Customer retention is a term used in business and marketing. The word 'retention' itself comes from Latin and means 'to keep something'. It is used in many fields - you probably know it from geography. But what is customer retention? How do you maintain a high retention rate? You can find out the answers to these questions by reading our article today. You will also find a worksheet with which you can quickly and easily calculate the indicators that are important for your business.
Customer retention, ROI, conversion - what do these terms mean?
In order to be able to create effective advertising campaigns, it is important to be familiar with basic concepts such as conversion, ROI or customer retention. All three define a very important indicators from the point of view of internet marketing. The term "conversion" has already appeared many times in our blog posts. There is no option that you have not encountered it by now! In the simplest terms, a conversion is the transformation of a passive user into an active user. Conversion always occurs when, when a potential customer or e.g. a reader of a blog performs the desired and expected action from them. This can be a purchase, but not just any purchase. It could just as well be filling in a form, clicking a link, creating a customer account or signing up for a newsletter. Conversion is success - successfully capturing the user's attention.
How is the conversion rate determined? Divide the number of desired actions performed on the website by the number of unique visitors to the website and multiply by 100.
The ROI (Return On Investment) is a return on investment indicator. It can be used to estimate the ratio of the profits to the costs incurred by the undertaking concerned. In simplest terms, ROI illustrates the profitability and effectiveness of marketing activities. How is ROI measured? Check it out below.
This brings us to the concept we are most interested in today - retention (customer retention). In the marketing industry, this indicator determines the company's ability to retain existing customers. See how the retention factor is calculated.
Why is the customer retention rate so important?
Did you know that, according to information provided by the Harvard Business Review it costs up to 25 times more for a company to acquire a new customer than to retain an existing customer? Nowadays, customers have very high expectations (both of products/services and service), so retaining them is no easy task either.
The retention rate measures how many regular customers a company has over a given period. Unfortunately, very few companies study it at all - 44% do not know the retention of their customers! There is no single formula by which it can be determined and some companies may struggle to implement it. The most common and simplest formula you will come across is that the retention rate is the difference between the number of customers at the end of a given period and new customers during that period divided by the number of new customers at the beginning and multiplied by 100.
Why should (and is) retention rates be so important for businesses? Regular customers are a major contributor to business growth. This does not just mean that they generate a large proportion of revenue. Through their loyalty, they strengthen the company's position in the market, recommend it, engage with it and share opinions.
Want to measure retention rate, conversion rate and ROI for your business? Download a worksheet to make it easy for you:
Are you watching for these signals? You could lose a customer!
You already know how valuable a regular customer is - how do you take care of them and prevent them from leaving your business? We have put together some of the warning signs that may signal that a customer is about to leave you. Here they are:
1. Reduced activity and number of purchases -. is a common symptom. It starts with the gradual abandonment of certain products/services, opting for cheaper equivalents, for example, and ends with the existing customer abandoning the company altogether.
2. low commitment - The customer should feel a bond with the brand. Only then will they share their opinions, not only follow social media accounts, but also actively participate in discussions and comment. If you see that customers are reluctant to engage in dialogue with a company, this is a signal that there is nothing stopping them from leaving.
3. lack of satisfaction with products/services - if you have observed that customers rate your business poorly (e.g. because of delivery, availability or price problems), you should react immediately. Nothing will be done about this phantom? You cannot be surprised by their loss.
How to effectively increase retention?
To enjoy a sufficiently high level of customer retention and a large number of loyal customers, you need to apply a few key principles to your business. First and foremost, you need to personalise communication and use follow-ups, for example. This is nothing more than contacting the customer several times to 'strike a bargain'. You can use multiple channels in a follow-up strategy (e-mail, telephone calls, video conferences) - choose the model that works best for your customers.
Retention can also be increased by recognising and rewarding the most dedicated customers or launching a loyalty programme. This will encourage the purchase of more products or more frequent use of a particular company's services. A loyalty programme tailored to customer expectations will result in increased sales and profits.
In order not to lose customers, you must also respond swiftly and efficiently to any sign of dissatisfaction or concern. A problem arises? Don't sweep it under the carpet! Explain the situation and, if necessary, apologise to the unsatisfied customer. Also bear this in mind when unfavourable comments appear online - e.g. in the form of negative Google Business Card reviews. Do not act impulsively. Respond to the comment and try to resolve the situation. Then other customers will see that you remain professional even in a difficult situation.
Customer retention - summary
Developing a customer retention formula that fits the company profile and then monitoring this indicator takes work. However, it is a game worth playing. For the indicator to be at a satisfactory level, it is essential to approach brand loyalty building in a comprehensive manner. Listening to customer needs and collecting data and feedback (including during the new product development process) must not be forgotten.
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