How To Calculate And Improve Your Customer Retention Rate

Acquiring new customers is undoubtedly one of the never-changing objectives of any business. That’s why we’ve paid so much attention to how you can generate leads and find new opportunities for prospecting. But there’s something more important than enriching your customer base with new companies — making your existing customers stay with your brand and purchase your product again and again.

For those who have doubts, numbers speak louder than words: it’s anywhere from five to 25x cheaper to retain an existing customer than acquire a new one.

Let’s talk more about how to calculate customer retention rate, why this metric is important, and how you can considerably improve it.

How to calculate customer retention rate

No matter what industry you work in, there’s a basic formula you can use to calculate your customer retention rate:

1. Figure out the number of active customers at the beginning of a given period
2. Figure out the number of customers at the end of that period
3. Figure out how many new customers you picked up during that period

Once you have those numbers, count the total number of customers for a sales period, subtract the number of new customers you picked up during that period, and divide it by the number of customers at the beginning of a given period. To convert that figure to a percentage, you need to multiply the remainder by 100. 

This is what a customer retention rate formula looks like:

Say you have 100 customers at the beginning of the year. Within a year, you lose ten customers but pick up 20 new clients. Your total number of customers at the end of the year is 100 + 20 – 10 = 110. 

Your customer retention rate, in this case, will be (110 – 20) / 100 * 100 = 90%.

The average customer retention rate

‘What is an ideal customer retention rate?’ you may ask. Well, while the ideal retention rate is 100%, it’s hardly realistic in practice. Yet, you can and actually should do your best to make your customer retention rate as high as possible, trying to decrease your churn rate down to zero.

In addition, rather than striving for a specific number, you can compare your retention rate to similar companies within your industry and improve the metric based on these benchmarks. 

Why is customer retention rate important?

With so many metrics to calculate and keep in mind, you may ask why on earth you should focus on customer retention rate. 

I’ve already mentioned one of the answers above: it’s much cheaper to sell to the existing customers than to acquire new ones. And about 82% of businesses agree with that.

Another good reason for calculating this metric is that customer retention increases your ROI. Only a 5% improvement in customer retention doubles revenue. 

In addition, it’s much easier to sell to existing customers. In fact, current customers are 50% more likely to purchase new products, and 31% have a higher likelihood of spending more. Not a surprise, over 60% of a company’s revenue comes from existing clients. 

On top of that, let’s not forget that returning customers are usually more likely to refer your company to others, which makes it a free source of lead generation for your business.

How to improve customer retention: 10 actionable tips

Customer retention revolves around how satisfied your customers are with your product and how loyal they are to your brand, so customer retention rate will solely depend on improving your customer service. 

There are many things your business can do to create an environment favorable enough for your existing customers to never turn their heads away from your company. You should work on both establishing meaningful relationships with your customers and uniting your team around a common goal of keeping as many customers as possible. 

Let’s look at ten customer retention tactics you can start using today.

1. Build customer loyalty

Customers loyal to your brand are customers who’ll most likely repeat doing business with you, right? Thus, building customer loyalty should be your number one task to improve customer retention. 

Create a customer loyalty program to reward loyal clients and encourage them to repeat a purchase. For example, in the B2B sector, the loyalty program can be offering a VIP plan to your most loyal customers.

In addition, you can start a referral program and offer those clients who have referred your product or service to others some benefits, e.g., access to more advanced features. Finally, why not provide your most loyal customers with special offers, such as discounts on the annual plan or next purchase?

2. Stay in constant contact

One of the essential factors in any relationship is maintaining contact and listening to your partner. It applies to customer retention as well. Customers you regularly engage with feel your company cares about them, so they pay you with an increasing degree of loyalty to your brand. 

There are several ways to keep this constant contact with your customers:

• Asking about their needs and preferences
• Requesting their feedback on your product or service
• Sending them product updates (e.g., information about price changes, new features, the launch of a new tool)
• Offering more advanced features and premiums
• Making special offers as a ‘thank-you’ gesture for their loyalty, and so on
• Building your brand recognition: you can start by creating a legal entity

What is super-important: try to actively engage with customers before they even have a reason to contact your business. Your company is participating in a sales event? Inform your customers about it. You’re preparing something special? Send reminders of upcoming sales. And even if your business experiences some sort of problem, let them know before it becomes a major issue. 

Remember: your customers should never feel abandoned, so following up with them must be one of your top business priorities.

3. Use various channels of communication with customers

Good customer service is the immediate one. At least 90% of customers think so. This figure is enough to start thinking about how you can ensure your constant support. 

With modern advancements, you can considerably improve your customer experience with email, service them via a live chat or a chatbot, and, of course, engage with your clients using social media. 

The more channels you’ll use, the faster your customers will get your response – nothing but mathematics. For example, if a customer has some complaints on Facebook, your business representative can engage with them directly via Facebook Messenger and investigate the complaint. 

There is another advantage of using social media for communicating with your customers – you can immediately address the issue with the public. Say, if you have a question from one of your customers they’ve just left in a comment to your post, all other customers will see it too. So helping one customer, you’ll help all others as well. 

4. Manage expectations

Another key tactic to retain more customers is to work out a habit of meeting their expectations. First of all, you should ensure you clearly understand what your customers expect from you, e.g., through customer surveys. 

Honesty is the best policy. Be realistic about meeting their expectations, refrain from high promises; instead, focus on attainable goals. 

What really works best is when a company is capable of exceeding expectations. Say, if you see at the beginning of your cooperation with a customer that they are interested in simplifying their business processes, think about offering them a plan with more automation features.

5. Track performance metrics

It goes without saying that customer retention rate should be taken under control so that you understand what makes your customers churn and what should be done to improve customer retention.

However, customer retention and churn rate are not the only metrics you should track regularly. You need to monitor overall customer satisfaction and analyze how they interact with your company throughout the whole sales cycle. 

Phone, email, social media, and in-person communication, as well as recorded customer feedback, from conversational points to survey responses, should be logged to help you grasp the areas of improvement. What’s more, this data can inform your company on how to deal with predominant service issues. 

Say, if a customer complains about wait times on the phone and is the only customer to complain, it’s probably not an issue. If, however, there are multiple complaints about wait times, it could be an indicator of a more significant problem or even a trend in customer service, which should be investigated.

Apart from taking steps to grow your customer satisfaction with your product or service and build customer loyalty, you should focus on how to improve customer retention by handling the processes within your team. 

6. Get everyone on the same page

Once you’ve defined customer expectations, adjust your team goals to meet them. If you aim to exceed those expectations, make sure everyone in your team knows about it and has all the support they need. 

Along with getting all team members on the same page to manage expectations, they must understand your objectives. Explain to them why customer retention is so critical to your bottom line. Map out the positive benefits of happy, returning customers. Present them with scenarios and challenge them to develop solutions to build customer loyalty. 

7. Hold customer service training

Teaching team members how to convince a customer to keep returning shouldn’t just boil down to theory. Your team needs good practical skills to apply. Therefore, you should provide special training (just like you’re coaching your sales team) to help every employee re-engineer their customer service and interaction approaches.

Apart from this, you should teach your employees how to build customer loyalty. There are many examples of respective training directions you can try:

• Active listening
• Conflict resolution/de-escalation
• Organizational policy to give employees options to present to customers
• OTJ training addressing customer complaints
• Alternative resolution training
• Product and service training to aid in matching customer needs with available options
• Best practices for building client relationships

With all these types of training, you can provide employees with tools to garner and build customer retention and loyalty without spending much money – none of these training directions requires large expenditures on the part of your business.

8. Create an incentive program for employees

Just like rewarding your most loyal customers, you need to set up an incentive plan that will reward those employees who’ve managed to make your clients happy. It doesn’t need to be extravagant or complicated, the following examples will work just fine:

The most important part of an incentive program is to let other employees know why their colleague has been recognized. Explain how their actions led to more sales, retained customers, etc., so they can have a role model to follow.

9. Develop an improvement plan

You can’t improve customer retention rates without developing an improvement plan that would include:

• Training staff on customer interactions
• Setting up anticipatory engagement programs
• Building a rapid support team for customer complaints
• Developing an engaging social media response program

Although I put it as the pre-last point, you should understand that adopting an improvement plan must be one of your first steps to take. Customer retention should become one of your separate strategies, while a customer improvement plan will help you go through each of its steps, add new ones when necessary, and reach all set goals. 

10. Adopt a CRM

As you see, improving customer retention rate will take you a lot of effort and a multitask approach: you’ll have to ensure regular communication with customers, provide timely support and follow-ups, keep track of how they interact with your company, analyze your team’s input into the process, and much much more. 

To keep all customer information and not go crazy, I do advise that you adopt a reliable CRM system that will help you monitor all metrics, visualize the results of all your touchpoints with customers, and keep this information safe and yet transparent to other members of your team, so you stay in sync around the same objectives.

One of such CRM platforms is Snov.io, which embraces the advanced features of a sales automation tool with lots of possibilities for B2B communication, analytics, and team cooperation.

Wrapping up

Customer retention is vital to the success of your business. By building up a strong customer retention strategy, you get a guarantee your brand will always be in the game as you’ll have a group of loyal customers who’ll keep on choosing your company among hundreds on the market. 

Improving your customer retention rate is not a one-day process. It requires thorough planning, clever team organization, and, without a doubt, a customer-centric approach. With such platforms as Snov.io, you’ll be able to deal with all tasks within a single tab. 

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