Customer retention is crucial if you want to build strong relationships and increase your customer lifetime. By focusing on retention, you’ll be able to retain that hard-earned customer base.
To improve your customer retention rate, you don’t just need to offer a good product or service; you need to think about how to improve the entire customer experience . The more positive your customers’ purchasing process and their relationship with your brand, the easier it will be to build long-term business relationships with them.
In this article, we’ll introduce you to the definatio
n of customer retention and explain why it’s so important to business success. We’ll also cover six you can implement.
What is customer retention ?
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Customer retention is the measure of how many customers repeatedly purchase your products over time. It’s a key performance indicator (or KPI ) that helps you evaluate customer loyalty and consumer satisfaction with your products and services.
Companies use various customer retention strategies to increase their retention rate, such as implementing a loyalty program, discounts, personalized messages, and optimizing customer service . These strategies support building long-term relationships with existing customers and encourage them to remain loyal to your business.
Consumers prefer brands that understand their needs and that they feel they can trust . 71% say it’s more important to trust the brands they choose or use today than it was in the past. In other words, customer retention isn’t just about the quality and speed of transactions and products, but also about offering excellent service that cultivates good relationships with your customers.
How to calculate customer retention rate
Customer retention rate is the percentage of customers you have managed to retain over a specific period of time.
To calculate your customer retention rate, you need to know the following:
- The number of customers you had at the beginning of a specific time period
- The number of customers you had at the end of that period
- The number of new customers you acquired in that time period
Next, you’ll need to subtract the number of new customers acquired from the total number of customers at the end of the period, divide it by the number of customers you had at the beginning of that period, and multiply by 100.
This is the formula:
For example, imagine you started the fiscal year with 50 clients. During that time, you lost 10 clients but gained 20. So at the end of the year, you have 60 clients. In that case, your formula should look like this:
(60 – 20) ÷ 50 x 100 = 80%
That is, your retention rate for that year was 80%, which is the percentage of customers your company has retained throughout the fiscal year.
How to calculate customer churn rate and customer lifetime value
There are other metrics that are relevant when evaluating your performance with customers and thus informing your customer retention strategies. The
first is your churn rate . This rate reflects how many customers you’ve lost in a given period. If your customer retention is low, your churn rate will be high.
This is the formula to calculate it:
(Number of customers lost in period X / Number of customers at the beginning of period X) x 100
If we use the previous example, your formula would look like this:
(10/50) x 100 = 20% dropout rate
Another key metric is customer lifetime value (CLV). This calculation estimates the total revenue you can expect from a customer during their relationship with your business. It’s a way to determine which customers are most valuable and allows companies to better tailor their retention strategies.
To calculate a customer’s CLV, you must also define the time period you want to analyze. Then, multiply the customer’s average number of transactions by their average 
, and then multiply that result by the customer’s average lifetime value.
This is the formula:
(Average transaction size x Average purchase amount) x Average customer lifetime = CLV
Why is customer retention important ?
As we mentioned, customer retention is a KPI, so it helps companies evaluate their ability to retain customers over time. Here are some of the benefits of optimizing your customer retention:
- Customer retention is generally easier (and cheaper) than customer acquisition. Acquiring a new customer can be up to seven times more expensive than keeping an existing one.
- Loyal customers buy more, so companies can target them with complementary sales techniques like upselling and cross-selling because they already have strong relationships with them.
- Satisfied customers tend to share their experience with others, which increases sales through referrals and word-of-mouth marketing. According to the study ” The Forces of CX in Latin America ,” conducted by Ipsos, a satisfied customer who is emotionally connected to a brand is much more likely to recommend it to their friends.
People are much more likely to return to a company that has provided them with a good shopping experience . In fact, the Ipsos study we just mentioned also highlights that a satisfied customer with an emotional connection is much more likely to remain with the brand in the future. This allows companies to build a positive public image and gain a competitive advantage.
6 strategies to improve your customer retention rate
Let’s review some strategies to improve your customer retention and have more happy customers.
1. Personalize the consumer experience to deliver relevant content
Customers have different needs and preferences. Personalization allows you to offer tailored solutions instead of communicating generically with everyone.
According to a report by the Boston Consulting Group , 80% of consumers prefer companies that offer personalized experiences, and 64% expect real-time customer service.
Personalized messages and attention help you build valuable relationships with customers. They also create emotional connections, which, as the Ipsos study mentioned in the previous section indicates, ” generate greater retention ,” and this is key to differentiating yourself from the competition.
Encouraging these interactions with your current customers means they don’t feel like just a number. Having a positive experience is a reason to remember your brand and return.
Personalization also makes service more efficient. It allows you to resolve issues more quickly, improving the shopping experience.
To personalize your messages you need to:
- Leverage your customer database . By collecting and analyzing data such as purchasing habits, past purchases, and website behavior, you can better tailor your messages to your customers’ preferences. A sales dashboard is a great tool for organizing and analyzing this data.
- Use segmentation . Divide your customer base into several segments based on demographics, location, purchasing history, and preferences. This will make it easier to send personalized content to each segment.
- Implement triggered emails . You can schedule your email marketing campaigns to be sent automatically based on triggers. Emails are sent when a current or potential customer takes a specific action, such as clicking on an ad or visiting a product page. These emails should contain relevant customer information and promotions.
If your offers are relevant to your customer base and you consider their specific needs, you’ll be much more likely to convert them into repeat customers.
Amazon is a prime example of this. According to a study by McKinsey & Company, approximately 35% of Amazon’s sales come from its recommendation engine . By tracking its customers’ behavior—both when shopping on its website and interacting on other marketing channels—Amazon determines which products are best suited to each consumer.
Offering purchase recommendations in key locations, such as the landing page or in the shopping cart before checkout, is a retention strategy that motivates consumers to make follow-up purchases.
