When with the passing of time a firm acquires the capability of retaining customers then that ability of the firm is known as customer retention. If at a particular time period’s end, a number of customers are retained by a firm then the measurement of their percentage is called customer retention. In this post, I am going to describe why customer retention is so important for ROI.
How will you define the management of customer retention?
When the services and products of your firm are purchased by customers and to keep them happy you take certain steps for maintaining relationships with them then this process is known as management of customer retention. Here your purpose is to keep them loyal to your company.
The formula for calculating the customer retention
Customer retention = [(At the end of a given time period how many customers remain – During the period how many customers are acquired) / In the beginning how many total customers visit] * 100
Let us understand it with an example. Suppose in the beginning there were 30 customers. Then in the first quarter, 7 new customers were gained. Along with this, 2 customers churn then
Customer retention = [(35 – 7) / 30] * 100 = 93.33 %
It is very important for you to perform the churned customers’ audit. Try to know why they left.
What is the importance of customer retention?
In order to know whether the customers are satisfied with the services and products of your business and whether you are able to acquire new customers successfully, customer retention plays an important role. New customers can be brought in, loyalty can be boosted and ROI can also be increased because of this. As compared to acquiring new customers, retaining them is more cost-effective and much easier. A 25-95 % revenue growth in the company can occur if customer retention increases merely by 5 %.
In the success and growth of a company, a critical role is played by customer retention and the reasons behind this are given below:
- Spreading awareness about the services and products of your company can be possible if those customers that are loyal and satisfied tell others (their close ones) about your company. As a result, you can get new customers without paying any money.
- The possibility of newer customers to buy from your business is less as compared to retained customers. It is because the retained customers are aware of the services and products of your business.
- Retaining your current customers is cheaper than acquiring new customers.
What is the customer retention rate in different industries?
The average customer retention rates in different industries as per Statista in the year 2020 are given below:
- Media: 84 %
- Professional services: 84 %
- Insurance: 83 %
- IT: 81 %
- Telecom: 78 %
- Banking: 75 %
- Retail: 63 %
For managing customer retention, you need to follow some strategies which are given below:
1.Go for an early setting of expectations – It is very important for you to tell customers when will they get the results from you. You can do this by setting expectations. If 6 months’ time is needed by you to deliver the results but the customers were expecting them early then they may become upset. So, you need to clearly tell them when they can get the results from you.
2.Regularly communicate the results – By getting ROI and good results from your company the customers will feel that your company is very good. The idea of leaving your company will not come to their mind if they notice that the lifetime value, SQLs, MQLs and leads of your company are increasing.
3.Request the customers to leave feedback – If you are unable to know why customers are not taking interest in the services and products of your business then improving customer retention will not be possible for you. But from the feedback of the customers, you can easily know the reason behind this and can also take necessary steps to resolve their issues.
4.Develop a strategy to market your business by interacting with customers in an improved manner – Those customers who check in quarterly or monthly can be very important for your business and so it will be right for you to send newsletters to them from your company. In this way, you can retain more customers.
5.Create a program of customer loyalty – If you will provide value to customers then you can retain more customers and make them loyal to your business. By creating programs of customer loyalty, you can do all this. In several types of businesses like restaurants, e-commerce, hotels and airlines a lot of popularity has been gained by such types of programs. To foster loyalty, you can take the help of various tools of retaining customers like gamification, loyalty bonuses and user-generated content.
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