Customer retention strategies are the difference between success and failure. While many businesses focus on lead generation and customer acquisition, they forget the most important thing: keeping their existing customers happy.
In this article, you'll learn:
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Why you need to focus on customer retention strategies
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Why customer retentions strategies are a vital component of growth and scale
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The tips and tricks to create a legion of loyal customers who can eventually become advocates for your business.
As retention strategies are at the heart of subscription marketing, in this blog, we will look at the topics mainly from the perspective of the subscription business model. However, this does not mean that other businesses cannot learn and gain ideas from this blog.
Introduction to customer retention
When it comes to revenue generation, your existing customers are your most accessible source of income. While everyone knows it, too often, companies act as if it's arcane knowledge. It's easy to get blinded by the lights of bringing in new business, but it should never be at the cost of retaining customers.
Of course, if you want to grow and scale, you need new customers. But solely focusing on customer acquisition while neglecting your existing customers is a road to disaster. For example, for subscription businesses, customer retention, and renewals are the lifeblood. But customer retention strategies are just as important for any business regardless of the business model. So, if you want to become more customer-centric and have better chances to create longer customer relationships, you need to focus on the following:
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Customer loyalty
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Customer expectations
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Customer experience
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Removing friction across every aspect of your business.
A strong customer retention strategy is aware of all this and more. It uses feedback, rewards, excellent communication, and a fair share of research to ensure your customers feel valued and engaged enough to do recurring business with you.
What is customer retention?
Customer retention is both a concept and a key performance indicator (KPI) metric.
On a conceptual level, it describes the various methods organizations use to keep their customers engaged with their products or services. For subscription businesses, retaining customers ensures steady monthly recurring revenue (MRR). For traditional retailers, better customer retention translates into more frequent purchases.
As a metric, customer retention is a way to measure your business's success and things like customer loyalty. Related to other metrics like customer churn, retention metrics show a variety of things like:
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How happy are customers with your service
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How much additional revenue are you extracting from customers (through cross-selling or upselling)
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What level of repeat service do you get from your customers?
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How long does a typical customer relationship last?
What is the purpose of customer retention?
Focusing on customer retention strategies is vital for businesses that want to create long-lasting relationships that translate into revenue. It helps justify the ROI on customer acquisition and customer success and directly relates to loyalty, growth, and the overall health of a business.
Why is customer retention marketing important?
Customer retention marketing is a key part of driving revenue and growth. While some businesses view it as a secondary activity behind acquiring new customers, there are several compelling reasons why businesses need to focus on customer retention strategies.
It's cheaper than acquiring new customers
Statistics show that acquiring a new customer can cost at least five times as much as retaining new customers. If you run a subscription business and charge a flat fee, successful customer retention programs will improve your revenue more significantly when you factor in customer lifetime value (CLV) and payback periods.
Higher average order value
AOV — or average order value — is a self-explanatory metric showing how much money a customer spends for each purchase order. Increasing AOV is a great way to bring in more revenue from your investments in retention and acquisition. However, what's important to note is that your existing customer base is more likely to have a higher AOV. This fact is another reason why you need to improve customer retention.
Brand loyalty and closer customer relationships
Spending time and money on marketing, whose purpose is to increase customer retention, does more than just directly affect your bottom line. It's also about creating deeper relationships that drive customer loyalty.
Customer retention programs help you build stronger ties to your existing base by reminding them why they should continue to choose your product or service.
The role of retention marketing on the customer journey
The customer journey doesn't end when your users activate their accounts. It's a long and winding road that spans from first hearing about your product or service and encompasses every touchpoint during their relationship with your brand.
The customer journey is the totality of their experiences, which takes in:
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Initially hearing or reading about your brand
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Considering your solution against your rivals
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Their activation and onboarding experiences
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Making their first purchase
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Their experiences using your product or service
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Whether customer issues are dealt with swiftly and satisfactorily
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Any added value services that occur during your relationship
How to measure customer retention?
You can measure customer retention by employing a range of different strategies. It requires reliance on collecting reliable data and using several formulas, which we will relate below.
Here are some of the most critical KPIs and metrics you can use to improve your customer relationship strategy. Check out this blog to learn more about subscription KPIs.
The most important customer retention metrics
There are a lot of customer retention metrics you can track. However, these are the most important.
Customer retention rate
You can calculate your customer retention rate by using an easy formula.
Retention rate = (# customers at the end of 2022 - # new customer acquired during 2022)/(total customer at start of 2022) X 100
Being able to understand your customer retention rate is essential. Understanding this metric will tell you a lot about what you are doing right and what you are doing wrong. It's crucial to track it and continue to understand the factors that cause it to rise and fall.
Purchase frequency
Purchase frequency is a handy metric because it refers to how often each user makes an order or purchase. While it might not seem directly applicable to subscription services, it's essential for tracking cross-selling and upselling.
Purchase frequency = # of orders/# of unique customers.
Average order value
We talked earlier about the average order value (AOV) metric. It relates to the general purchase amount of each other your business takes.
It's a huge part of customer retention because
Average order value = total revenue/total purchases.
Customer lifetime value
Customer lifetime value (CLTV) measures each user's revenue during their lifetime with your business. This metric is at the heart of customer retention strategies because it underlines why you need to hold on to customers.
As mentioned earlier, customer acquisition costs (CAC) have grown over the last few years. If you spend a lot to get customers, that can be OK as long as the money they generate through CLTV is worth it. The customer payback period is another good metric that measures how long it will take for that initial investment to turn into a profit.
Customer lifetime value (CLTV) is most meaningful when combined with CAC. A big part of making sales and marketing spending worth it is encouraging customers to stick around. Excellent customer service and a valuable product or service are crucial to achieving these aims.
Customer lifetime value (CLV) = customer value x average customer lifespan
Churn rate
The churn rate is a huge part of customer retention. It measures what percentage of your users leave your service each month. Subscription services rely on repeat customers. If you're churning a lot of your user base each month, your monthly recurring revenue (MMR) will take a big hit.
You can't avoid some customer churn. People's finances, preferences, and situations change. Even with first-class customer satisfaction, you're going to lose some customers. However, the name of the game is to reduce the churn rate — or at minimum, find out the causes of why it is happening.
Churn rate formula = (lost Customers during month or year/total customers at the start of month or year) x 100.
Customer retention strategies that add value
Implementing customer retention strategies begins with a shift in priority. That means moving away from old models and becoming a customer-centric organization. Now, while many organizations say they are customer-centric, they don't act like it.
Actions speak louder than words. Your customers know the difference between marketing talk and their experiences.
Here are a few steps that you can take to develop customer retention strategies that work.
Make customer experience (CX) a strategic priority
Customer experience (CX) is a term that grew out of software development. Related to user interface (UI) design, it encompasses the overall feeling end users have when using your solutions, from how it looks to how it all flows together.
All businesses, subscription companies included, have a lot to learn from obsessing about the experience that users have when interacting with all levels of your solution.
What is customer experience?
Great customer experience is about the impression your buyers have during their journey with your brand. Consistent positive experiences can drive loyalty, reputation, and profits.
Customer experience is the totality of your users' feelings when interacting with your product or service. It's about how easy it is to join, order, and deal with problems and your solutions' overall value and quality.
How to improve customer experience?
Improving customer experience starts with measurement. You can use surveys, questionnaires, or things like Net Promoter Score (NPS) to see how you are doing. Having all this information allows you to monitor trends and identify issues. Similarly, look at customer support ticket trends. If some things are coming up regularly, they deserve your attention.
You should also keep an eye on your churn rate. While the numbers themselves are essential, the causes of attrition are what you really need to know. So stay on top of issues and discover why people cancel your service. Needless to say, you can use this knowledge to improve what you do.
Finally, really get into the weeds with your customers. Find out what features or functions they want from your product or service. Collect their opinions and pick out trends. Use email, social media, or any platform to get this golden information. It can help you retain those individuals and improve your overall product.
Think of your business model
Optimizing your customer retention strategy requires several considerations.
One important thing to consider is your overall business model. For example, a subscription business model is different from a company that makes money through one-off transactions. Yes, there is lots of crossover because of loyalty and so on, but customer retention is a far bigger focus when you are subscription or rental focused.
Why should you adopt a subscription model?
For several reasons, subscription models have become very popular over the last decade. For businesses, they provide regular recurring revenue, which helps with cash flow and forecasting. Additionally, lower initial upfront costs mean that users have far easier entry points to start a relationship with your brand.
Despite lower costs to join, subscription models can bring in more revenue because you don't need to sell or compete with rivals each time you bring in sales. Loyalty and engagement can help you win and keep a customer for years, with money coming in each month.
How to adopt a subscription model?
Adopting a subscription model can be tricky, depending on your product or service. There are a few different models to consider, such as:
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Replenishment models
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Memberships
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Access to on-demand goods
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Rental models
The best way to adopt a subscription model is to figure out the best way to provide value to your users. Think about your solution's role in their lives and figure out how to deliver your product or service to them for a monthly or annual fee. You need to pay attention to your subscription pricing strategy, among other things, to get started, but the shift isn't really that big. Instead of going all-in at once, your go-to-market strategy can start by trialing the subscription model with one product category or customer segment, gathering the learnings, and expanding gradually.
Implement a customer feedback loop
One of the most critical steps your business can take is to collect customer feedback. It's hard to improve your service if you don't know how your customers are feeling. Continuously collecting, analyzing, and acting on customer information is one of the most potent methods for retention.
What is a feedback loop?
A customer feedback loop collects feedback from surveys and reviews and then gets that information to your management and development teams. Armed with this information, you can address and change things about your business based on this feedback.
Once you have reliable information, each adjustment should improve your product.
What are the best practices for collecting customer feedback
You can collect feedback in many ways. Simple NPS surveys are good, but sometimes you'll want to ask open questions. Their feedback is a bit messier to quantify, but it can be invaluable. Focus groups and email surveys are other good ways to gather data.
Once you have all this information, you must compile and analyze it. Use it to identify trends and share them with your team. Look at where you're succeeding and failing.
Develop ways that each department can gain insights into customer experience from these surveys. Encourage them to implement the feedback to improve your service. Not everything will be doable or applicable. So find ways to separate the signal from the noise.
How to ask for feedback and set up a feedback loop
Every customer touchpoint provides an opportunity for feedback. You need to get the balance right because you don't want to annoy your customers.
Some good options here are:
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Send out emails asking for feedback
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Use mini-surveys after interactions
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Set up focus groups or user testing
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Incentivize customers to partake in feedback sessions
Build a community to enhance customer relationships
Building a community is one of the most effective ways to develop bonds and customer loyalty. If your existing customers have a place to gather and talk, they can build relationships with each other and your brand.
Why is customer community a great way to increase stickiness and retention
A community provides a way to deepen ties between you and your customers. One of the best things about a community is that it gives you a chance to listen. You can learn why customers love your product and what changes will improve your offering. When you start onboarding customer feedback, it can do wonders for retention.
There are several ways you can use a community to reduce churn. You can distribute exclusive content, respond to customer concerns, or run rewards and competitions.
Another thing you can do is find ways to help the customer achieve their goals. All products or services should solve pain points. For example, if you run a subscription service for grills and bbq supplies, you can share tips and tricks for cooking. This process educates your users, ensures your product stays relevant, and delivers value.
How to get started with building a community
While some communities form themselves, generally, you'll need to get proactive. That can be something like starting a Facebook, LinkedIn, or Reddit group. However, it can also involve the clever use of hashtags. The important thing here is understanding who your audience is and where they go to connect around your brand.
So start your own community, join a grassroots community or co-run something with your customers.
Get personal
Personalization makes marketing more effective. Using your existing customers' names in communications is a good start. However, you can do more, like segmenting your base and sending them relevant information based on how they use your product or service, their demographics and interests, and any other information they provide.
What is personalization in marketing?
In a marketing sense, personalization refers to a more targeted, more relevant type of communication. When done right, customers feel a sense of kinship and belonging and not that they're just another number in your brand's growth objectives.
You can implement personalization across a variety of customer touchpoints. Centralizing customer data is important. A customer relationship management (CRM) tool can do the job here.
Personalization best practices
There are simple ways to personalize your communication, like using your customer's name. However, as we mentioned above, the best and most effective methods involve using the information to segment your consumer by needs, demographics, interests, and so on.
Personalized marketing has become so important in recent years that analytics and machine learning (ML) applications have been developed to support this approach.
While a big focus is on delivering personalized marketing and messaging, these tools are also great for developing a strong understanding of the different segments and personalities that make up your customer base.
Tailoring messaging, offers, and anything else can help with customer retention. Even simple things like understanding which devices your customers prefer to use can make your organization more effective.
Educate your customers
Educating your customers is a great strategy for almost all brands and services. It helps them understand how to use your product or service and establishes your brand as a trusted authority in your niche.
What is the purpose of educating your customers?
Educating your customers allows you to deepen their relationship with your product or service. Providing materials about how they can benefit from your service will allow them to have a better and more profound experience.
If some of your customers churn because they don't understand how to get value from your service, educational material could solve that issue. Time to value (TTV) is a popular term in the app development world because it influences customer retention.
Additionally, educational materials can double up as a self-service knowledge base and promotion for your products.
How to educate your customers
You should build customer education around your product or service. So, for example, if you run a hardware rental service, you can make videos about DIY. Similarly, if you rent golf gear, articles or videos about improving your customer's short and long games could be a winner.
The idea here is that you produce content your customers find valuable. The better the content, the more valuable your brand will be to them. If they trust you to deliver great content, you will stand a better chance of keeping them as customers.
Start a customer loyalty program
Customer loyalty programs are another excellent way to deepen your customer relations and reduce churn. While perks are a big part of this technique, they can also help your drive better experiences.
Loyalty programs come in a variety of shapes and sizes. At their core, they create incentives for your customers to keep using your product.
Why are loyalty programs so effective?
One of the reasons why customer loyalty programs are so good for retention is that they help customers feel they are getting a lot of benefits from their relationship with your business. Offering discounts, free items, or other incentives can drive customer retention and satisfaction and even give you an edge over your rivals.
How to get started with customer loyalty programs
There are lots of ways to think about starting a customer loyalty program. One of the best is to listen to your customers and see what they want. If they tell you what will entice them to keep using your service, try and find a way to incorporate that.
Additionally, look at your rivals or other businesses and see what they do. Some standard loyalty programs are:
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Points programs that reward long-term loyalty
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Spending programs that offer discounts over the short term
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Programs that incentivize customers to achieve different tiers through spending or activity
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Programs that promote missions, like sustainability or other important causes
Find out what resonates with your ideal customers and implement it in your marketing and communication.
Start a referral program
Referral programs have some similarities to loyalty programs. They find a way to reward your customers for their relationship with your brand. However, they also drive customer acquisition.
Why loyalty programs are so effective
One of the reasons referral programs are so worthwhile is that they don't cost much to implement and can continue to bring value in the form of new customers. If you can adequately reward your customer base, they can become advocates for your brand and promote your service to your network.
Another thing to think about is that referred customers have higher retention rates and higher lifetime value. So, while the main focus is the acquisition, the quality of customers you gain through referrals drives more revenue that sticks around for longer.
How to get started
Starting a referral program requires determining what rewards would motivate your customers to become brand advocates. Some of the more common approaches are a free month of service, discounts, prizes, etc.
Work out what you want from your referral program. Is it purely about generating revenue, or do you want to use them to find the right type of customers? Set your incentives at levels that will move the needle for existing customers, and closely monitor the quality of the customer they're bringing in.
Measure how close referred customers are to your ideal buyer persona. Depending on the alignment, you might need to adjust or dedicate more resources to these programs. Think about incentives on both sides of the coin: Reward the referred customer and the referee if possible. Mutual incentives can increase success.
Send customer retention emails
Regular customer retention emails are a great way to stay at the top of your customer's minds. They also offer various ways to provide extra value through discounts, special offers, helpful content, updates, and a way to reinforce your message.
What are retention emails?
Retention emails are automated content you send to your existing customers. They can contain links to articles, special offers, and educational content, all to encourage them to keep using your service
What content works for retention emails?
Retention emails start with welcome messages and continue with special deals, discounts, and educational content. Think about what kind of content can help your customer derive more value from your product. Additionally, you can use them to announce new features, upgrades, and other special announcements.
Why are retention emails important?
Customer retention emails are essential because they help you reduce dependence on acquisition. Additionally, you can use them to reward your customers and build trust and loyalty.
When and how to send retention emails to your customers
Frequency is a big issue when you are sending out retention emails. If you send too many, your customers could get annoyed and put your emails in the spam box — or unsubscribe.
As always, segmentation is essential here. Work out who is more likely to churn. Consider the reasons for this, such as lack of engagement, survey results, or other markers.
Other types of retention emails that work are birthday emails, special occasions like Christmas or Valentine's day, and everything in between.
Use automation to re-engage customers
Securing customers is just the start of your work. You'll also need to keep them interested and engaged so that they drive revenue. Subscription businesses need to monitor engagement rates; customers are likely to cancel if they stop using a service.
Of course, running a business involves a lot of work. So finding ways to outsource this labor is essential. That's where automation tools come in.
What is marketing automation?
Marketing automation uses defined processes to send communication to your user base automatically. Because it's automated based on certain event triggers and customer behavior, the messaging is always relevant while saving you a lot of time.
How marketing automation helps you reach your customers at the right time
Marketing automation uses business intelligence and analytics to work out patterns in customer behavior. If some users are disengaged, you can automate emails with messaging or promotions to get them back involved.
How to get started
The key here is knowing which customers are in limbo. As we mentioned, BI tools can help you figure this out. Additionally, you can consider things like email or message open or click-through rates.
Once you've established these rules, test different methods to get your users to re-engage. It could be discounts, special offers, or other value-centered rewards.
Consider going omnichannel
Your customers use a wide variety of channels. Understanding your customer demographics means you'll know which channels are the most popular and allow you to reach as broad a customer base as possible.
What does it mean to be omnichannel?
Being omnichannel means having a presence across the different channels customers use to interact with your brand. It also means they can reach you in several different ways, like phone, email, social media platforms, and in person.
You can't be everywhere. It's better to focus on being good at a few channels than having a threadbare and mediocre presence on each channel.
How omnichannel helps with customer retention
For starters, your customers know you're approachable. You know about whatever issues they have quickly, allowing you to remedy them before they get out of control.
The other important aspect of omnichannel presence is that it coherently centers around your customers. Multichannel retention fires off communication across different channels to provide value, using each piece of communication in a complimentary manner that enhances customer experience.
What omnichannel models add value
There are several omnichannel models that you can use to provide value.
If you have a physical location that customers can enter, BOPIS — or Buy Online, Pick up in Store — offers an excellent blend of marketing and experience. For larger goods, postage and packaging costs can be a bit off-putting. BOPIS provides the best of both worlds.
Another example you can think of is community events that bring your most engaged fans together to share experiences and ideas. There are not many more powerful ways to drive stickiness and brand advocacy than customers inspiring each other.
Becoming omnichannel gives you the opportunity to become part of your customers' lives and create a holistic experience around your brand. So, think about it.
Focus on solving your customers' problems
All successful products have one thing in common: they solve a problem. The problem can be big or small, like catering to a need to explore different styles each month, the desire to start a new hobby with a low threshold, or ensuring that a fast-growing child always has the right size and intact clothes.
No matter what problem your product solves, it needs to be a massive part of your marketing messaging.
Understand why your customers do business with you
Nothing beats understanding clearly why your customers have a relationship with you. Is it because you provide value? Perhaps it's because you're the most cost-effective solution on the market. Or maybe it's quality.
Whatever it is, understanding it is essential. Part of that is because it will allow you to reproduce and improve these qualities. The other part is that it can become a central part of your marketing messaging.
Solve one thing well rather than many things mediocre
There is a temptation to be all things to all people. For starters, it will help you reach a wide audience. However, if you do many things in a mediocre way, you'll be beaten by your rivals who do one thing perfectly.
It's best to focus on delivering one service and doing it better than anyone else. That could be cheaper, quicker, or with quality that can't be achieved anywhere else.
So put your efforts into excelling in one element. That's not to say you should ignore other channels. Instead, focus on being the best in one category before moving on to the next.
Offer convenience
Convenience is a huge selling point. People don't want barriers or friction. In fact, one of the most significant elements of a successful subscription service is "set and forget." The best situation is that your customer subscribes, and everything works seamlessly.
So look at things like fast deliveries, easy return policies, and quick response times. Make the customer experience as good as possible.
That's what keeps people coming back or recommending you to their network.
Exceed customer expectations
Everyone has expectations about a service. But that's not enough in our competitive landscape. Go above and beyond and push your customer retention to the next level. Excellent service means great reviews and lots of word of mouth.
The ideal scenario for your business is that your customers stick around AND tell their friends and family that your service is worthwhile. While marketing helps drive your customer retention rate through content, going the extra mile will do a lot more.
Final thoughts
Customer retention is challenging. No matter what you do, you'll experience some churn. However, the best companies hold on to their customers because they focus on creating great experiences.
A big part of meeting and exceeding expectations is listening. Understanding what your customers want is essential, but also keep an ear out for feedback and address your customer's concerns where possible.
Any investment in retention should focus on value creation and making customers feel recognized. If you meet their needs and show you care, customer retention can be the bedrock of your revenue generation strategy.
