Customer Retention

What is Customer Retention?

Customer retention refers to a business’s ability to keep customers from churning within a specific timeframe, often measured on a quarterly or annual basis. Along with securing customer loyalty, retention strategies are also focused on increasing the lifetime value of each customer.

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Why is customer retention important

Customer retention is an indication of customers’ satisfaction, the quality of your customer experiences, and the value your business has in the marketplace. But it’s also a necessity for growth. 

Even if your customer acquisition is off the charts, it’s hard to offset the revenue lost from high churn rates. In looking at a five-year timeframe, a company with a 2.5% churn rate will become 50% larger than a company with a 5% churn rate, on a revenue basis. 

Below are five benefits to strengthening customer retention. 

Save on acquisition costs

There’s a reason why we’ve referred to customer retention as the ultimate growth strategy: it’s a necessity for successfully scaling a business. In the past few years, we’ve seen a hike in customer acquisition rates. In fact, it’s anywhere from 5-25x more costly to acquire a new customer versus retaining a new one. 

Increase lifetime value

Lifetime value refers to the expected revenue a business will earn from a customer throughout their relationship. Customer lifetime value is an important metric for forward-thinking strategies; these projections are often how companies plan for growth. 

The longer a customer remains loyal to a company, the more revenue they’ll generate for a business, which translates to a higher lifetime value. In fact, one study found that loyal customers can be worth up to 10x their first purchase. 

More upsell and cross-sell opportunities

As customers remain loyal to a brand, the company has greater insight into which features or products they find particularly valuable, which creates more opportunities for cross-selling and upselling. 

For example, The Motley Fool was able to leverage real-time customer profiles to better identify upsell opportunities among its customers, analyzing people’s membership level, interest, and so forth to customize product tours and display relevant on-site ads. The result? Incremental revenue that had a huge impact on their bottom line. 

Better feedback

At the end of the day, the survival of a business depends on its synchronicity with its customers. Why are customers remaining loyal to your brand? Or, just as important, why are they churning? Being able to answer these questions in a concrete way comes from a combination of customer data and customer feedback. 

Customer feedback is invaluable for understanding people’s experience with your brand or product. For long-term customers, this feedback will become more nuanced, as they have an understanding of how the customer experience has evolved (and whether or not the business has become too reliant on the status quo). 

Increase chance for referrals

Word-of-mouth matters. When people are referred to a new business by a friend, they are four times more likely to convert – and much more likely to become high-value customers. 

When customers remain loyal to your brand, it’s a signal that you’re getting something right: there’s value to using your product, or you’re offering a superior experience compared to your competitors.