We use cookies on our website to see how you interact with it. By accepting, you agree to our use of such cookies. Privacy Policy.

What is Customer Retention and Why is it So Important?

What is customer retention? As the name suggests, it refers to your business’s ability to keep its customers. But behind this simplistic definition lies a wealth of food for thought. There are customer retention metrics to see how you’re doing, and there’s your need for a clear and consistent customer retention strategy to consider. A surprisingly large number of businesses don’t measure customer retention and don’t strategise for it except in passing. 

In this article, we’ll introduce you to the basics of customer retention including why it’s important, how to improve it, and how to manage it. Could this be a starting point that leads you to a healthier bottom line? Read on to find out!

Why is Customer Retention so Important?

Is it possible that your focus on gaining new customers means that you’re overlooking the need to retain the ones you already have? An interesting set of figures suggests that improving customer retention by as little as 5 percent could increase profits by at least 25 percent. It’s not unreasonable to suppose that there’s something in this. 

The whole process of making people aware of your business, let alone actually buying something from you, clearly costs more than selling things to people who have already supported your business. So, why focus your efforts exclusively on getting ideal customers when you already have a slew of them? Perhaps a little investment in the “converted” can lead to more sales for less effort!

While new customers are always a welcome addition, retained customers will think of you first when they need what you offer, and as long as they’re happy, they’ll prefer your business over a company they haven’t dealt with before. 

Customer Retention Rate: How are You Doing?

Everyone likes to think that their efforts have pleased their customers and they’ll be back for more. But are they really getting it right? The only way to know is to measure it, and there are several metrics that are of interest. Here are a few of the best.

Customer Retention Rate (CRR)

It’s super-easy to calculate your CRR. Know how many customers you gained over a set timeframe. Subtract that from the number of customers you have at the end of that time, and turn it into a percentage by multiplying that number by 100. This metric applies best to subscription services

Repeat Purchase Rate (RPR)

Once again, set a timeframe. Now, see how many people who bought from you before purchased something else during that time frame. Take that number, divide it by your total number of customers, and add the multiplier to get a percentage. This metric is frequently chosen by E-commerce businesses. 

Customer Churn Rate

Churn rate tells you how many customers stopped doing business with you over a specific timeframe, and it’s also expressed as a percentage. If your business offers services based on monthly or yearly contracts, reducing churn will be among your priorities. 

Customer Lifetime Value (LTV)

The customer lifetime value metric tells you how much you can expect the average customer to spend with you. To discover this figure, the average value of orders is multiplied by the average number of times people will buy from you and factor the average time that customers continue to support your business into account.  

Customer Satisfaction Score (CSAT)

Obviously, the more satisfied your customers are, the more likely you are to retain them. Surveying customers after they’ve made their purchase helps you to calculate what percentage of the ones who responded were happy with their purchases. 

Net Promoter Score (NPS)

“On a scale of one to ten, how likely are you to recommend our business to friends and family?” If you’ve seen this little survey question, its answers help businesses to determine their NPS. Its primary purpose is to work out whether they can expect referrals. However, it’s also a good indicator of customer satisfaction and the potential for customer retention. 

How to Improve Customer Retention

The first important step in improving customer retention is to commit to it. Make it a priority. Develop strategies that will incentivise converted customers to make repeat purchases. Use your metrics to set clearly defined goals for improvement. Try new things and see how they work for your business. Here are a few ideas. Tip: you might get the best ones from your customers themselves!

  • Offer the best in customer service and support
  • Start a loyalty programme with awesome rewards
  • Collect customer feedback
  • Address issues promptly and turn detractors into promoters
  • Start a referral program with incentives
  • Offer options for personalisation
  • Make it easy to do business with you
  • Listen to customer pain points and address them

Customer Retention Made Easy

If you’re looking at all this information and thinking that customer retention management looks like hard work, we can confirm that it is! But here’s the good news: you don’t have to do it all yourself. At RSVP, we offer customer lifecycle management services that help you by identifying what keeps your clients as active supporters of your business. 

Hoping to create a welcome campaign that makes your new customers feel valued? Trying to discover the top reasons why customers abandon their accounts? Have plans to upsell and add to your customer lifetime value? Skip the learning curve and the legwork. Contact us today and get our team on your side. Your product plus our people makes for a winning combination.


Read more about the Customer Lifecycle.

01 / 100

Related Posts