Customer Retention: Definition, Benefits and How to Apply Them
July 01, 2023
Often customers who do not have loyalty will move from one product to another. For this reason, optimizing customer retention is very important in a company.
It's a surprising fact that not all companies know about customer retention and some of them don't even prioritize customer retention in long-term business development.
Whereas high customer retention has an impact on company revenues that are more stable and resistant to intense competition.
Attracting new customers is necessary, but more importantly retaining existing customers. Make them loyal and continue to make transactions.
So, what are the effective tips for increasing customer retention for the company? Check out the following explanation.
What is Customer Retention?
Customer retention is an effort to make customers make repeat purchases, be satisfied with the company's services, and not switch to competitors.
Customer retention is important for business because when there is an indication of a decrease in repeat purchases by customers, the company can immediately trace the root of the problem and immediately find the right solution. For example by offering a purchase discount.
The role of customer retention is very significant for reducing business budgets. The Harvard Business Review states that acquiring new customers is 5 to 25 times more expensive than retaining existing customers.
The importance of customer retention cannot be ignored in today's competitive business world. By retaining your existing customers, you can avoid the disadvantages associated with losing customers, such as additional marketing costs to acquire new customers.
In addition, loyal customers also have the potential to make repeat purchases, provide referrals to others, and provide valuable feedback to improve products or services. By focusing on customer retention, companies can build trust, strengthen brands, and create a strong customer base for sustainable business growth.
Even so, it turns out that not all companies implement customer retention as a strategy. Based on data from Forbes in 2012, there are more companies that prioritize driving sales than customer loyalty, even though most of the company's revenue comes from returning customers.
Why is it Important for Business to Increase Customer Retention?
The importance of customer retention cannot be ignored. Retaining existing customers is the key to business continuity in increasing profitability, building customer loyalty, and creating a strong customer base. By focusing on customer retention, companies can save expensive new customer acquisition costs and improve operational efficiency.
In addition, customer retention also helps your company in building long-term relationships with customers, generates high customer satisfaction, and creates positive domino effects such as customer recommendations and enhancing your business brand image.
Customer Retention Benefits
Apart from saving operational costs, there are other important things from customer retention, including:
Save on marketing costs
Because it doesn't cost as much to retain existing customers as it does to add new customers, marketing costs can focus on engaging existing customers.
Maximize word-of-mouth advertising
Customers who are loyal to buy products and are satisfied with these products tend to promote them to the environment and the people around them. This is a great opportunity to run a word-of-mouth strategy for free.
Based on data from Talk Triggers (2018), 92% of customers trust the opinions of friends or family more when they want to buy a product.
Drive repeat sales
When a business provides a good shopping experience and the product has proven useful, the tendency for customers to buy the product again is also greater. They are reluctant to switch to another product if the product purchased really matches what is expected, unless a competitor's product has a better offer.
Get useful feedback
A survey from Apptentive stated that 97% of customers tend to be loyal to buy products repeatedly when the brand implements buyer criticism and suggestions. Meanwhile, 55% of customers think that they will not return to buy products that ignore customer feedback.
This figure is strong enough to be used as a benchmark that old customers can continue to be maintained as long as the company listens to and implements customer suggestions in the future.
Implementing customer feedback also helps businesses capture new opportunities leading to increased sales as well as increased retention.
Selling products at a premium price or normal price
New customers often buy products when there are discounts or special offers. However, existing customers tend to ignore the discounted price. As long as they know the quality of the product, they are more willing to pay a premium or normal price.
Customer Retention Rate Formula
Customer retention rate (CRR) uses percentage units. To calculate it, companies must identify the time period that they want to record. Time can range from a month to a fiscal year or more.
Here's the formula for calculating CRR:
Retention Rate = (( E – N ) / S ) x 100%)
- E = number of customers at the end of a certain period
- N = number of subscribers acquired during a certain duration
- S = number of customers at the beginning of a certain period
The ideal CRR result is at least 85%. However, these results may vary from business to business. The most important thing a company needs to do is try to increase the CRR every month.
Strategies to Increase Customer Retention?
The following are strategies to increase customer retention, namely:
1. Quickly Respond to Customers
The first strategy is to reply to their messages quickly. Customers love it when business agents respond quickly to their messages. To respond quickly to customers, your solution is to use the WhatsApp Business API which is integrated with the CRM system. Thus enabling businesses to reply to messages automatically.
2. Build More Personal Communication
The second strategy is conducting personalized communication. This will bring the customer and business relationship closer because the customer feels that the business values them.
3. Implement Up Selling and Cross Selling
Another way is by up selling and cross selling. That is, you offer a product or service at a higher price but of better quality and invite consumers to buy other products.
4. Gather Feedback
Next, by collecting feedback. Feedback from customers serves to find out how much their level of satisfaction with the business is. Both in terms of service and quality of business products.
5. Using Social Media
The last strategy is to take advantage of business social media accounts. Social media such as Instagram, Twitter, LinkedIn and Facebook can help businesses reach a wider audience and build customer relationships and trust.
So, that's an explanation of the term customer retention. This strategy is important to implement if you aim to increase revenue and achieve the sustainability of your business.