Customer acquisition is vital for any organization looking to generate revenue. After all, a business is nothing without its customers. But did you know that it’s better for your business long-term if you stop prioritizing customer acquisition? Instead of focusing all your efforts on acquiring new customers, you should place greater importance on keeping your existing customers to protect your bottom line.
Why Is Customer Retention Important?
Customer retention rate (CRR) measures the number of customers you retain over a certain period. It is the inverse of the churn rate, which measures the number of customers you’ve lost over the same span.
While customer acquisition helps you build a foundation of clients, generating one-time purchases shouldn’t be your goal. Businesses often spend more resources on trying to acquire a client, and these outrageous expenses potentially invalidate any revenue you gain from that sale. Instead, you should focus on building relationships with your current customers to maximize profitability. Here’s why:
• The probability of an existing customer making a purchase is about 60-70 percent. For new prospects, your likelihood of a sale only lies between 5-20 percent.
• Eighty percent of a business’s future profits come from just 20 percent of its existing customers.
Implementing a customer retention strategy is vital for any healthy organization that wants to maximize its profits. However, creating a loyal fan base isn’t an easy feat because customers can be fickle. So, what are the factors that affect retention, and how do they contribute to churn? Identifying these factors is critical in finding areas you need to pay attention to the most.
1. Customer Satisfaction: Customer satisfaction will always be dictated by both the customers’ expectations and the quality of their experiences. Experiences that meet or exceed expectations lead to satisfaction, while failing to meet them may lead to churn.
2. Customer Success: Customer success is highly dependent on how you can address their pain points. As long as they are able to meet their goals through your products or services, then they will most likely continue being your customers.
3. Customer Reliance: The more customers rely on your products and services, the harder it will be for them to leave and look for alternatives.
4. Difficulty to Leave: Most businesses lock customers through contracts by making it expensive to leave. But a more positive way of doing it is by offering incentives for customers who stay longer to improve retention.
How To Calculate Customer Retention Rate
Before we look at customer retention statistics, let’s discuss how to calculate customer retention rate. Take a look at the following formula:
Based on that formula, you can calculate CRR by following these simple steps:
1. Identify the period you want to investigate and set the beginning and end of that period (for instance: May 1st and May 31st).
2. Find out how many customers you had at the beginning and end of the period, as well as the number of customers you gained over that time.
3. Subtract the number of customers you gained from your total number of customers at the end.
4. Divide that number by the number of customers you had at the start of the period and multiply that number by 100 to get CRR.
Example: If you had 100 customers at the start of a month, gained 30 new customers during the month, and had a total of 120 customers at the end of the month, your retention rate would be 90 percent. Here’s what that would look like:
Now that you know the basics of customer retention and how to calculate customer retention rate, it’s time to look at our customer retention statistics 2021 guide for insights that you can use to fine-tune customer retention strategy.
Customer Retention Statistics 2021
General Customer Retention Rate Statistics
• Top seven retention rates across multiple industries (ProfitWell, 2020):
• Banking – 75%
• Telecom – 78%
• IT Services – 81%
• Insurance – 83%
• Professional Services – 84%
• Media – 84%
You don’t need customer retention stats to tell you that a 100 percent customer retention rate is ideal but unattainable because there will always be some form of churn. So, what is a reasonable enough retention rate to target? It depends on your industry. That’s why you must be able to benchmark your retention rate against others in your industry to see how yours stack up against your competitors and peers. Let the customer retention stats we provided serve as your guide.
• Only 28 percent of small businesses plan to allocate a majority of their marketing budget to customer retention (Belly, 2016).
Out of 429 small business owners surveyed, about 335 respondents (78 percent) said that most of their marketing budgets were allocated for customer acquisition. Some of these businesses were still relatively new (less than a year).
• Customer acquisition costs 5X more than retaining existing customers (Forbes, 2018).
As mentioned above, the amount of resources it takes to acquire new customers is so high that it renders any customer relationship unprofitable. Profits can only be made once the volume of purchases or the value of the service you provide increases while the cost of acquiring them decreases.
The Power of Retaining Customers
• A 5 percent increase in retention rate can increase profits by as much as 95 percent (Reichheld & Schefter, 2000).
This statistic was first published more than two decades ago, yet it still holds to this day. The amount of value you can gain from a single loyal customer is substantial, according to customer retention stats provided by the author. Profit growth accelerates faster in future years because repeat customers spend twice as much in months 24-30 than they do in the first six months. Moreover, loyal customers tend to bring in more value through referrals, providing another rich source of revenue without incurring additional marketing costs.
• Forty-three percent of loyal customers spend more money to support brands they like (Fundera, 2019).
Customer loyalty programs are one of the most common strategies for customer retention, according to customer retention stats 2021. But how much value can businesses gain from these programs? According to Fundera, members of a loyalty program ultimately spend between 12-18 percent more per year than those who are not members.
• Highly engaged customers buy 90 percent more often and pay 60 percent more per transaction (Rosetta Consulting, 2015).
Taking a look at customer retention stats 2021, it’s easy to see how engaged customers can deliver 3X more value to a brand they’re passionate about. Customers who are engaged feel more loyal to their favorite brands. Find ways to boost customer engagement through customer retention strategies to create more value.
• Customers are 5X more likely to keep buying from the same brand in the future the more engaged they are (Rosetta Consulting, 2015).
Sixty-four percent of retailers believe their loyalty programs are the best way to connect with their customers. But that isn’t always the case. According to advisory firm Forrester Research, user experience and fostering a solid emotional connection with your customers are stronger drivers of loyalty.
Customer Retention Strategies
• The top marketing tactics that boost customer retention are: email marketing (58 percent), social media marketing (37 percent), content marketing (32 percent) and referral marketing (26 percent) (Invesp, 2020).
Customer retention statistics 2021 provide insight into the channels used by marketers to boost retention. Surprisingly, these are not the same channels marketers use for acquisition, which are paid search (86 percent), display advertising (85 percent), SEO (66 percent) and web retargeting (61 percent). The key difference between these channels? A high level of personalization.
• Offering loyalty points and discounts to customers improves retention by as much as 53 percent (16Best, 2021).
A study conducted by iVend Retail revealed that shoppers keep coming back to a store when they’re rewarded because they feel more appreciated. However, customer expectations also tend to increase the more frequently they return. Aside from personalized catalogs, customers also expect extra benefits from frequent purchases.
• Eighty percent of shoppers are more likely to keep purchasing from brands that offer a personalized experience (Epsilon, 2018).
For most consumers, personalization means a customized experience. According to Accenture, 91 percent of consumers are more willing to do business with brands that offer recommendations that are relevant to them. But for many others, personalization can mean many things, including custom services, discounts based on purchase history and shopping assistants or services that improve convenience.
• Seventy-five percent of consumers are more likely to engage with a business if they offer loyalty programs they can easily access from a smartphone (Code Broker, 2018).
Taking a mobile-first approach to customer retention strategies makes them more accessible to customers. As the world pushes toward becoming more mobile, card-based incentive or loyalty programs will no longer be effective. Consumers prefer accessing rewards through their mobile devices – either through SMS, a website, mobile app, digital wallet or Facebook Messenger.
Conclusion
Customer retention acts as an indicator for the overall health and growth prospects of your organization. A high retention rate signals that your business is at peak health, while a low retention rate indicates that something is wrong and that something has to be done to change things before it’s too late. Whether you need more incentives, better customer service or improved personalization, put our customer retention stats 2021 guide to good use to improve your strategy.
If you plan to implement a customer retention strategy but don’t know where to start, we’ve got you covered. Thrive Internet Marketing Agency is a full-service digital marketing agency that can help you leverage the power of these customer retention statistics to help you minimize churn and maximize profits. Align your marketing goals and foster loyalty among your customers with the help and expertise of our experts. Get started today by reaching us through this form.
