7 Surprisingly Effective Customer Retention Strategies

Customer retention is cheaper than customer acquisition. Here are a few ways to improve your retention strategies.

By Eva
January 27, 2023
7 Surprisingly Effective Customer Retention Strategies

As the economic crisis looms over our heads, it shouldn't come as a surprise that 23% of buyers plan to lower their expenditures. With your existing customers spending less and acquiring new customers costing five to 25 times more than retaining old ones, creating effective customer retention strategies is the only way to stay afloat in this business landscape.

One, it increases profits.
Two, it builds brand loyalty.
Three, it paves the way for business growth.

Convincing enough?

But creating a customer retention strategy isn't as easy as it may sound. In this guide, we look at the importance of customer retention and seven strategies that work.

What Is Customer Retention?

Customer retention refers to the rate at which customers stay with a company. Simply put, it measures the number of people who remain loyal to a brand over a certain period.

The metric associated with customer retention is called customer churn. It is the number of people who leave the company. The higher the customer churn, the lower the customer retention, and vice versa.

Ideally, you'd calculate customer retention for a set period, such as a year. Here's the formula:

(Total number of customers at the end of the period - New customers acquired) / Total number of customers at the beginning of the period

Let's say you had 100 customers at the start of the year. You acquired 20 new customers in 12 months. 30 customers stopped shopping from your company.

Your customer retention rate will be:
(90 - 20) / 100 = 0.7 or 70%.

While a 70% retention rate is not alarming, it's not the best either. Most businesses attempt to retain at least 85% of their customers. Anything under 50% is concerning and requires urgent changes in your business strategy and customer onboarding experience.

SurveySparrow data shows that the top five contenders in any market have a customer retention rate of 94% on average. That's the benchmark for being the best of the best.

Why Is Customer Retention Important For Your Growth?


A high customer retention rate is vital for any business since it ensures customer loyalty, ultimately resulting in higher revenues. Customers who stay with your brand for a long time due to high satisfaction rates also become advocates, bringing in more consumers.

In fact, 86% of your loyal customers will tell their friends and family about your brand. Meanwhile, 66% will give you a positive review online.

Besides advocacy and profitability, customer retention has the following benefits.

Higher Customer Lifetime Value

Customer lifetime value is the total amount of money a business can earn from a typical customer throughout their interaction. Higher customer retention results in higher customer lifetime value.

It's pretty simple. The longer a customer shops from you or uses your service, the more money they'll bring you.

But please remember that customer retention is a continuous process. As Warren Buffett explains,

"It takes 20 years to build a reputation and five minutes to ruin it."

Remembering this, you must understand that increasing a customer's lifetime value requires consistent customer service efforts.

Lower Churn Rate

As already mentioned, higher customer retention leads to a lower churn rate. At one point, you'll earn customer loyalty for life. According to an Acquia press release, 59% of US shoppers claim to do business with a brand for life once they become loyal.

Increased Word of Mouth and Ambassadorship

Consider two scenarios. First, a brand's social media ads tell you how amazing their product or service is. Two, your best friend raves about the same brand. Which of the two are you more likely to believe? The latter, right?

It's not just you. 81% of consumers trust their friends and family's recommendations over that of a business.

Chip Bell, a worldwide service innovation and customer loyalty expert, explains that loyal customers do not only come back and recommend you but also convince their friends "to do business with you."

That's one of the reasons building customer loyalty is so important. When people enjoy your company's offerings, they will likely share their experiences with friends and family.

Customer advocacy brings in more buyers, increasing your profitability. It also builds social proof. Customers who enjoy your products and services share reviews about you online.

Potential buyers read these positive reviews and are encouraged to try your product. In fact, 75% of buyers read testimonials and reviews before they buy something. So, it helps to have a ton of good reviews about your product online.

Higher Profits

Possibly, the most crucial reason for maximizing your retention efforts is that it helps generate profits. The more customers you retain, the higher the lifetime value, the more money you make. It's simple math.

Plus, advocacy increases your customer base, further boosting revenue generation.

Who Is Responsible For Customer Retention?


The short answer is everyone's. Everyone in the organization is responsible for customer retention in their capacity.

A Forbes survey found that 74% of customers make purchases based on buying experience. Who makes up this experience? Everyone from marketers, advertisers, and content creators to customer support staff and in-store sales representatives.

While every department is responsible for customer retention, customer support has a more crucial role. According to PwC research, 70% of customers say fast, convenient, and friendly customer support contributes to their loyalty to a brand.

However, the entire burden shouldn't be on customer support. Retention starts from the moment a customer becomes aware of your product or service.

Initially, marketers and advertisers must ensure the brand messaging relates to the consumers. Once a customer shops from your company, the in-store representatives or online support staff should ensure they have a pleasant experience.

When creating customer retention strategies for your organization, include every department. Everyone who comes into contact with customers directly or indirectly should know about the buying experience standards they must uphold to retain consumers.

Customer Retention Metrics

No matter how great your customer retention programs are, unless you measure their efficiency, you wouldn't know whether they work or not. Here are some customer retention metrics to track the success of your retention efforts.

Purchase Frequency

Purchase frequency is the number of times a customer buys from you in a fixed period. Suppose you have a SaaS application, such as document management software.

How often did the customer renew their subscription? Did they do it every month of the year? If yes, the customer is highly satisfied with your product since they have excellent purchase frequency. If not, you need to get feedback to determine what might be affecting the purchasing frequency.

Return Customer Rate

Return customer rate refers to the number of customers who repeatedly shop from your brand. You can calculate it using the following:

Return customer rate = number of customers who have shopped more than once / total number of customers

A higher return customer rate indicates consumer satisfaction. Meanwhile, a low rate means you need to work on improving customer experience.

Customer Lifetime Value

We have already explained the customer lifetime value above. Ideally, you want your customers to have maximum lifetime value.

Remember that the lifetime value may not be the right metric for every business. For example, if you're a bakery, you might have a higher customer lifetime value since a buyer will make repeated purchases from your shop throughout the year.

The same is not true for a car dealership. You'll probably never see the customer again. For such businesses, the average order value is a better metric.

Average Order Value

The average order value is the total a customer's order amounts to on average. Since existing customers spend 67% more than new ones, retaining loyal buyers can increase the average order value.

Calculate the average order value with this formula:

Average order value = revenue / number of orders

Suppose a regular buyer at your bakery shops 50 times a year. You have calculated the total revenue you generated from them to be $1,000.

The average order value will be 1000/50 = $20

Churn Rate

The churn rate, also called the attrition rate, is the rate at which customers stop doing business with your company over a certain period. In the SaaS landscape, churn rate refers to the number of subscribers who did not renew their subscriptions or canceled them altogether.

The formula to calculate the churn rate is as follows:

Churn rate = number of customers at the start of the period - number of customers at the end of the period / number of customers at the start of the period

Suppose you had 500 customers at the beginning of the quarter. In the end, you have 400 customers. Your churn rate is 20%.

7 Effective Customer Retention Strategies


Now that you know how important customer retention is, how do you ensure it in your organization? With these strategies, the process becomes easier.

1. Use Personalized Communication

Personalization should be the central focus of your customer retention campaign, since 91% of consumers are likely to shop from brands that offer customized recommendations.

The key is to understand what your customers need. Then, tailor their shopping experience to relevant needs and requirements. Here are some ways to do that:

  • Use Names: It's time to ditch 'Sir' and 'Ma'am.' Instead, use names when addressing customers in marketing emails or customer support.

  • Offer Custom Solutions: The one-fits-all customer service approach is no longer in style. Personalized solutions have replaced it. Instead of bombarding your customers with product offers they're not interested in, show them what they want to see. For instance, did a customer spend quite some time going through the plus-sized apparel section on your website? Send them a welcome offer coupon for your best-selling item. Or, email them the next time you have a sale in the plus-sized section.

  • Provide VIP Treatment: Has a customer shopped from you several times? They deserve a treat. Offer them exclusive access to a new product. Or, give them a random 30% off coupon on new arrivals.

Amazon is a great example of personalized communication and buying experience. The company tracks your purchase history to show you relevant recommendations. Even the emails you get from Amazon are targeted with offers based on what you searched for during your shopping spree.

2. Create a Post-Sale Drip Campaign

Once your customer has made a purchase, it's not the end of things. To ensure retention, you need to keep them engaged. A drip campaign helps you do that.

It's a series of automated emails you send to customers who have acted, such as buying a product. Some other actions that warrant a drip campaign include:

  • Attending an in-store event

  • Signing up for your newsletter

  • Abandoning their cart

  • Not placing a repeat order for a while

So, what do you add to a post-sale drip campaign? Let's say you're an athleisure store. A customer buys a pair of leggings.

Your drip campaign emails can do the following:

  • Inform the customer about new styles added to the collection

  • Inform the customer about new colors

  • Send promotional offers

  • Notify the customer about upcoming or running sales

  • Recommend related products, such as shorts or tank tops from the same collection

Creating the perfect copy for your drip campaign emails isn't enough. You also need to do the following:

  • Add a CTA: Include a call to action (CTA) at the end of your emails. It will encourage the recipients to take quick action.

  • Choose the Right Time: Campaign Monitor data shows that Fridays are the best days to send emails if you want a higher open rate. Avoid Saturdays at all costs.

  • Conduct A/B Testing: Use A/B testing to determine the right time to send emails. Do the same for email content and subject lines.

3. Responds to Customers As Quickly As Possible

Swift customer service response is integral to increasing customer retention. McKinsey research found that customers spend up to 40% more time with brands that resolve their queries quickly on social media.

Train your customer support staff to respond to customers without delays. Furthermore, have a comprehensive system to ensure customers get the necessary responses.

For example, use chatbots to answer frequently asked questions by your customers. But note that chatbots cannot fully replace human customer support, since 75% of consumers prefer speaking to a human.

4. Make Use of Customer Surveys

A customer retention survey includes questions you send your customers to learn about their feelings and experiences with your business and product. Such a survey can help you understand how happy (or unhappy) a customer is with your business.

Some questions you can include in a customer retention survey are:

  • Which other companies did you consider before picking us?
    The answer can help you understand which products your customers deemed worthy before they chose you. You can also learn the distinguishing feature that gives you an upper hand over similar companies. Use this feature for future marketing.

  • Did you reach your desired outcome with our product/service?
    If you meet the customer's requirements, well and good. If not, make relevant adjustments.

  • How likely are you to tell your friends and family about our product?
    It's a Net Promoter Score question that helps you know how satisfied customers are with your product.

  • What could we do better to keep you as a customer?
    This question offers insights into the improvements you can make to ensure a higher customer retention rate.

Besides these, you can ask the following questions:

  • How would you rate your experience with XYZ team members?

  • How would you describe our service?

  • Which feature is our product missing?

  • How would you rate our product?

  • Which feature of our product can you not live without?

Gather actionable insights from the answers you receive in customer surveys. For instance, if the customers are unhappy with your onboarding process, make it more consumer-centric. If your customer support is too slow, accelerate it, and so on.

5. Provide Remarkable Customer Service

Speaking of customer service, it is the leading factor influencing customer retention. The importance of customer service is evident from the fact that the consumer experience management market is worth $11.34 billion worldwide.

As the industry leader Bob Hooey says, if you don't look after your customers, "your competitor will.". Here are some ways to take care of your consumers:

  • Know your product and help customers get the most out of it.

  • Be friendly when dealing with customers.

  • Instead of merely apologizing, make up to customers with offers and incentives.

  • Practice active listening, as it helps you understand which problems your customers are facing and how you can resolve them.

  • Use the right tools, whether it's chatbots, call centers, or online chat support.

The most important components of good customer service are empathy, adaptability, clear communication, and patience. Practice these skills to keep your customers satisfied.

Plus, make it easy for customers to return products or sign out of subscriptions. Making returns harder will result in your company losing 84% of its consumers. That's a direct blow to your customer churn rate.

Most importantly, deal with customer complaints properly and promptly. Instead of ignoring them, offer solutions and upscale your service to ensure the same issues don't arise again.

6. Reward Loyal Customers

Rewarding loyal customers is a win-win situation for both parties. While customers get discounts and exclusive access, you enjoy high profits and sales.

A Visa study found that 64% of the customers in loyalty programs spend more and shop more often. When creating a loyalty program, provide rewards for different customer actions.

For example, you can give customers points when they purchase, refer friends, or leave reviews. Create tiers for customers to unlock more rewards.

Make sure the 'points' are valuable. Customers should be able to use them for monetary rewards. Besides loyalty programs, you can also reward loyal customers with the following:

  • Discounts: Give discounts to high-spending customers. They already tend to shop more. A 20% off will further give them a nudge to add a few more products to their carts.

  • Free Items: Offer free shipping over orders of a certain value. Or add free items for repeat and high-spending customers.

  • Reciprocal Discounts: Partner with associated businesses to provide reciprocal discounts to your consumers. For example, if you're a bookstore, you can partner with a coffee shop to give coupons for 50% off their next coffee purchase.

7. Integrate Gamification In Your Product/Service

Gamification makes everything much more interesting, enticing customers to participate in activities. Research shows that gamification learning activates a certain part of the brain's hippocampus, making recall easier.

So, gamification can be useful in keeping your company at the back of your customers' minds - quite literally. One way to use gamification to reduce customer churn rate is through social media.

Take M&M's as an example. The company posted its 'Spot the odd one out' campaign for the all-new Pretzel M&M's launch on social media. It included a picture of regular M&M's with a hidden pretzel that viewers had to find.

The post went viral quickly, bringing a lot of hype for the new product.

Besides social media, you can also use in-app gamification to onboard new customers. For example, give customers rewards for completing tasks, like setting up an account or using their first feature.

Let's say you download a ride-hailing app. Instead of a boring walk-through, what if every feature you tried to open a treasure chest, giving you 10% off your first ride? There are ten features in total. By the time you've opened every chest, you have your first ride for free.

Offer your customers similar experiences to make them come back for more.

Final Thoughts

Regardless of the customer retention strategies you select, customer service is at the crux of your efforts. Think of it as the foundation holding the fort together.

So, it's imperative to choose a tool that allows you to provide stellar customer service to your clientele. That's where HelpSpace comes in with an intuitive interface, self-service features, and team inbox.

You can simply integrate HelpSpace's widget into your website and resolve customer queries directly. Allow your customers to select between personalized support and self-service documents. Even better, share data between your other apps, including Slack, Shopify, and more.

Register today to start your free HelpSpace trial and embark on a journey to the utmost customer satisfaction.