Customer acquisition and retention are two crucial components of any successful business strategy. Here’s why:
• Customer acquisition draws new customers to your business; more customers means more profits.
• Customer retention keeps existing customers happy and loyal to your brand; satisfied customers equals repeat business.
While customer acquisition generates more income for your business, retention keeps it sustainable in the long run.
For starters, studies show that increasing customer retention rate by just 5% leads to an increase in profits of between 25% and 95%. In contrast, acquiring new customers costs up to six to seven times more than retaining existing ones (Hubspot, 2022).
This is because repeat customers spend more money and refer new businesses to your company. And with a lower customer churn rate (the percentage of customers who stop doing business with you), your revenue and profits are more stable.
But how do you achieve this? Enter customer retention marketing — a strategy focused on building strong relationships with existing customers, keeping them coming back for more.
In this blog, we will explore the golden idea of customer retention in marketing, its benefits and how to retain customers.
What Is Customer Retention Marketing?
Retention marketing is the process of nurturing existing customers to increase brand loyalty. It involves using strategies such as personalized communication, loyalty programs and proactive customer support to create positive experiences that encourage repeat business.
Meanwhile, acquisition marketing focuses on attracting new customers through paid advertising, social media and content marketing. Although adopting strategies for customer acquisition is crucial for gaining a foothold in the market, it has become more challenging and expensive in recent years.
Econsultancy reports that 82% of companies agree that retention is cheaper than acquisition. For this reason, many marketers are turning to retention marketing to supplement their acquisition efforts.
By prioritizing customer retention in marketing, businesses can reduce their reliance on costly acquisition strategies and build a profitable brand for the long term.
Benefits of Retention Marketing
Done right, increasing customer retention presents numerous benefits for businesses. Here are some reasons to leverage customer retention in marketing:
1. It Lowers Acquisition Costs Brought by Privacy Changes
We have said it repeatedly – acquiring new customers is a costly endeavor, especially in today’s privacy-oriented world.
The recent updates in tracking and attribution, as seen on Apple’s iOS 14.5, have made targeting and attributing user actions on Facebook and Instagram more challenging.
Furthermore, with Google intending to roll out similar changes this 2023, businesses face exorbitant customer acquisition costs.
But here’s the silver lining – companies that improve customer retention can save significantly more than those solely focusing on developing strategies for customer acquisition!
Implementing an effective customer retention strategy can help businesses reduce churn rates, increase customer loyalty and boost revenue without the high customer acquisition costs.
2. It Drives Innovation
Having a secure base of satisfied customers gives customer retention specialists the flexibility to explore new products and services for their clients.
Studies suggest that returning customers are 50% more inclined to try new products and spend 31% more than new customers.
That said, you can use your existing client base to gather feedback and gain valuable insights about their needs, preferences and purchasing behaviors. Then, customer retention specialists can utilize this information to improve current products, develop new ones and create a better overall customer experience.
However, a word of caution: Make only a few changes; determine what your current clients value the most and ensure those services are still offered—numerous adjustments made at once risk driving away devoted patrons.
3. It Generates Word-of-Mouth Referrals
Word-of-mouth referrals occur when satisfied customers naturally recommend a brand to their friends, family or social media followers without any formal incentive or prompting from the company. Think of it as free advertising.
These referrals significantly impact a business’s reputation as they demonstrate trust and credibility. According to Nielsen, 92% of global consumers trust recommendations from friends and family above all other forms of advertising.
Word-of-mouth referrals are also effective strategies for customer acquisition because they can attract new customers through positive reviews.
4. It Enhances Customer Lifetime Value
Customer lifetime value (CLV) is the estimated monetary value a customer brings to a business over the entire relationship duration. In other words, it is the amount of money a customer is expected to spend on a business’s products or services over their lifetime.
A solid customer retention strategy is a key driver in enhancing CLV. Focusing on customer loyalty and retention encourages repeat purchases and upsells, increasing sales over time.
Say a coffee shop has a customer who visits every day and spends an average of $5 per visit. If the customer continues to visit the coffee shop for the next five years, their total lifetime value to the business would be $9,125.
By focusing on how to keep customers coming back, businesses can increase their customer lifetime value, leading to long-term revenue growth and sustainability.
5. It Reduces Customer Churn Rates
Well-executed customer retention strategies effectively combat churn rates by addressing the root causes that lead customers to abandon a business. This may include:
• Poor customer service
• Product quality issues
• Competition offering better value
• Lack of engagement or personalization
• Difficulty in using the product or service
• Pricing changes
• Negative reviews
• Inconsistent messaging or branding
• Ineffective marketing campaigns
Simple tactics, such as offering incentives to long-standing customers or assigning top-performing customer service representatives to work with at-risk customers, can boost customer loyalty and retention.
In the next section, we will explore battle-tested customer retention marketing strategies to help improve customer retention and reduce churn in your organization.
Expert Tips on How To Retain Customers
While keeping customers is a must for any business, it can sometimes get lost in the shuffle during periods of rapid growth and competing priorities. As a result, support for existing customers can be neglected, leading to dissatisfaction and increased customer churn rate.
Learn how to retain customers with these proven customer retention strategies:
1. Set Expectations As Early as Possible
Being transparent about what your product or service can and cannot do prevents customers from feeling disappointed from the get-go. Just share your product or service’s value proposition, benefits and limitations upfront.
You can do this through a sales pitch or during the onboarding process. Sharing relevant case studies with prospects can also help manage expectations and avoid potential misunderstandings down the line.
2. Understand the Buyer’s Journey
Understanding the buyer’s journey is essential in identifying potential areas where customers may abandon your product or service.
Document every step of the process, including customer actions, questions and emotions. Look for friction points and areas that need improvement, like complicated or time-consuming steps.
Then, address these issues swiftly and proactively to prevent customer frustration and keep them engaged.
3. Take Action
Once you have all the data you need, it is time to put them to the test. Experiment with different tactics and find what works best for your business.
Create Tailored Experiences
Personalizing the shopping experience can significantly improve a company’s customer retention rate. Use customer data such as purchase history and browsing behavior to curate tailored content like product recommendations and blog posts.
To enhance personalization further, businesses can also gather zero-party data through on-site forms, surveys and checkout processes. This data provides valuable insights into customer preferences, allowing for even more targeted marketing and product offerings.
Use a Two-Way Omnichannel Strategy
Two-way omnichannel support provides a direct communication path between you and your customers. With two-way communication tools like SMS and email marketing, you can create a 1:1 experience that other channels do not offer.
This approach provides more personalized and timely support, which can lead to increased customer loyalty and retention.
Here is how a two-way, omnichannel strategy works:
• Keep customers in the loop. Automated SMS and email updates on order status are sent to the customer, ensuring they stay informed throughout the process.
• Provide customer service options. Each SMS and email sent out after a purchase includes contact options for customer service, making it easy for customers to inquire about shipping, payment or delivery.
• Encourage repeat purchases. Post-purchase SMS and emails are triggered to send special discounts and offers, encouraging further purchases.
Integrating a two-way omnichannel strategy into your customer retention plans consolidates all communication into a single platform. This makes it easier for support teams to address issues quickly, ensuring a smoother customer experience.
Implement Advocacy/Loyalty Programs
To foster customer loyalty and encourage brand advocacy, consider implementing the following strategies:
• Referral Programs: Incentivize existing customers to refer new customers by offering rewards, discounts or other exclusive benefits.
• VIP Programs: Offer exclusive access to customers who meet certain thresholds, such as high purchases or lifetime spending.
• Ambassador Programs: Encourage customers to become brand ambassadors by providing them with tools and resources to share their positive experiences with others.
• Community Programs: Build a sense of community among customers by creating a platform for them to connect, share experiences and provide feedback.
Customize these programs to fit your target audience. Then, consistently monitor and optimize your efforts to ensure continuous growth in your company’s customer retention rate.
Provide Killer Customer Service
Nothing trumps excellent customer service when it comes to increasing customer retention. Prompt and personalized support can make a huge difference in how customers perceive your brand and whether they continue doing business with you.
That said, be sure to invest in a customer support team that is knowledgeable, empathetic and available across different channels.
Some examples of effective customer service strategies include:
• Offering a knowledge base or FAQ section on your website to help customers find answers quickly.
• Providing live chat support to assist customers in real-time.
• Using social media to respond to customer inquiries and complaints promptly.
• Implementing a system to track customer interactions and follow up on any outstanding issues.
• To keep customers informed and reassured, offer proactive communication, such as shipping updates or order confirmations.
Customer Retention Metrics To Track Your Progress
Now that you know how to keep customers coming back, it is time to measure your efforts. Tracking the right customer retention metrics can help you identify what is working well and what needs improvement in your customer retention strategies.
Here are customer retention metrics you should track to assess your progress:
1. Revenue churn rate tells you the amount of revenue lost from customers in a given month.
Here’s how to calculate your churn rate:
• Subtract the MRR at the end of the month from the MRR at the beginning of the month.
• Subtract the MRR in upgrades (upselling and cross-selling) from the result of the first step.
• Divide the final figure by the MRR at the beginning of the month.
By tracking this metric, you can reinforce your efforts and correct issues with products, services or customer experience that may contribute to customer churn.
2. Customer churn rate measures the percentage of customers who stopped buying from your business during a given period. To calculate it:
• Subtract the number of customers at the end of the period from the number at the beginning.
• Divide the result by the number of customers at the beginning.
• Multiply the result by 100 to get the percentage.
3. Repeat purchases indicate the number of customers who made more than one purchase from your business during a given period. You can calculate it by:
• Dividing the number of customers who made more than one purchase by the total number of customers.
• Then, multiply the result by 100 to get the percentage.
Tracking these metrics enables you to reinforce your efforts or correct products, services or customer experience issues that may contribute to customer churn.
Retain and Sustain Customers With Thrive
Starting a business is easy, but making it profitable is what separates the wheat from the chaff. After all, it takes more than just a good idea to keep a business afloat.
That’s why retention marketing is crucial – it nurtures a strong customer base that rallies behind your brand and keeps the cash flowing.
But then again, retention marketing alone is not enough to sustain a business. You also need strategies for customer acquisition to expand your customer base continually.
Thrive Internet Marketing Agency offers full-service digital marketing solutions, such as SMS marketing, email marketing, social media management and content writing to improve customer retention and acquisition efforts.
Contact Thrive today to see how well-executed customer acquisition and customer retention plans drive exponential growth for your business.