Customer Retention and Why it’s Important for Your Business

Many factors contribute to a business' success. One of these factors is customer retention. Your business can bring in as many new customers as you want, but if your retention rates aren’t high, your existing business will taper off. Retaining the business you have is just as important, if not more important, as bringing new business in. In this blog, we are going to walk through the basics of retention, how to calculate it, and factors that could be impacting it.

What is Customer Retention?

Customer Retention is the ability of a business to retain clients over a specific period. If your business has a high retention rate, it means your business is successfully having customers return to continue to do business with you. Meaning - they’re not just one-and-done clients. Lower retention rates mean that while you’re getting clients in, they’re not really coming back for repeat business.

How to Calculate Retention

To find the percentage of this metric, you can use a simple formula over a certain period of time: CRR = [(E-N)/S] x 100). The “S” refers to the number of customers you start with, the “N” refers to new clients you gain, and the “E” refers to the number of customers you have at the end of the time period. For example, let's say you started with 50 customers, got 30 more, and ended with 40.

The equation would look like this: [(40-30)/50] x 100. Doing the math, you get 20, which means your business would have a 20% retention rate. 20% is the metric that small businesses are recommended to hit.

Keep in mind that this metric also depends on industry and varies by business. An insurance agency retention rate of 20% would be extremely low - since those run between 75% and 90%. A business that offers a service that isn't used all of the time - such as contractor - would love retention of 20%. The right number for your business depends on your industry, product or service, membership or subscription service, and other factors.

What Can Affect Customer Retention Rates?

Many things can affect your business’s retention rates. Here are a few examples:

• Customer Service

The relationship you create with customers is a huge factor in if they want to continue to do business with you. If your business’s customer service lacks quality, customers may not want to interact with you and, therefore, won’t want to return.

• Product Quality

The quality of your product could tank your chances of returning customers. A product or service that clients feel delivered what was promised, then they’ll want to return. If a product or service falls below expectations, they’ll go to someone who provides better products and services.

• Sales Process—If the process a customer goes through to receive a product or service is confusing, time-consuming, and inefficient, customers will not want to go through that process again. Making sure your processes make the sale and delivery of a product or service quick and easy is essential for ensuring your customers have a satisfying experience interacting with your business.

• Competition

Competitors for your business, both online and local, can affect whether your customers return to you. If competitors have better offers or fill gaps that your products or services don’t provide, they may go to them next time instead of coming back to you.

How to Raise Retention Rates

Let's say your retention rates aren’t where you want them to be. How can you fix this? There are actually a few ways to achieve this. Let's take a look at some of the ways your business can improve its retention rate.

1) Foster loyalty with customers.

Incentivizing loyalty is a fantastic way to get customers to want to come back to you. Some popular ways to do this are:

- Implement a loyalty program. Provide sales or discounts for repeat customers, create customer loyalty accounts with point systems, or use customer accounts on a personal level, like birthday deals and holiday deals.

- Connect with the community. Get involved in local charities, events, and partnerships to show the community your part of it.

2) Frequently ask for feedback.

Ask customers about their experiences to get insight into what they like and don’t like about their interactions with your company. You can do this by:

- Sending surveys to customers after interacting. After a sale, connect with your customers through surveys to ask them about their experience. Give them a chance to voice their opinions on different aspects of their experiences, and use these to determine what your business needs to work on.

- Make sure your customers can leave reviews. Letting your customers have a space to leave their unfiltered reviews is essential to making sure they feel their opinions matter. Take some time to look over reviews on places such as Google and Yelp to see what clients are saying, and use their feedback to make your business better.

3) Create a unique experience for customers.

Customers will feel more appreciated when you tailor your interactions to the individual needs of your clients. Each customer is different and will respond better or worse to different things. Taking the time to show your customers you care about what they personally need or want from your business goes a long way to making them feel appreciated.

4) Streamline your customer service processes.

Make sure your customer service processes are easy to go through and understand. We’ve all had experiences where reaching customer services has felt impossible with bouncing through multiple people, lack of communication, or lack luster results and help. Don’t let your business fall into those patterns. Provide precise and fast customer service for your customers.

5) Take advantage of automated systems.

With the rise of technology, automated systems, and AI have arrived that can help your business immensely if you give it the chance to do so. Examples of how you can let automated systems help your business are: - Automated emails to let customers know their emails have been received and include quick and easy FAQ sections for them in those emails.

- Schedule social media posts.

- Set up automated systems for when customers call so they can get straight to what they need.

6) Study your KPIs

Internet and technology now have ways to provide your business with so much data on what your customers like, what they don’t like, what trends are going on, and where your business is performing the best or worst. Your KPIs are the points of data that are your Key performance indicators. Studying your different KPIs can help you see the intricate aspects of your business that you may miss and help you decide what needs to be changed or improved to maximize success for your business.

7) Add a personal touch to your interactions with customers.

Get on a personal level with your customers. You can do this by:

- Express the morals behind your business. Customers will grow to feel a more personal relationship with a business or business owner who shares the same values they have. It makes everyone feel like they’re all on one team.

- Don’t be a cookie-cutter business. Make sure your business stands out and isn’t just a cog in the machine. If your business takes place in office spaces, add some decorations that could make it feel more “homey” or sprinkle things throughout that add more personality to the business.

8) Create a positive onboarding experience.

Make sure the start of your process of receiving a new customer is simple and easy. Don’t make your customers sign up for confused and convoluted accounts, bounce them around, or make the process overly tedious.

9) Close the loop.

When we say “close the loop,” we’re referring to taking the time to acknowledge feedback and responses from your customers. This can be as simple as saying “thank you” to their feedback, closing out a discussion over a customer’s complaint, or providing an overview of the steps you’ve gone through with a customer through their business process. Doing this is a way to make sure your customers feel heard and that they feel their feedback and experiences are important to your business.

10) Implement a referral program.

Implementing a referral program is a great way to attract new customers and promote return business from previous customers. An example of how you can do this is to provide a deal where if a customer refers someone to your business, you can give them both a deal, such as lower rates on future projects, coupons, or product sales for their next purchase.

For more information on ways to improve customer retention rates, check out these articles:

• Customer Retention Strategies

• What is customer retention?

• The 5 Steps You Need To Take To Improve Customer Retention And Boost Your Profits

The strategies businesses use to improve customer retention will vary depending on what each individual business needs and it sometimes takes some trial and error to figure out.

If you're not sure where to start to figure out your metrics or how to improve them, contact Comprehensive Consulting Solutions for Small Businesses. We’d love to help your small business!

Check out these other CCS articles:

• Customer Acquisition Costs Five Times More Than Customer Retention

• Lead Follow-Up and Why It Is Important To Small Businesses ​

• Active Listening And Small Businesses