It takes a lot of hard work to convert a casual window shopper into a customer. You’ll need to demonstrate the value of your product or service and help consumers understand why your brand is superior to those of your competitors. When you do land that hard-won customer, it’s vastly preferable to hold onto them rather than try to replace them with a new customer.
A solid customer retention strategy can help reduce costs while boosting sales. Consider this: The chances ofmaking a sale to a brand new customerare about 5% to 20%, whereas the chances of making a repeat sale to a loyal customer are about 60% to 70%. Clearly, boosting customer loyalty is an important strategy for any business in any industry.
What’s your customer retention rate?
Whenever possible, it’s usually helpful to know the concrete numbers applicable to your business. This allows you to determine which areas need improvement, and it also enables you to measure the success of various improvement strategies.
Your customer retention rate is the percentage of customers who continue to buy your products or book your services during a predefined period of time. It’s essentially the opposite of your churn rate, which is the rate at which customers stop using your products or services.
To calculate your customer retention rate, you’ll follow this formula:
Retention Rate % = Ending Customers – New Customers divided by Beginning Customers
Follow these steps:
- Choose a time period (e.g., 30 days or a year)
- Determine the number of customers at the beginning of your time period (A).
- Determine the number of new customers acquired during the time period (B).
- Determine the total number of customers at the end of the time period (C).
- Subtract B from C to get variable D.
- Divide D by A to get variable E.
- Multiply E by 100 to generate a percentage.
How does your customer retention rate compare?
Once you have your current customer retention rate, you can compare it to the average for your industry to determine whether your business is above, below, or at the average.Customer retention rates vary widelyacross industries. For example, the insurance industry averages 84%, while EdTech averages just 4%. Hospitality is at about the middle of the pack at 55%, and retail sits at around 63%. These averages are subject to change over time.
If your customer retention rate is below average, or even if it’s just about average, it’s well worth it to look at ways of encouraging your customers to become loyal fans of your brand. Remember: It typically takes aboutfive to 20 timesthe amount of resources to land a brand new customer compared to retaining a current customer.
Make a great first impression.
First impressions matter to customers. If a customer doesn’t have a good experience with your brand right from the start, they aren’t likely to return. Depending on the situation, they might leave negative reviews, request a refund, and perhaps even file a BBB complaint. It’s important to show your customers that they matter to you right from the start.
Accomplish this with:
- Welcome messages– Each purchase should trigger an email welcoming the customer to the brand and confirming the purchase.
- Follow-up info– Depending on what you’re selling, you may need to provide extra info to the customer, such as a how-to guide on how to use a product or a “what to expect” downloadable for booking a service.
- Point of contact– Your customers need to know how to get in touch with your brand if they experience any hiccups with their purchase. Be sure this is clear in all of your marketing materials, particularly confirmation emails.
- Guarantees– Make good on all product/service guarantees and other brand promises.
By and large, consumers prefer to patronize companies that they feel share their values. If you can convince your customers that your company cares about the same things they care about, you’ll be more likely to convert one-time purchases into repeat business.
Take a look at your business—its industry, its specializations—and identify one or more values that customers can rally around. Do you take care to ensure your products are manufactured in an environmentally friendly way? Do you donate a portion of your revenue to a nonprofit? Do your employees use volunteer days for a specific cause?
If not, it may be worth it to revamp your business model slightly to incorporate values that will resonate with your customers. Note that not all values are altruistic in nature. If you have a home services company, you might emphasize values such as fair pricing or punctual repair people. If your company sells high-end luxury products, your values will naturally center on enjoying “the good life.”
If you’re having trouble defining your company’s core values, look to your customer demographics for inspiration. What matters most to them? What do they care about? What do they worry about?
Manage customer engagements wisely.
Consumers are inundated with marketing messages every time they turn on their TVs, open their laptops, and check their smartphones. It doesn’t pay to shower your existing customers with sales messages to the point at which they feel overwhelmed. This will have the opposite effect of what you intend.
However, you do need to keep in touch with your customers often enough that your brand is top of mind for them. You want to encourage them to think of your brand the next time they want to make a purchase or book an appointment.
You can prompt first-time customers to become repeat customers by:
- Asking customers to rate their recent purchases (and include some “people also bought” suggestions in that email)
- Offering a discount on their next purchase
- Reminding customers when a subscription (if applicable for your business) is about to expire
- Sending digital birthday cards (if you collect customers’ birth dates) or holiday greetings
Offer the option of creating an account.
Many types of businesses can benefit from structuring their website in a way that allows for the creation of customer accounts. Consider giving your customers the option to save their billing and shipping information so that future purchases are more streamlined and can be made more quickly.
Implement a customer loyalty program.
In theSeinfeldepisode “The Strike,” Elaine is bound and determined to get a free sub sandwich using a customer loyalty card. She’s punched the card 23 times so far and can’t wait to qualify for a free sub, despite proclaiming that the shop actually makes really bad sandwiches.
Although fictitious, it’s a good example of how customer loyalty programs work. Everyone loves to get stuff for free or at a discount, and “earning” discounts or customer loyalty points (e.g., “Kohl’s cash”) by making purchases can seem more exciting for a bargain-hunting consumer than a standard sales advertisement. Consider implementing your own customer loyalty program to nudge casual shoppers toward becoming repeat customers.
Solicit customer feedback.
Soliciting customer feedback accomplishes more than one goal. In terms of customer retention, it can help your existing customers feel as though you value their opinions. It enables them to become invested in your brand, and thereby more likely to make additional purchases or book additional services.
It’s also an excellent way to track what works and what doesn’t work. Customer feedback is an opportunity to tweak your offerings, policies, marketing messages, customer service, etc., in ways that allow you to please more customers.
Offer discounts after a first purchase.
To thank your first-time customers for their purchase and encourage them to return, consider sending a sales email with a discount code redeemable on a future purchase. Be sure to put an expiration date on the discount that is aligned with your type of business.
For example, a discount that is valid for 30 days can work well for products with low- to mid-price points. On the other hand, if you own an HVAC company, you’ll need to offer a more generous expiration date, as it’s not likely that a homeowner would need to book your services frequently.
Improve delivery times.
Lastly, you can delight your customers and encourage them to return by improving your delivery times. Thanks to Amazon, consumers have become accustomed to fast deliveries that are usually free with a Prime membership. Offering standard shipping times might not be enough to please your customers.
If you find that the acceleration of delivery times is eating into your profits too much, consider implementing a free shipping offer with a minimum purchase amount. This encourages customers to spend more on your products so they can qualify for fast, free shipping.
Looking for more ways of improving your customer retention and supercharging your brand? Partner with Pennington Creative for everything from landing page copy andsales emailstodownloadablesand PPC ads. We work with B2C and B2B brands, and we also providewhite label marketing solutionsfor agency owners.
Contact us todayto request a free discovery call.