Has your company’s customer retention rate increased, decreased, or maintained the status quo over the past five years?
Are you actively working on retention? Have you outlined and initiated a formal customer retention strategy?
A study by Harvard Business School found that increasing customer retention by even 5% can increase profits by 25–95%. And yet, the 2019 CMO Survey found that nearly half of CMOs don’t expect to improve retention this year.
Compare that to more than two-thirds of CMOs who expect to increase customer acquisition, increased purchase volume, and more effective cross-selling:
That’s too bad. Because a Manta report found that 61% of small businesses surveyed indicated that more than half of their revenue came from repeat customers. Furthermore, the study found that repeat customers spend 67% more than new customers.
I can safely say that about three-quarters of my clients did not have a formal strategy to retain and cultivate their current customers prior to hiring us.
Many also felt that they understood their industry, target markets, and trends. However, when we conducted our research, we found plenty of areas that had evolved or changed.
Opinions don’t get people back. Understanding the data about what they need to return does. To develop your customer retention strategy, follow this four-phase process:
- Research your customers to find out what they need most.
- Develop the product, site, and offers based on existing customer feedback.
- Evaluate whether a loyalty or rewards program will drive repeat business.
- Make your retention strategy personal.
Table of contents
- 1. Research your customers to find out what they need most.
- 2. Develop the product, site, and offers based on existing customer feedback.
- 3. Evaluate whether a loyalty or rewards program will drive repeat business.
- 4. Make your retention strategy personal.
1. Research your customers to find out what they need most.
A HubSpot survey found that companies that put data at the core of their marketing/sales decisions improved marketing ROI by 15–20%.
The same article noted that companies spending 30% more time analyzing marketing performance data earned 3X higher open rates and 2X click through rates for email. (Email testing should be about far more than opens and clicks, though.)
So what kind of marketing data should you analyze if you want to improve customer retention?
- UX data. If the shopping experience is full of friction, why would anyone return?
- Email performance. What happens (or doesn’t happen) in post-purchase emails to convert first-time buyers into repeat buyers?
- Customer service. Poor customer service is why 82% of U.S customers leave a business – so perhaps looking at customer service scores might be where you start?
Improving each of these areas might boost your customer retention. But only scrutinizing your customer-facing metrics and direct customer feedback will provide you with your top priorities.
Of course, you could always work backward to find the source(s) of the problem, too.
Do you understand why your customers are leaving?
Some 68% of customers stop doing business with a company due to feeling that the company was indifferent toward them:
Forget about your company for a second and think about the companies you do business with:
- How many do you feel actually care about you?
- What attempts do they make to collect your feedback or offer incentives for you to come back.
- Do you think they even notice when you leave?
Alex Turnbull of GrooveHQ shares the simple three-line email they ask newly lost customers: “Why did you cancel?”
“As a founder, one of the most painful things in the world to hear is criticism of your baby. Especially sharp, stinging criticism from a customer that you’ve now let down […]
There’s no way around it, it still sucks […] But actively collecting and leveraging that feedback has become one of the most important drivers for continuous improvement at Groove.”
As much as it sets you up for negative feedback, including an exit survey can provide you with extra insight as to how to improve your product, your service, or overall offer.
Groove’s open-ended survey provided insight into:
- Specific issues active customers weren’t telling them about;
- Hangups in the user experience;
- Workflow inefficiencies for use cases they hadn’t considered.
What’s more is that an A/B test of the message—changing “Why did you cancel?” to “What made you cancel?”—provided a near 19% response rate.
“Since we’ve started doing open-ended exit surveys eight months ago, we’ve been able to make a lot of positive changes and fixes to Groove. Retention, along with many of our usage metrics, have improved as a result of some of these changes.
We’ve even started testing recovery campaigns for former customers whose issues we’ve fixed; I’ll write about that in a future post, but the early results are very promising.”
This is just one of the many reasons we’ve emphasized creating feedback loops. A system that provides insight automatically can help prioritize major issues to reduce churn, increase customer lifetime value, and support customer retention.
Canceling customers, of course, are far from the only group that will provide insight.
2. Develop the product, site, and offers based on existing customer feedback.
Your existing customer base will tell you a lot about what they need and want to keep coming back.
For instance, HubSpot Ideas is a forum for feature request—users can submit and upvote ideas, helping HubSpot understand which development projects may have the highest existing demand.
Without these methods of collecting feedback, future improvements would be mostly guesswork, severely reducing the chances of actually solving critical problems that keep users engaged or coming back (not to mention that forum’s like HubSpot’s yield qualitative insights for free).
It’s not just SaaS sites that can take advantage of customer feedback forums and in-line customer support either.
Case study: How Terminix used customer feedback to recover $20 million in lost revenue
Terminix is the world’s largest pest control company, with more than 2.8 million customers spread across 47 U.S. states and 11 countries.
Over the years, their acquisition campaigns have succeeded by combining humor with a serious tone that lets you know that they take pest control seriously.
But as successful as their acquisition strategies were, too many customers cancelled—they were losing a third of their clients (or approximately $60 million) annually.
They hired Chief Outsiders to analyze exiting customer data along with other customer satisfaction information. They discovered issues stemming from three areas:
- Service quality;
- Customer expectations.
In response, the company initiated a new training program for employees that focused on retaining customers and overcoming easy objections. They also incorporated a satisfaction survey program to gain a fresh perspective on new customers’ needs and desires.
This also led to a change in Terminix’s product offering—offering quarterly and annual programs instead of their previous “monthly only” service.
The result? Customer turnover dropped by one third, which translated into approximately $20 million recovered in annual revenue.
3. Evaluate whether a loyalty or rewards program will drive repeat business.
Beyond delivering a better customer experience based on feedback, what are other ways to increase customer retention?
A loyalty program might seem like a no-brainer, and, increasingly, companies are adopting them—some 86% of small businesses had them in 2018, up from just 66% a few years ago.
For many, the benefits of a loyalty program might include:
- Increased customer spending;
- Higher customer lifetime value;
- greater ability to upsell and cross-sell.
But it’s not as simple as tacking on a loyalty program and expecting customers to start “living” at your store. (Indeed, according to the 2018 study above, only one in four companies with a loyalty program enrolls at least half their customers.)
For industries with thin profit margins, offering an incentive like 2% off isn’t very enticing, and in many verticals such an offer might require a significant lift in sales to break even.
The major issue with many loyalty and rewards programs is that there’s no real differentiation—nothing there to make the customer feel special. As a result, it’s easy to take it or leave it.
Perhaps that’s why Amazon Prime has been so successful.
The benefits to members continue to increase (the image above is ample evidence), and buyers have rewarded Amazon with their loyalty. The gap in spending between a Prime and non-Prime member is remarkable:
Starbucks might also be onto something with Starbucks Rewards. By using their loyalty card to make purchases on their website or at a store, you earn “Star Points.”
The more points you earn, the better perks you get:
From Starbucks perspective, I imagine this is a pretty significant win because many of the rewards are being offered after they’ve made a good profit off the customer.
Further, they get tons of data about what you buy and when you buy it. The “custom” offers you get can easily be personalized prompts to encourage you to go back when, algorithmically, your loyalty appears to waver.
If you’re looking to start a loyalty program, you’d better run the numbers—in granular detail— first. Then, when you unroll the program, start by targeting your most frequent buyers first. Listen to their feedback and develop the program based on their feedback.
After all, the Starbucks Rewards program came out of the company’s own forum:
Greg Ciotti has created an excellent article on creating sticky loyalty programs, and HubSpot has a great overview of various reward programs.
4. Make your retention strategy personal.
Appealing to your customers’ emotions and making every customer feel like they truly matter goes a long, long way. According to research by Peppers & Rogers Group, most customer behavior is emotionally based:
- 60% of all customers stop dealing with a company because of what they perceive as indifference on the part of salespeople.
- 70% of customers leave a company because of poor service.
- 80% of defecting customers describe themselves as “satisfied” or “very satisfied” just before they leave. (Surveys alone won’t tell you everything.)
In your retention efforts, focus your communications with existing customers around how they would like to be viewed.
Greg Ciotti (again!) talks about the concept of implicit egoism. As it relates to consumerism, it’s the idea that brand choices are tied to personal identity.
Purchasing a luxury vehicle like a Mercedes-Benz, for example, is a status symbol, and makes their customer feel more elite.
Their customers are so elite that if they want to get into a new Mercedes when their lease is expiring, the company will simply waive four payments, and the customer will get the new car right away.
Urban Outfitters on the other hand, uses typography and design to communicate a real hipster vibe.
It’s newsletter doesn’t just deliver sales and promotions but also videos and music from obscure bands.
That level of emotional design aims to build a sense of community, belonging, and attachment to the brand. The emotional connection, in turn, makes it easier and more enjoyable to buy from those stories instead of competitors.
And if you’re wondering how a company like Urban Outfitters builds a retention strategy based on brand and emotional connection, just read how they describe their customers.
As with so many successful marketing strategies, extensive research into your customers’ behaviors and demands can help identify the best retention strategies for your business.
One key difference for retention efforts is to put more emphasis on committed, existing customers and those who recently left.
While it make take extra effort, low turnover will save you time and money in the long run. Remember, making the sale is only the first step.
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It’s always been mystifying why more attention is given to new customer acquisition rather than customer retention. I think part of the reason why is that it’s more exciting to get a new customer than to keep an old one. Of course it’s a vicious cycle, the more you chase new business in place of retaining old business, the more you need to chase new business.
As a former sales manager, I use to give incentives for retaining customers: higher commission rates and other perks.
I think that’s just it. It’s the “thrill” of getting new customers. (kind of like being married, really)
When you’re single, you have all sorts of routines to make yourself look nice, smell nice, be funny, and seem more impressive than you actually are. I remember having a set of stories & jokes I would tell just to get a phone number from a girl.
But then I got married…
And with that things got real. The stories & jokes lost their sheen. Some “quirks” turned out to be real character flaws & ultimately I (we) were no longer “the ideas” of who we were as people, but we actually knew & understood each other.
The relationship has to deepen. We worked with each other to overcome fears, and helped each other to overcome the personal obstacles that we couldn’t overcome by ourselves. We rewarded ourselves for achieving milestones, and soon we’re going to embark on a whole new adventure together by moving to a place neither of us are familiar with.
I think in business, in order for it to be fulfilling, it should be a lot more like that.
Is it harder, yep. Is it more rewarding… absolutely.
Great article content. However, the numerous grammatical errors are distracting. Please clean up!
Thanks for this long and interesting article. I am always trying to listen customers. It is sometimes hard to make them talk…
Have you taken a look at the feedback loops article we wrote a little while ago?
If they’re not talking, you might not be asking the right questions at the right time.
Hey Gina, Great work on this article. I am a big advocate of taking customer retention programs to a more personal level. One way to develop effective customer retention is by developing a relationship with your client base. Whether it’s through personal service or social media interaction, you need to find ways to connect with them.
It’s a great article.
However for our e-commerce business the biggest issue causing low retention is Brand awareness and inability to remind customers about us.
We sell flowers so people usually use this service 2-3 times per year at the most. So next time they need flowers they simply dont remember where did they buy flowers in the past.
Emails dont really work anymore….
Any advice on that?
Thanks in advance
Customer retention is definitely important and often overlooked or neglected (especially when it comes to customer service), but different retention strategies not only need to be implemented, they need to be tested constantly and consistently. Understanding the overall impact of your retention strategies is what allows a company to actually understand their customers and be able to better cater to their needs.
Great Blog! I love the images you used as well. You make great points and i think that any company would work well with their customers when addressing these tips. We too wrote about strategies when dealing with customer retention plans, i think that you would enjoy it! You should check it out http://vingapp.com/category/ving-improved-communication-technology/.
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