What Is Customer Retention, And Why Is It Important?
You should develop customer retention strategies to generate sustainable growth that feeds back into profits. These will allow you to reduce the abandonment rate and increase the satisfaction of practical customers. Ultimately, this will improve not only repeat sales, but also referrals. Continue reading and discover all the benefits of investing in customer retention.
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What is customer retention?
Are you still wondering what customer retention is? Succinctly, customer retention can be defined as a business strategy and, in turn, as a measurement. On the one hand, customer retention refers to your company’s actions to satisfy its customers’ wants and needs. These efforts aim to build loyalty and achieve a long-term repeat purchase.
On the other hand, the same term designates the percentage of customers who have persisted in purchasing a product or service for a specific time. As you can see, both definitions are intrinsically linked and point towards the same goal: maximizing the company’s revenue. Establishing a relationship of trust aims to ensure that the client becomes loyal and stays with the company as long as he needs the product or service. However, it is worth noting that customer retention is a first step towards loyalty, and therefore, they should not be taken as synonymous.
The significance of customer retention
In an increasingly competitive and globalized world, companies have begun to realize the great importance of customer retention. This strategy can catapult the company to success and ensure its commercial viability for years. After all, is there anything better than having a customer base that regularly buys your products or services? The truth is that no.
Maintaining customers’ interest so that they continue interacting with the company is an arduous task that represents a stepping stone on the road to loyalty. A company can retain customers by using unique and one-off offers. However, these customers could abandon the purchase if the price changes. This does not happen with loyal customers who repeat the purchase, convinced that the option is the best for them. Beyond this slight difference, betting on customer retention is essential for your company. Next, we will tell you why.
The customer retention rate estimates the success of the company.
By analyzing the percentage of customers who have decided to continue using a product or service from your company, you can determine their degree of satisfaction. The more customer fulfilment increases, the higher the retention rate and, therefore, massive success.
If the retention rate is much higher than the abandonment rate or has decreased from the previous period, your company is doing things correctly. You follow the right strategy to grow continuously with a solid customer base. Otherwise, it would be necessary to review what is happening and take action on it.
Customer retention techniques are affordable.
Once it is clear what customer retention is, the next step is to ask yourself about its importance. The answers are so varied and extensive that combining them in a single text is challenging. Among them, it stands out the low cost that these strategies suppose to counterpart with those designed to acquire clients.
Advertising and marketing investment is usually higher when seeking a conversion than when looking for customer loyalty. Imagine investing $10 in acquiring a customer through advertising, marketing, and sales actions. If you can get that customer to buy four times instead of once, the return on investment (ROI) will be much higher than if they buy only once. Customer retention is more affordable than acquisition in the medium term.
Retaining customers indicates less corporate effort.
Acquiring a new customer implies a monetary investment, human resources, and time. Think about your sales process. To start, it is necessary to generate a base of prospects that, after multiple analyses, may or may not become leads. These people are impacted by advertising, their presence on the internet, social networks and other media, and being contacted by the sales team. However, most do not advance through the sales funnel, much less reach conversion.
Responding adequately to the needs and desires of actual customers takes less time for workers in charge of marketing and post-sales actions. In this case, the correct follow-up and the appropriate proposal can contribute to their retention and subsequent loyalty.
Customer retention improves earnings.
Repetitive purchase by a satisfied customer is one of the best ways to increase your company’s profits. Because? The answer is clear: the investment required to achieve conversion is usually higher than that needed to complete a repeat purchase.
The customer who has received a quality product or service that has contributed to solving their problem does not look for new options in the market. A positive level of satisfaction pushes said customer to repeat the purchase instead of leaving with the competition. The greater the number of investments, the customer’s lifetime value increases. This increase has a direct impact on corporate profits.
The retention procedure collaborates with an effective sales strategy.
The sales process is long and, in some cases, cumbersome. Prospects receive different communications from the company through various means and move through the pipeline according to their response. However, many get stuck inside the funnel and do not convert.
Investing in various customer retention strategies makes it possible to forge a relationship with someone who has already shown interest in the product. Likewise, this client knows how it works, what it can provide, and also its price. Offering a little extra to sustain the purchase over time can be easier than convincing a new person. This helps keep the sales funnel moving.
The business develops sustainably.
Still, have questions about what customer retention is? Undoubtedly, it is an intelligent strategy for corporate development. Repeat purchases give the company something it has always wanted: regular and sustained growth. A positive customer retention rate indicates that customers are satisfied with the service or product received and are likely to repeat the sale.
If we think monetarily, this would indicate that future earnings will come primarily from these retained customers. Thus, it could be said that increasing customer retention, even in a small proportion, will contribute to increasing revenue. In this way, growth would be more sustainable: the greater the number of retained customers, the greater the profit. And this would add to the new clients that the company could capture. It is a win-win strategy (win-win).
The company attracts fresh and new consumers.
Your company cannot base its entire growth strategy on customer retention. After all, it is necessary to attract new customers and renew the customer base periodically. Now, have you thought about how retained customers influence this objective?
People who are satisfied with a product or service are likely to recommend it. This happens at the corporate level and also at the final consumer level. On the other hand, word-of-mouth recommendation usually obtains greater credibility than advertising and public relations actions. Thus, a retained customer can be the best way to attract new customers quickly and cheaply.
The primary customer retention techniques
To finish answering what customer retention is, it is convenient to address the primary customer retention strategies. Among them, the accompaniment of customers stands out so that they can get the most out of the product or service. It is essential that the company not only understands their needs but also helps them to solve them with their products. On the other hand, your team must monitor the post-sales and continually improve based on the feedback received.
Other promising strategies include one-off discounts, loyalty programs, and offers to sign up for a premium plan. Of course, personalized emails can help a passive customer take a new action. Do not forget to pay special attention to those clients at risk of abandonment and present them with a proposal they cannot refuse. Finally, create a referral program that benefits existing and potential new customers.
The most crucial customer retention KPIs
When discussing customer retention metrics, it is necessary to address the abandonment or desertion rate. It indicates the percentage of customers the company lost during a specific period. The retention rate complements this KPI since both indicators work like the two sides of a coin. This means that if the abandonment rate is 27%, the retention rate would be 63%.
Of course, the customer retention rate can be calculated by itself. To do this, deducting the number of new customers acquired during the period from the total number of clients at the end of the exact period would be needed. The result must be divided by the number of existing clients at the beginning of the period and multiplied by 100. This way, the percentage of clients retained by the company is obtained. Calculating this for different periods may be interesting to compare the company’s evolution.
What is customer retention? The most profitable long-term development strategy
After all of the above, the positive impact of betting on customer retention strategies has become clear to you. Extend the useful life of your effective customers as much as possible to increase the return on investment. Remember that retaining customers is more affordable than developing new ones.
To do this, execute a platform that permits you to centralize all the details of the opportunities and customers in the CRM. It is also essential that this software offers automation possibilities and customer communication tools. Emails, chats, and HD video calls can help retain customers. Bitrix24 is presented as the best option on the market as it is a comprehensive application that includes all the features mentioned earlier and much more.