How to measure customer retention
If you’re looking to measure customer retention for your business effectively, you’re in the right place. Growing a business relies heavily on your ability to retain existing customers for as long as possible.
By retaining customers and generating more revenue from them, you’ll be less pressured to acquire new customers (which isn’t always easy and certainly isn’t cheap). Customer retention can be measured through metrics such as customer retention rate (CRR). Our ultimate guide covers what customer retention means and how best to measure it.
Why not get connected with Sigma Connected today and let us elevate your business and customer retention with outsourced customer experience solutions bespoke to your needs?
What is customer retention?
Customer retention refers to a company’s ability to retain its existing customers over a given period of time. It also refers to the rate at which customers stay with a business for a specified time – also known as the customer retention rate. You can improve retention by investing in quality outsourced customer contact services to provide a top notch customer journey.
Businesses use various strategies to retain their existing customers and build brand loyalty so they don’t have to put all of their efforts into acquiring new ones. There are numerous methods for measuring customer retention – but many companies don’t know how to do so effectively or what metrics to use. We’ll explain the best ways to measure customer retention later in this article.
How do you calculate and measure customer retention?
Customer retention can be measured in a myriad of ways. You can calculate the customer retention rate, customer churn rate or customer lifetime value. We’ll break down each of these below to give you a better understanding of each measurement.
Understanding customer lifetime value
Customer lifetime value (CLV) measures the total amount of money you can expect to earn from a customer throughout the course of an average business relationship. As its name suggests, customer lifetime value essentially determines how valuable a customer is to your business, with a huge focus on how much they are likely to spend.
Customer lifetime value is a key metric for your marketing strategy because rather than focusing on one purchase, it outlines how much you can expect a customer to spend during their lifetime. It is integral to any customer retention strategy as it allows you to determine the value of your existing customers and then work to increase it, which drives business performance and strengthens customer and business relationships.
There are a few ways to calculate customer lifetime value. The easiest way to calculate customer lifetime value is by multiplying your customers’ average purchase value, average purchase frequency, and average customer lifespan.
The two main CLV models used by businesses are predictive customer lifetime value and historical customer lifetime value. The predictive CLV model uses machine learning or regression to anticipate the purchasing patterns of both current and potential customers. The historical model analyses previous data to estimate a customer’s value.
Understanding customer churn rate
Customer churn rate is the percentage of customers that leave your business over a specified period of time. It calculates the rate at which customers stop doing business with your company. The churn rate can also refer to the total number of customers who unsubscribe from a service over a certain period.
Lower churn rates are typically better since the lower it is, the more customers you retain. This is fantastic for measuring customer retention within your business. Calculating the churn rate is very straightforward.
The churn rate is simply calculated by dividing the total number of customers in a period by the number of churned customers. The number of churned customers is the proportion of consumers that have stopped using your service or stopped doing business with you during the course of the period.
To assess the success of your marketing initiatives and to lower the churn risk in future time periods, it is critical to measure and understand your customer churn rate. Additionally, maintaining your current customer base is simpler and less expensive than finding new ones.
Because subscription business models are so common, it’s crucial for companies to understand why their customers could be churning. Not only this, but you can also work out how and when customers are churning. This can help you to strengthen areas of the business and prevent the risk of churn, lowering your churn rate in the future. Let Sigma Connected help with lowering your churn rate today.
Understanding customer retention rate
Customer retention rate (CRR) involves calculating the percentage of current customers who remain customers after a specified period.
The formula for calculating the customer retention rate is:
CCR = ((CE-CN)/CS) x 100
- CE – the number of customers at the end of the period
- CN – the number of new customers acquired within the period
- CS – the number of customers at the start of the period
Your customer retention rate is key to understanding how well or poorly your business retains customers. As well as showcasing what keeps your customers coming back, it can also point to opportunities to further improve your customer service and increase loyalty.
How to retain customers
While we’ve discussed how you can measure customer retention in your business, it’s important to also understand how to develop loyal customers and keep customers on board. If you’re wondering how to retain customers and keep the churn rate low by keeping customers happy, we’re here to help you out.
Ensure you have a strong onboarding experience
Strengthening your onboarding experience is a fantastic way to improve your customer retention strategy and boost customer expectations. A business should make sure the customer is well informed of the main benefits of its product offerings throughout the onboarding process so they know how to get the best use out of a product or service.
You should ensure your onboarding process is as flawless as possible; when a customer makes their first purchase, your company has the chance to create an impression that will influence how long that customer will continue to use your business in future.
If you don’t satisfy a customer when they first interact with your business or look to make their first purchase, then the chances of them churning will be higher. If you leave a striking impression from the start of their customer experience, they will be more likely to come back.
Onboarding processes with prompt emails, follow-up messages and customer advice are necessary for your team if you want to capture potential customers. Ultimately, increasing customer satisfaction and lowering churn over time can be achieved by providing new customers with the appropriate resources and advice they require to find success with your business.
Build trust with your customers
Customers are more likely to come back and buy a product from you or use your services again when they know they can trust you. Trustworthiness and reliability are traits that many customers look for in a business.
A whopping 73% of customers admitted they would pay higher prices for products and services from companies that operate with transparency. So building trust is a massive priority for any business that wants to retain customers and build long-term relationships and customer loyalty.
Customers’ perceptions of your brand’s trustworthiness and credibility will depend on how frequently you resolve queries and carry out your commitments over time.
Implement a customer feedback loop if something goes wrong
Customer feedback is great for your business for so many reasons. It’s one thing keeping customers happy, but it’s even better when you receive positive feedback from them. That said, receiving negative feedback can still be beneficial for customer retention as it allows you to identify weak areas of your business and come up with ways to improve them.
Acting on customer feedback and effectively solving their complaint can often turn a negative situation into a positive one.
You need to develop a system for gathering client feedback and disseminating it throughout your organisation if you want to start retaining more consumers. A customer feedback loop might be useful in this situation as it offers a method for compiling, evaluating, and dispersing customer feedback and surveys effectively.
Offer omnichannel support to reach customers where they are
Omnichannel support is a seamless and integrated network of channels and touch points to provide assistance and advice for customers.
By giving businesses the foundation to create distinctive, personalised, and relevant customer experiences, omnichannel can help you significantly increase customer loyalty which, in turn, makes customers more likely to continue buying from your business.
Offering a strong omnichannel support system to your customers strengthens the relationship between the company and the customer by fostering trust and promoting unified branding and messaging. Customers will feel more connected and engaged with your brand with omnichannel support.
Respond to customer support queries quickly
Giving a quick response helps to identify any issues and gives you the chance to address them promptly. In the end, prompt reactions will enable you to manage your company more effectively as you build traction from an increasing number of positive customer reviews.
For quick responses, social media can be the best platform. Customers who need quick responses often turn to social media, so it’s a fantastic method to instantly address any customer support complaints or inquiries.
Provide a consistent and personalised customer experience
When it comes to retaining customers, your customer support team is your hidden strength. Customers want businesses to respond to their enquiries fast and satisfactorily. A customer retention solution like Sigma Connected allows you to offer a better and more personalised experience for your customers.
Make sure you know your customer base well to ensure your solution is the most appropriate for the issues they are dealing with. The care your business gives will make them feel more willing to do business with you in the future. According to research carried out by experts, “89% of businesses compete primarily on the basis of customer experience”.
The better the customer experience, the more likely they are to leave good feedback and come back to you and your business for future purchases and solutions to their problems or demands.
How Sigma Connected can help
If you’re looking for support to improve customer retention and ensuring your customer retention is at an all-time high, look no further than Sigma Connected to help you out.
We can provide white-label customer contact and service centre solutions to help drastically improve your business’ customer service and boost your customer retention strategy.
Get connected with Sigma Connected today and one of our friendly team members will speak with you to arrange bespoke business solutions for your organisation.