How to measure and improve customer retention
Customer retention is a key component of any business’ success. Without it, businesses would be forced to quickly replace their customer base with a new one and risk the brand equity they have built up over time. There are many different approaches to customer retention, and the right one for your business may not be the same one that works for someone else. In this blog post, we’ll explain how to measure the effectiveness of your retention tactics and explore some common strategies businesses use for retaining customers.
The reason why customer retention is so vital these days is that customer acquisition has become a much more expensive process, and companies need to figure out how well their retention strategies work to be successful. Companies are also facing a challenging unit economy: if you want to grow scalably and profitably, you have to keep an eye on customer acquisition. During the last five years, the cost of acquiring customers has increased by 50%. You need tighter control over your product or service because it’s not sustainable in the long term if costs continue increasing at this rate without corresponding growth from existing clients. Supposedly, every company wants to grow as fast as possible with as little costs as possible. Luckily there are retention strategies that you can put into place right away. Keep reading to find out what these strategies are!
When measuring customer retention, keep these two metrics in mind
1. Retention rate
Retention rate is a measure of how often a customer or user returns to a product after they try it the first time. For example, if you have an online store with 100 customers and 10 come back after their first purchase, your retention rate would be 10%. According to research by Mixpanel, most apps and software have a 6–20% eight-week retention rate depending on their industry.
2. Retention cost
Retention cost is how much it costs to keep customers or users. For example, if you have an online store with 100 customers and 10 come back after their first purchase, your retention cost would be the value of the products they bought plus the transaction fees for purchasing this product.
Also, remember to measure retention rates and retention costs across different channels. You might spot new retention opportunities on channels through which customers tend to return more often than others. You’ll also be able to see which retention strategies work best for your business and which might need improvement.
Seven popular strategies for customer retention
A retention strategy is something that keeps customers or users from going away and thus provides a long-term benefit. These strategies work best when you have a high retention rate and a low retention cost. Retention strategies are also different for each individual business because each of them has different retention tactics. To get started with growing your retention rate, you could try one of these popular strategies.
1. Engage New Signups with a Personalized Welcome Email
The first retention strategy you want to try is to send a welcome email that’s personalized with each user’s name surrounded by relevant information about the product or service they just signed up for. This retention strategy makes them feel special and ensures they get value out of their purchase. You can use tools like Zapier or IFTTT to automate the retention strategy and not have to do it manually.
2. Improve Product and Retention Rates with Targeted Push Notifications
Push notifications are a retention strategy that allows your users to be reminded of the product or service they signed up for. This retention strategy works especially well with apps, as you can send people push notifications right away. If someone hasn’t opened your app in a while, simply send them a targeted notification with an incentive to encourage them to come back.
3. Boost Conversion Rates with Cross-Channel Messaging Campaigns
This retention strategy allows for a consistent message across different communication channels. It also works especially well if your customers are more likely to login into their account or read their email rather than open push notifications on their phone or constantly check their social media.
4. Build Loyalty with Customer Referrals
Building loyalty with customer referrals is another retention strategy you can try. If your retention rates are high, then it’s likely you have happy customers who like to share the good word about your product or service.
5. Retention Through Behavioral Economics
Retention strategies can also be employed using behavioural economics. If retention strategies like the ones mentioned above aren’t doing enough, you can use gimmicks like scarcity or social proof. Scarcity appeal indicates your product is limited edition and only available for a short period of time, so people should act now if they want it. This retention strategy increases conversion rates but could also turn some customers off.
6. Increase Conversion with Personalised Lifecycle Campaigns
This retention strategy enables you to target users based on past behaviours and their current behaviour. Personalised lifecycle campaigns increase conversion rates by delivering the right retention strategy, at the right time, and when it’s most effective.
7. Decrease Churn Rate through Upselling and Cross-Selling
To decrease churn rates, implement retention strategies such as upselling and cross-selling. This retention strategy increases revenue but could also turn some customers off. When implementing retention strategies like this, be careful not to overdo it so your customers don’t feel used.
Whichever customer retention strategy you opt for, it should be based on a clear understanding of what your customers want and how they expect their experience with you to unfold. Retention also works best when it isn’t too expensive and an engaged customer base already exists.
Further tips for increasing your retention rate
Make your product more valuable over time
Offer the right amount of value at the right time. Ask customers what they want from your product before you launch it. Customers tend to underestimate the time it takes to implement their suggestions, but you can use this as an additional retention strategy and provide the requested features after launch.
Set up retention loyalty programs
Retention loyalty programs give customers points for using your product which they can use to get discounts on their next purchase. These programs are great for not only boosting sales and revenue but also increasing customer satisfaction and engagement of your high-value customers.
To sum things up, the importance of customer retention for any business cannot be understated, which is why you should focus on retention rate, retention cost, and retention strategies to keep your customers returning to your product. If you struggle in establishing or refining your retention strategy, we at Sofokus are more than happy to help. Shoot us with a message, and we’ll get back to you as soon as possible!