So many business owners are focused on getting new customers to come through their “front door" that they let their existing customers escape out the back. This is a very difficult and expensive way to build a company, since it is so much harder to constantly find new customers than to keep and grow the ones you already have. Improving your customer retention rate starts with caring for and servicing the customers you already have.
During this process, business owners need to be aware of two critical metrics: the cost of acquisition of a new customer (COA) and the lifetime value of an existing customer (LTV).
Constantly having to spend money to bring in new customers every month can deplete your resources for servicing your current customers, which hurts your ability to grow your business.
For example, say it costs $250 to acquire a new customer that will buy $500 in services their first year. If that customer stays three years, the company can increase its profit substantially. However, if the customer leaves after the first purchase, the profit is minimized. (This is why subscription-based companies can be so profitable when compared to other retailers that sell one product at a time.)
Increasing your customer retention rate has become easier to accomplish thanks to new technologies that allow for deeper customer engagement and encourage consumers to use always-on loyalty programs. Creating and maintaining deeper customer connections encourages your customers to stay with your company longer and tell others about their experience.
Authentic relationships to your customers have become the sustainable market advantage for businesses since most products or services that are sold have become interchangeable commodities.
If you're interested in learning how to improve customer retention, try the following strategies.
1. Loyalty Program
Loyalty programs initially rewarded customers with points or credits for each purchase. Earning rewards was a successful way to get customers to keep coming back to your company to earn more.
It started with S&H Green Stamps in the 1930s; customers would redeem stamps they earned from buying groceries for merchandise. Major airlines popularized these types of programs in the 1980s by incentivizing passengers to fly with them through earning miles toward free trips.
Today, loyalty programs allow customers to earn rewards and give them access to special perks. Now there is more of a focus for accumulated points or miles to go toward special events or access to once-in-a-lifetime experiences.
Loyalty programs work because buyers always want to get a little extra for their money. Often customers see little difference between their choices except for the extra reward they get by sticking with the same company. And thinking longer term, buyers can develop an affinity to the brand as a result of repeat purchases because of the privileges they earn.
Take me for example: I have been traveling with the same major airliner for 35 years. They are always my first choice to fly because of the benefits I receive as a result of the premium status I have achieved, like preferential seats and boarding, and their airport lounge. While I don't believe that their basic airline service is different from their competitors, my flying experience now is a result of the status I have earned through using this specific airline.
A reliable indicator of customer satisfaction is to ask them for a net promoter score, which allows them to rank how likely they are to refer someone they know to your business.
The key to a successful loyalty program is to make it easy to join and simple to use. Allow the customer to keep track of their rewards automatically online or through their smartphone. The customer needs to be able to easily discover how they earn rewards and what they can be exchanged for. The company should notify customers when they earn these rewards and explain how far they have to go before the next major status milestone.
2. Communication Calendar
You want to keep talking with your customers to provide expert value and thought leadership before and even after the sale. It helps boost return visits and word-of-mouth referrals, which can help improve your customer retention rate.
Companies can't sell anything to anyone if they're not top of mind when people are ready to buy. No company knows exactly when a customer will have the problem that their solution solves. This is why they must be in consistent communication with that customer so they are top of mind when they do.
An effective communications calendar keeps track of all customer communication—that is, the last time a customer reached out to your company or when they have not interacted with you in a certain period of time. This type of calendar makes it easier to renew a customer's subscription before it expires and not after it already has. Consistent communication with customers can also help increase the likelihood of upsells and cross-sells.
3. Customer Journey Map
Really understanding your customer's experience can be achieved by setting up a customer journey map to document all the times the customer comes in contact with your company.
You start by identifying the different stages when a customer interacts with your business. Plot the expectations customers have of your business at each point. Identify where the customer interaction usually goes wrong and what their emotional reaction is likely to be.
On the customer journey map, it is most important to identify the critical moments where the customer will make a decision if your business is good or bad for them (and then tell others). These are the minimum steps you must take if you are to learn how to retain customers.
Personalization (through technology) can be utilized to facilitate a higher customer retention rate. This can be done through using cookies on your website and calling customers by name when they return to visit.
Other ways to personalize a customer's experience include:
- suggestions of complementary products,
- personalized orders, shipping and delivery confirmations,
- personalized recommendations for future orders based on what customers have purchased in the past and
- personalized wish list to save favorite items for future purchase.
Personalization shows the customer that your company cares about the relationship with them, not just one sales order. It can be a vital part of figuring out how to retain customers.
5. Customer Feedback Loop
If you want to learn how to retain customers, figure out where your customers are leaving their feedback. Do they call, email, text or post on social media? Do you solicit feedback from customers consistently?
A reliable indicator of customer satisfaction is to ask them for a net promoter score, which allows them to rank how likely they are to refer someone they know to your business. If they are willing to refer a friend, it is very likely they were satisfied with the product or service and will come back.
6. Social Media and Online Reviews
Encourage your customers to leave a review of your company online or on social media (and maybe even reward them for doing so). It helps to turn them into brand ambassadors, cementing their relationship with your company while capturing new customers who are likely to be just as loyal.
Along with getting reviews, it's important to check them and know what people are saying about your company and the services it provides. Customer reviews are now being displayed in organic Google search engine results and influencing whether or not someone wants to do business with you.
While there is no way to guarantee that every customer will be satisfied, a company can respond to every online review and social media compliment or concern. People realize that not every customer will be happy, but seeing how a company responded when someone was dissatisfied gives them the assurance that if they're ever unhappy with your product or service, you'll take care of their concerns.
7. Corporate Social Responsibility
Increasingly, consumers now want to support companies that believe in the causes they support individually. Customers no longer want any inconsistency between your brand messaging and what causes you support.
In order to support your customer retention rate, get your customers involved in pursuing a socially responsible goal that is beyond what you sell. For example, shoe company TOMS donates a pair of shoes when they sell a pair to a customer. And Nextiva, a voice-over-internet protocol company, gives scholarships to students who want to get a degree in the STEM fields.
If you show you care about increasing your customer retention rate beyond the initial sale, customers may be more likely to buy from you again—and refer someone else in the process.
Read more articles on customer engagement.
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