27/36 : ✅ Customer loyalty & retention
27/36 : ✅ Customer loyalty & retention
Customer satisfaction is worthless. Customer loyalty is priceless. – Jeffrey Gitomer
What is customer loyalty?
Customer loyalty describes an ongoing emotional relationship between you and your customer, manifesting itself by how willing a customer is to engage with and repeatedly purchase from you versus your competitors. Loyalty is the byproduct of a customer’s positive experience with you and works to create trust.
Loyal customers
Purchase repeatedly
Use what they purchase
Interact with you through a variety of different channels
Are your biggest proponents, sending others to you and providing proactive (and reactive) positive feedback
What is customer retention?
Customer retention refers to the ability of a company or product to retain its customers over some specified period. High customer retention means customers of the product or business tend to return to, continue to buy, or in some or other way.
According to research from Harvard Business School, increasing customer retention rates by only 5% increases a company’s profits by 25-95%.
Why is customer retention important?
Being mindful of customer retention matters because it helps you understand how loyal and satisfied your customers are, how strong your customer service is, and if there are any red flags that may turn off potential customers.
Focusing on customer retention pays dividends in the long run:
Lower cost compared to customer acquisition – As Econsultancy reports, 82% of companies state that customer retention is far cheaper than customer acquisition, yet many companies spend much more on acquisition instead of nurturing customers they already have.
Increased AOV – Not only is it much more cost-effective to retain current customers, but those shoppers are also willing to spend more as time goes on. Research shows that loyal customers are 23% more likely to spend with you than the average customer.
Increased profits – Taking care of customers and keeping them over time will also have a positive impact on your bottom line. Data shows that increasing customer retention by 5% can increase profits anywhere from 25% to 95% and that existing customers provide 65% of a company’s business.
Brand ambassadors – The best thing about loyal customers is that they tend to share their positive experiences, thus becoming your brand ambassadors. That’s priceless. According to Yotpo, 60% of consumers talk about a brand they’re loyal to with their family and friends. As word of mouth increases exponentially, customer retention is a must-have for your business.
How do you measure your customer retention rate?
Customer retention rates are most often reported as a percentage of total customers.
To calculate your retention rate, you must determine how you plan to measure it. Will it be based on your total number of customers or your total revenue? Will you measure it by month, quarter, year, or all-time? Take a moment to record your definition. Once you decide how you will measure your product’s retention, calculate these three numbers:
The number of customers at the start of that period
The number of customers at the end of that period
The number of customers acquired during that period
You can measure your customer retention by plugging those numbers into the following equation.
The customer retention equation:
CRR = [(Customers at end of period - New customers acquired during this period) / Total customers at the start of the period] x 100
For example, if you had 120 customers at the end of the period, 104 at the beginning, and acquired 20 during that time, your equation would look like this:
((120 – 20) / 104) x 100 = 96% customer retention rate
5 Customer retention strategies that work
Successful customer retention involves more than giving the customer what they expect. Generating loyal advocates of the brand might mean exceeding customer expectations.
Improve user onboarding One key reason for churn is that users simply do not understand how to get the most out of a product. During the onboarding process, a company should ensure that the client is aware of the key benefits that a product offers. One great way to do this is through training sessions that teach users about best practices and standardized workflows. Giving your customers the tools they need to succeed will maximize customer satisfaction and decrease churn over time.
Use client feedback to find weaknesses and constantly improve User feedback is absolutely essential when it comes to improving customer retention. This is relatively self-evident, as the way a client feels and perceives your brand ultimately determines whether they will become a loyal customer or jump ship.
Businesses need to gather accurate feedback from their users. This can be accomplished through satisfaction surveys or a feedback bar on the website or platform where users can submit feedback while they are using the product.
Use subscriptions to keep customers coming back Another customer retention strategy is using a subscription model. According to McKinsey, “15 percent of online shoppers have signed up for one or more subscriptions to receive products on a recurring basis.”
Use automated emails to encourage inactive users to take action One way to increase retention is by ensuring customers are as active as possible. If a user has remained inactive for a while, an automated email through your CRM system can induce this user to take action.
Create a personalized customer loyalty program A customer loyalty program is a great way of giving something back to customers while at the same time offering a chance to build a personal connection.
Why is customer loyalty important?
Customer loyalty is important for many reasons, not least because the effort of keeping a customer is substantially less than the effort of acquiring a new one. Why would you spend extra money to make a sale if you didn’t have to?
Loyal customers produce higher conversion rates. Existing customers have way higher conversion rates than new ones. The average conversion rate of a loyal customer is 60% to 70%, while that of a new one is 5% to 20%
Retaining customers is much more cost-effective than acquiring new ones. Merely a 5-percent increase in customer retention can boost profits by 25 to 95 percent.
On the flip side, nearly half of all customers will switch to a competitor after just one bad customer service experience. Creating positive experiences for your customers builds loyalty. But allowing negative experiences to happen can lose them for good.
A repeat customer has a 60-70% chance of converting. - Paul Farris
How to measure customer loyalty
Businesses always want to increase customer loyalty. But many struggle to evaluate the success of their strategy.
Some companies measure loyalty by the length of time they’ve had a relationship with a customer. Others might think of customers who’ve stayed with them through tough times, like service interruptions or growing pains. Many businesses use metrics, such as customer churn rate, to gauge loyalty.
For the former, use your customer service software to quickly access key metrics:
Customer retention rate measures the number of customers a company retains over a given period of time. Any business that wants to succeed must keep a close eye on this metric.
Customer churn rate represents the percentage of customers who stopped buying your product or using your service. Churn tells you which customers aren’t loyal, leaving you with those who are.
Behavior is just as important to track as metrics when it comes to understanding customer loyalty, though behavioral data can be harder to wrangle.
Social media behavior: Routinely search by keywords related to your brand on social media to see what customers are saying about you.
Buying patterns: Look for customers who regularly do business with your company—they’re loyal by default, especially if their spending grows over time.
How to increase customer loyalty and retention
One thing’s for sure: Loyalty must be nurtured constantly. It’s not something you can work on once and automate later.
According to leaders, many qualities we value in our personal relationships also apply to our relationships with brands. Among them: consistency, being a good listener, acting upon what you learn, and being honest.
Taking a customer’s entire experience into account, the ideal way to build loyalty is a mix of internal processes and emotional factors.
Reduce customer effort One way to drive customer loyalty is to lower customer effort. This means designing experiences that are simple to understand and navigate. A seamless experience makes customers more likely to return.
Provide excellent service Companies known for inspiring customer loyalty with great customer service say that being proactive is key. That means anticipating your customer’s next question and helping them head off problems before they start. Excellent customer service positions your brand as a strategic partner, not a one-off problem-solver.
Create an emotional connection There are many ways to form a connection with your customers, but you have to start by getting them emotionally invested in your brand. A top-notch rewards program or social media influencer promotion won’t be effective without first earning emotional buy-in.
Start a loyalty program
Once an emotional connection is there, customer loyalty programs can be a great way to increase customer retention. As part of a loyalty or rewards program, buyers receive discounts or freebies after reaching certain thresholds, like having been a customer for one year. This incentivizes customers to make more purchases.
📝 Case Study: Starbucks Customer Loyalty Program
Download this case study to learn more about how we help Starbucks automate offer assembly, offer management, and reward fulfillment, as well as measurement and tracking of key performance indicators (KPI).
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Great content as always.