and service, position you as an expert in your industry, help with search engine optimization (SEO), and increase website traffic, leading to more sales and customers.
Improving Customer Service
Knowing how to improve customer service not only helps you keep the customers you have, but it can also help you attract new ones through word of mouth.
Customers who are happy with your product or service are more likely to tell their friends and family about you. On the other hand, if they're unhappy, they're more likely to leave negative reviews online that can dissuade others from doing business with you.
Personalizing The Customer Experience
Personalizing the customer experience is one of the most effective customer retention strategies to consider.
When you personalize the customer experience, you make customers feel like they're your top priority (which they should be). You show them that you care about their needs and wants and are willing to go the extra mile to meet them.
From how you answer the phone to how you follow up after a purchase, there are many opportunities to personalize the customer experience. And when you do, you'll stand out from your competitors and build loyalty with your customers.
If you use email marketing in your business, personalization can also help with email deliverability, ensuring that your messages land in recipients' inboxes instead of their spam folders. As people open up your emails more and more over time, they start looking forward to getting them, which furthers the loyalty-building process.
Make It Easy For Customers To Give Feedback
When you do this, you show customers that you value their opinion and are willing to make changes based on what they say. As a result, they'll be more likely to do business with you again in the future.
There are a few different ways to collect customer feedback. You can send out surveys, conduct interviews, or ask customers for input when contacting customer service.
Communicate With Your Customers Regularly
Finally, one of the most critical customer retention strategies is regularly communicating with your customers.
Even if it's just to say "thank you" or to wish them a happy holiday, these small gestures can make a big impact on customer retention. Also, if you create new informative blog posts, let your email list know.
A lawyer creating content on construction zone crashes may want to email their list when they publish a new post on the topic because the target audience of construction workers is more likely to get into car accidents near construction zones. By sending this email, the lawyer stays top-of-mind and increases the chances that the recipient will contact them if they're ever in an accident themselves or know someone who is.
When it comes to communication, you can also let your audience know about new products and services, upcoming sales and promotions, and any changes to your business that might affect them. Keeping them in the loop will show them that you value their business and are committed to providing them with the best possible experience. Do not overdo it with your sales messages though, as this could backfire when it comes to customer loyalty.
Customer retention is essential for any business. Using the right strategies, you can keep your customers happy and engaged with your business and brand. Over time, this will help you grow your business and achieve your long-term goals.
There are many routes you can go down on when it comes to customer retention strategies, but the ones that will work best for your business depend on your industry, customers, and goals. Experimenting with various techniques and seeing which ones impact your business most is always a good idea.
Finally, always be willing to adjust your approach as needed based on customer feedback.