Customer loyalty and retention are two key metrics that describe how well a company keeps its existing customers happy. Customer retention aims to build long-term relationships with customers willing to spend their money at your establishment.
To achieve this, we need to take care of the most significant asset- the customers.
It's repeated time and time: it's cheaper to get current customers to make a repeat purchase than to find new customers. And this will hold for always.
According to research from McKinsey & Company, the average lifetime value of a customer is $1.5 million. A company loses $150 million every year because of lost revenue due to churn.
According to another research, the cost of acquiring a new customer is $200-$300. Therefore, keeping current customers is crucial to long-term success.
True, there's a certain excitement and pride in capturing new customers, but keeping current customers will continuously give you a higher return.
So the question is, how would you design a customer retention strategy that will keep your customers coming back for more?
First things first...
What is the Meaning of Customer Retention?
Customer retention is a company's capacity to convert one-time customers into recurring customers and keep them from switching to competitors.
It determines whether your current customers are satisfied with the quality of your product and service. It is also used by the majority of subscription-based businesses and service providers.
Client retention strategies are the processes and efforts that firms implement to increase customer loyalty and lifetime value.
Customer retention is not the same as acquiring new customers or generating leads. It focuses on clients who have already purchased a product or signed up for a service from you.
However, customer retention is about more than just transactions—it's about building relationships. According to research, customers regard their ties with companies the same way they do their relationships with friends. Customers want you to be trustworthy and attentive to their needs.
To increase brand loyalty, focus on buyer relationships with existing customers. Even when provided with other options, these customers will continue to choose your brand.
Difference Between Customer Loyalty and Retention
Client loyalty and customer retention are two concepts that are often used interchangeably. While both are necessary for growing a firm, their meanings are vastly different.
Customer retention refers to a set of measures used to keep customers from leaving, whereas customer loyalty refers to building stronger, longer-lasting relationships.
The difference between customer loyalty vs. customer retention is that loyalty depends more on the marketing strategy, while retention depends on the products offered by the company.
Defining this distinction will assist you in developing a more effective company strategy.
Examples of Customer Loyalty Programs That Enhance Retention
Establishing a loyal customer base is not a walk in the park. But with loyalty programs, it can be an easy one.
Customer loyalty programs help businesses build strong relationships with their customers. These programs reward loyal customers as repeat buyers or frequent visitors to the store. We can categorize loyalty programs into:
1. Rewards programs offer rewards to customers who purchase certain products or services. Examples include airline miles, shopping points, and cash-back programs.
2. Loyalty programs provide customers with benefits based on how often they visit the store, restaurant, or hotel. They usually tie these programs to an account or membership card.
3. Loyalty cards are used to track purchases made at specific stores or restaurants. Some cards even allow users to earn discounts when shopping at a particular retailer.
4. Loyalty apps, these programs use mobile applications to collect data about customers' behavior and preferences. They then shared this information with other members of the program.
A customer loyalty program is beneficial not only for businesses but also for consumers. By rewarding them for returning to the store or restaurant, companies encourage customers to return. They get to know what kind of service they receive each time they return.
What Customer Retention Metrics Do I Need to Measure Customer Loyalty?
Improving customer loyalty is about creating an emotional connection between you and your customers. It's also about building trust and ensuring they know what you want them to do next time they visit your website.
Retention metrics offer a way of measuring customer loyalty. Fortunately, there is a good deal of helpful retention metrics with which you can measure the loyalty of your customers.
1. Lifetime Value (LTV)
Customer lifetime value measures how much money a customer would be worth over their lifetime.
You can use this metric to determine whether your customers are valuable enough to warrant continued investment in their relationship.
First, to measure customer lifetime value (LTV), determine the average amount spent per customer.
Then multiply this figure by the number of years your customer has been with you.
Use the below formula to calculate LTV:
(Average Revenue / Average Cost) * Number of Years
2. Customer Churn Rate
The business cycle of losing and gaining clients is known as customer churn. Churn occurs in every business, regardless of the quality of its products or customer service. The lower your churn rate, the more clients you keep.
We can calculate the churn rate by dividing the total number of customers who left your business during a specific period by the number of customers you had during that same period.
Churn rate formula= Cancelled Customers in the last 30 days, ÷ Active Customers, 30 days ago x 100
For instance, if you had 100 customers during the last month and 10 of those left, then your churn rate would be 10%, so 10% of your current customers left your business.
Usually, a high churn rate shows that the business has problems
You should figure out how to lower your churn rate to improve customer retention.
3. Customer Acquisition Costs (CAC)
The Customer Acquisition Cost metric determines how much a company pays to attract new customers. CAC includes marketing expenses such as advertising, direct mail campaigns, and other promotional activities.
Divide the overall costs of acquiring consumers (cost of sales and marketing) by the number of customers gained over time to arrive at CAC.
That is: CAC = MCC ÷ CA
MCC: Total acquisition-related marketing campaign costs
CA: Total number of clients gained
4. Customer Retention Rate (CRR)
Customer retention rate shows the percentage of existing customers who continue to buy products from you after a specified period.
For instance, if you have like 200 customers and only 150 remain active after two years, the customer retention ratio is 75%.
To calculate, subtract CN from CE, divide that number by CS, then multiply that figure by 100 to convert it into a percentage, (CE - CN) / CS × 100 CRR.
CE is the number of customers at the end of the period measured; CN is the number of new customers, CS is the number of customers when the period began, and CRR is the customer retention rate.
5. Repeat Customer Rate
This metric shows the proportion of repeat purchases made by a specific group of customers.
Repeat purchase rates vary depending on the type of product being sold. For instance, if you sell software applications, you might look at the repeat purchase rate for all customers.
In contrast, if you sell hardware devices, you might focus on repeat sales among customers who bought your last device.
To calculate repeat purchase rate, divide the total number of customers who bought more than once by a total number of customers, then multiply by100.
Why is keeping customers valuable in any business?
Keeping your present customers happy is usually less expensive than recruiting new clients. According to the Harvard Business Review, getting a new customer can cost five to twenty-five times more than keeping an existing one. Here are a few benefits to retaining customers.
1. It Increases Sales
When customers are loyal to your business, they're more likely to buy from you again. According to research by Frederick Reichheld of Bain and Company, increasing customer retention rates by just 5% can increase profits by between 25% and 95%.
Loyal customers are six times more likely to try your new products, as revealed by studies, and if they love your product or service, they're more than twice as likely to buy from you again.
But it doesn't end there.
The customer loyalty programs will help you keep current customers and attract new ones. A study conducted by the University of Chicago found that companies that offer rewards programs see an average of 30% higher sales per year.
2. Builds Brand Awareness Through Word-of-Mouth Recommendations
Loyal customers become ambassadors for your business. Customer loyalty builds strong brand awareness and a solid reputation.
Loyal customers are more inclined to pass on free recommendations to their coworkers, friends, and family.
This means word-of-mouth advertising is arguably the most effective form of marketing out there. According to research by HubSpot, 60% of customers recommend businesses to friends and family.
Your organization may foster customer loyalty for long-term success by creating that cycle of retained customers and buzz marketing.
3. Helps Build Relationships
Customer loyalty allows you and your company to foster meaningful relationships with your clients.
According to research, 93% of customers say they'd be willing to pay extra for exceptional service. By allowing your best employees to shine, you create a lasting impression on customers.
Customers are more likely to buy with businesses that treat them well. A simple thank you note goes a long way. Showing appreciation and gratitude makes customers feel valued. And as we mentioned before, happy customers are more likely to share their positive experiences online.
4. It Gives You a Competitive Advantage
You need to keep your current customers to stay ahead in the competitive business world. You can do this by offering exclusive deals and promotions. Customers appreciate being treated differently than other customers.
5. Decreases Customer Churn Rate
Customer churn, also known as attrition, is the number of clients who stopped patronizing a company's products and services during a particular period (usually 30 days). It happens because it does not satisfy them with the service or product they receive.
The churn rate reveals how a business performs while keeping customers at your end. The higher the churn rate, the more likely you will lose customers.
Should churn matter when you can gain new ones?
Of course! Because it would cost more to gain new customers.
And well, fewer customers mean less profit, more customers mean bigger profit, easy as that.
Luckily, there are customer retention strategies that prevent churn rates.
Guide to Effective Strategies That Help Keep Customers and Prevent Customer Churns
Provide World-Class Customer Service
The essence of a successful retention strategy is to deliver the most exemplary possible customer service. When you assist a customer and guide them to success, the customer's lifetime value rises automatically. You can provide excellent customer service through the following ways:
1. Personalized support: Generic solutions to problems and FAQs can perplex your consumer. Providing individualized customer service is a simple option, and you can do so with live chat and video chat assistance.
2. 24/7 availability: AI chatbots are one of the best and easiest ways to provide customer service 24 hours a day; customers will be relieved if you integrate this with your product. You may also use chatbots to help them make better purchasing decisions.
3. Real-time support: Providing real-time live chat customer care to difficulties will increase customer engagement and satisfaction. This also alters your clients' perceptions of your brand by making them feel more appreciated.
Analyze the Root Cause of Customer Churns
The first step towards effective customer loyalty and retention is understanding why customers leave your organization.
Poor service, product quality issues, lack of support, etc., can cause customer churn. These reasons may seem obvious, but many companies have overlooked them.
According to a study,68% of clients leave because of the assumption that companies don't care for them.
Yes, this may be a cliché but let's stress it once more: you need to find out why customers left. The most effective way is to reach out and talk to clients.
'Talking' means getting your customers on the phone or via virtual call. This way, you can manifest genuine care and find out quickly what went wrong.
If calling is not possible, there are many avenues you can explore. You may communicate through email, website, or social media.
Communicating with customers does wonders in analyzing churn because it can give you immediate and honest feedback.
After learning the reasons for the churns, you can now work on the changes you need to make to increase customer retention.
Setting a goal, making pertinent changes, and using specific strategies can help your company achieve its goals. Keep track of the churn rate and compare it with the previous one.
Set Customer Expectations
Do not guarantee and commit when you know you can't deliver. Only promise possible things on your end. Set expectations you can provide.
In the course that you can't deliver, apologize and compensate your clients, or else they will regret the purchase. Many clients find it challenging to forget negative experiences, slights, and undelivered promises.
Realize and accept that customer satisfaction is the key to achieving sustainable growth for your business.
Over Deliver Your Role as a Seller and Provider
Businesses that put a serious effort into understanding what customers are looking for help them offer the right product, service, or solution.
An excellent listening culture fosters trust and appreciation among customers. Earnestly, listening to customers will develop your empathic abilities. An empathic statement from you could mean a lot to your clients.
To them, you understand their pain points. Don't you think it is better to become friends with your clients than just a provider?
Going beyond the traditional role as a seller and creating a more profound relationship will give you an almost perfect rate of holding on and keeping your customers by your side.
Respond to Customer Concerns Right Away
Longer response time is the leading reason customers have a terrible experience.
According to studies, 59% of customers are more likely to purchase when companies answer their inquiries in a minute.
Implementing a live chat is among the best customer loyalty and retention strategies. It can significantly improve the customer experience when they quickly respond to their concerns.
Welcome Complaints Always
Always have your customer support team standby to address customer complaints. If you attend to complaints, it's gold to you and your company.
When you listen to customers' concerns and frustrations, you give them a feeling of value. You also provide a good impression of being accessible and welcoming too much feedback.
Besides, complaints are a superb source of insight that you may not have access to if you don't receive them.
By hearing customers' complaints, you can plan a course to better your products and services and improve customer service. So instead of leaving, customers will have more reasons to stay.
Offer Better Service Through Personalized Customer Experience
According to a survey conducted by RetailMeNot, nearly half (48%) of shoppers say they would swap brands if they received better services through a personalized customer experience. They feel valued as long as we give them special treatment.
It is essential to create a positive environment to ensure customer retention. You should also ensure that your customer support staff is friendly.
You can also leverage technology to personalize your customer interactions. For example, you can send emails to remind customers about upcoming events or offers.
You can also set up a chatbot so that customers can ask questions without having to wait for someone to answer.
Leverage Relationship Marketing
Another effective strategy to ensure high customer loyalty and retention rates is actively engaging clients with your product.
It's termed relationship marketing because you give your customers reasons to keep coming back by constantly reminding them of your product's value.
How to do this?
For a start, arrange relevant and expansive content regarding the functional benefits of your products and services. It is advisable to offer regular updates like deals, special promos, or upgrades.
Again, engage your customers on various channels.
Surprise, Delight, and Reward your Customers
Scientists vouch that surprise is stimulating for the brain. Not to mention, it brings pleasure and adds spice to life. So why don't you step out and surprise your clients?
Surprises can be as simple greetings during holidays or birthdays. Better yet, written in hand. Or a little token of appreciation as trinkets and wine.
Or better yet, build a referral program that rewards clients when they share the word about your products and services. You may even make your program more exciting by rewarding the referee and the referred.
According to the American Express OPEN The Innovation Institute, 80% of consumers said they would like to receive discounts and other benefits if they want to share personal information.
Offering rewards to loyal customers helps build trust and encourages repeat purchases. Rewards can include:
- Free Shipping
- Gift Cards
However, make sure that you offer enough incentives to keep customers coming back. Otherwise, they might leave. This tactic will surely drive new customers to your business and keep existing ones.
Nurture Relationships Built on Trust
A business built on trust becomes successful. Seeing how vital trust is to your business, you must consciously promote trust with your new and existing clients.
To successfully build and foster trust, use the customer behavior data to deliver immense value to your product. This way, clients will find it easy to nod and agree to your suggestions and recommendations.
When customers tag you as not trustworthy, they will go to your competitors; worse, they might even spread negative words against you and your products.
Use Automation to Re-engage Customers.
Monitoring and engaging you is time-consuming. Marketing automation software lets you focus on other important things by handling most of your routines.
There are a lot of processes you have to repeat daily to keep your brand fresh in your clients' minds. Automation will keep you on a fast pace, and your competitors won't leave you behind.
With automated processes, you can manage pertinent details of your clients and send feed education and schedule promotional emails, text messages, and notifications.
And standardized processes through automation will allow you to deliver on your promises to your clients.
Enhance KPIs in Your Customer Service Approach
Key performance indicator (KPI) allows you to measure the value that reveals how effectively your company achieves vital business goals like positive customer experience.
KPIs are a roadmap because they help you envision what the future holds for your business and what path you should be taking.
By carefully analyzing your key performance indicators, you will learn what gets your customers excited or unhappy, thus giving you a clearer vision of how to act.
Leverage Customer Feedback Surveys
An easy way of knowing whether your clients are happy or unhappy with your products is by getting regular customer feedback. Feedback from clients is important for every business since it is essential to determine your business growth.
Complaints and feedback provide you with your client's perception of your products and services and overall business performance.
Of course, collecting customer feedback can only help you when you analyze and act on them.
Leverage Employee Engagement
In business, you should know how important employees are and their role in success.
When you appreciate your employees, they feel excited about their tasks and responsibilities.
Engaged employees have an outrageous sense of identification, which translates into increased productivity, loyalty, and success for your company.
Simply put, engaged employees equals happy and satisfied clients.
The Final Note
Customer loyalty and retention strategies are important to a company's success. Simply attracting leads with intriguing content or closing new customers with a great deal isn't enough.
Businesses must retain consumers by assisting them in being successful and delighting them so that they return to do more business with you, suggest to their friends, and eventually become brand evangelists to stand out in increasingly competitive verticals.
Is your company having trouble retaining customers?
At AI bees, we help brands customize the customer experience in real-time using AI and machine learning to collect up-to-date data from the interaction.
With AI marketing, you can better understand your present clients and concentrate most of your marketing efforts on retention. Contact us; we have a solution for you.