Customer retention: a guide to finding and keeping customers A loyal customer is always better than two new ones. In this expert guide, we give you a rundown of how to ace your customer retention strategies. Written by Stephanie Lennox Updated on 13 September 2023 Our experts We are a team of writers, experimenters and researchers providing you with the best advice with zero bias or partiality. Written and reviewed by: Stephanie Lennox Writer Are you leaving thousands of pounds on the table every day while chasing new customers? You could be, especially if you’ve been neglecting your existing ones – a key mistake in any business's customer relationship management strategy.In the marketing and business world, survival isn't just about attracting fresh faces—it's about holding onto the treasure trove of customers you already have. And so, welcome to our guide on customer retention, where we unveil the secrets to finding, keeping, and utterly delighting your customers—the key to unlocking your business's hidden goldmine. As we begin making moves for 2024, after a tumultuous year underscored by the dreadful cost of living crisis, the importance of customer retention has never been more significant.In this comprehensive guide, we will journey into the realm of customer retention – exploring the strategies and tactics that can transform casual buyers into loyal advocates. In this article, we will cover: What is customer retention and why is it important? 8 of the best customer retention strategies Customer retention pitfalls to avoid Recovering from customer retention setbacks: a case study Calculating your customer retention rate Conclusion FAQs What is customer retention and why is it important?Customer retention is the practice of maintaining an ongoing relationship with your existing customers, ensuring they continue to choose your products or services over time. It involves consistently delivering value, meeting customer expectations, and encouraging repeat business – and encompasses a range of strategies that retain these customers rather than solely acquiring new ones.The benefits of customer retention can be a game-changer for your business. Here are just a few benefits along with their proven statistics regarding how retention can save you time, boost customer loyalty and make you more money.It costs 5 – 25x less to retain a returning customer than to find a new one. (Source)Existing customers are 50% more likely to buy new products than new customers. (Source)92% of consumers believe suggestions from friends and family are better than advertising (Source)Finding new customers costs 5 – 20x more time and money than reselling to an existing client (Source)…and that’s just to name a few.Customer retention stands as an indispensable strategy in the modern business landscape. It's an approach that champions cost-efficiency, capitalises on customer loyalty, and harnesses the potential for organic growth. For businesses, grasping the significance of customer retention is akin to unlocking the secrets to enduring success and continuous prosperity. This has been proven time and time again as one of the most effective ways to boost business profits with much higher efficiency. 8 of the best customer retention strategies The customer delight theoryCustomer delight means surprising a customer by exceeding their expectations and thus creating a positive emotional reaction.Oliver et al (1997) developed a customer delight model which found evidence that the experience of delight creates a desire for future recurrences of the sensation via the repetition of consumption, which creates loyalty.As the research shows, if executed correctly, surprise and delight can be extremely powerful tools used to generate an emotional connection with a company or brand, to drive purchase behaviour and to create genuine member loyalty.Source: Oliver, R. L., Rust, R. & Varki, S., 1997, ‘Customer Delight: Foundations, Findings, and Managerial Insight’, Journal of Retailing, Vol 73, Iss 3, pp311-336.Source: Loyalty Reward Co. Discovering the path to customer delight requires a multifaceted approach. Here are diverse strategies to not only meet but exceed your customers' expectations:Loyalty programs and rewards: incentivise repeat business with loyalty programs that offer rewards, discounts, or exclusive perks.Surprising and delighting customers: create memorable moments by occasionally surprising customers with unexpected gestures like handwritten thank-you notes or surprise gifts.Soliciting and acting on feedback: encourage customer feedback and actively implement suggestions to show your commitment to improvement.Consider rebranding for a stronger brand identity: a well-defined brand identity not only fosters recognition but also evokes emotions and trust among customers.Providing exceptional customer service: exceptional customer service should be a non-negotiable aspect of your business, leaving customers with positive experiences they'll remember.Offering personalised onboarding and experiences: in the world of customer retention, personalisation reigns supreme. Data allows businesses to gain profound insights into each customer's preferences, behaviours, and purchase history. Leveraging this information, you can create tailored experiences and product recommendations that resonate with individuals on a personal level.Seeking customer feedback and fostering inclusivity: engage your customers in shaping your products or services and make them feel like valued participants in your business journey.Subscriptions: Consider subscription models that provide customers with convenience, predictability, and ongoing value. Amazon's personalisation experienceAmazon, the ecommerce giant, is a prime example of data-driven personalisation. Its recommendation engine analyses a customer's browsing and purchase history to suggest products they are likely to be interested in. This personalised approach enhances the customer's shopping experience and increases the likelihood of repeat purchases.Source: Amazon Customer retention pitfalls to avoidIn the quest to retain and delight customers, pitfalls abound that can jeopardise your efforts and drive customers away. In this section, we explore some of the most common customer retention pitfalls and, more importantly, how to steer clear of them. 1. Ignoring customer feedbackCustomers who take the time to provide feedback often do so because they care about your business. Ignoring their input can make them feel undervalued and unheard. Unaddressed issues or suggestions can fester, leading to customer dissatisfaction.By dismissing feedback, you miss out on opportunities to identify and rectify problems, ultimately hindering your chances of enhancing customer satisfaction and retention.How to avoid:Actively solicit and encourage customer feedback through surveys, reviews, and other direct communication channels.Establish a system to collect, categorise, and prioritise customer feedback – like a good project management software.Regularly review and analyse feedback to identify recurring issues and improvement opportunities.Take concrete actions based on feedback, communicate changes to customers, and demonstrate that their input matters.2. Inconsistent communicationInconsistent communication can confuse customers and make it challenging for them to understand your brand and offerings. It can lead to missed opportunities to engage with customers and showcase your value. Customers may perceive inconsistency as a lack of professionalism or reliability, which can damage your reputation.How to avoid:Develop a clear and consistent communication strategy that encompasses all customer touchpoints, including emails, social media, and customer support interactions.Ensure that your messaging aligns with your brand identity and values.Use automation tools and customer relationship management (CRM) systems to maintain regular and personalised communication. (For help finding a CRM system, try our specialised free comparison tool for quotes.)3. Poor customer serviceCustomer service is often the frontline of customer interaction, and poor service can be a significant detriment to your customer retention. Negative customer service experiences can leave a lasting impression and drive customers away.Poorly handled issues or inquiries can escalate into larger problems, leading to customer frustration and dissatisfaction.In today's interconnected world, customers can quickly share their negative experiences online, potentially damaging your brand's reputation.How to avoid:Invest in comprehensive training for your customer service team to ensure they can handle a range of customer inquiries and problems effectively.Establish clear customer service policies and guidelines for handling complaints and resolving issues promptly.Foster a customer-centric culture within your organisation, where every employee understands the importance of excellent customer service. Recovering from customer retention setbacks: a case study United AirlinesUnited Airlines, like many large carriers, faced a series of customer service incidents that drew widespread attention and criticism. These incidents ranged from overbooking flights to handling passengers' luggage and involuntary denied boarding situations. These incidents created a storm of negative publicity, eroding customer trust and satisfaction.Recognising the urgency of the situation, United Airlines decided to pivot towards a customer-centric approach. The company made several strategic moves to address the issues and regain customer loyalty:Apologising and taking responsibilityImplementing new policies and proceduresEnhancing training and empathyLoyalty programs and compensationUnited Airlines' commitment to a customer-centric approach gradually began to yield positive results. Customer satisfaction scores showed improvement as passengers experienced more seamless travel experiences and felt heard and respected when issues arose. As customer satisfaction increased, so did customer loyalty. Passengers who might have considered switching to competitors began to give United Airlines another chance.And finally, the airline's efforts in improving customer service and experience started generating positive word of mouth. Satisfied passengers began to share their good experiences with friends and family, countering the negative publicity of the past.Source: United Airlines Takeaway tipsThis cautionary tale holds a lot of wisdom, but in order to achieve maximum customer retention, the three main takeaways you could glean from the United Airway’s story are these:✔️ Always apologise and rectify issues promptly (this also reduces chargeback and refund requests)✔️ Offer compensation or incentives to regain trust✔️ Implement changes to prevent similar issues in the future Calculating your customer retention rateIn order to measure your success with your new customer retention strategy, one of the first things you will need to know is how to calculate your rate.A customer retention rate is a crucial metric that measures the percentage of customers a business successfully retains within a specific period, typically compared to the number of customers it had at the beginning of that period. This metric is a fundamental indicator of a company's ability to keep its existing customers engaged, satisfied, and loyal over time.The formula to calculate customer retention rate is as follows: Customer retention rate formula = (Number of Customers at the End of a Period – Number of New Customers Acquired During the Period) Divide by Number of Customers at the Start of the Period x100. To calculate the customer retention rate, you subtract the number of new customers acquired during the period from the number of customers at the end of the period. Then, divide this result by the number of customers at the start of the period. Multiply the final figure by 100 to express the retention rate as a percentage.Let's break down each component:Number of customers at the end of a period: this is the total number of customers you have at the conclusion of a specific time frame, such as a month or a year.Number of new customers acquired during the period: count the customers who have made their first purchase or engaged with your business for the first time during the same time frame.Number of customers at the start of the period: this refers to the total number of customers you had at the beginning of the same time frame.Interpreting your customer retention rateA good rule of thumb is to aim for a customer retention rate of over 90% or more.A high retention rate (above 90%) indicates that a business is excellent at keeping customers and fostering loyalty.A retention rate between 80% and 90% is considered good and signifies that your efforts are paying off in customer loyalty.A rate below 80% suggests room for improvement in customer retention strategies.Other key metrics to trackThere are a few other key metrics that help you understand the fullest picture of your customer retention overall, including:Customer churn rateCustomer lifetime value (CLV)Net promoter score (NPS)Conversion ratesTools and techniques for analysisYou can also leverage customer relationship management (CRM) software and data analytics to gain insights into customer behaviour and preferences. Overall, we recommend HubSpot as the best CRM software for small businesses. ConclusionCustomer retention isn't merely an option; it is an essential strategy for nurturing sustainable growth. When you fully understand its importance, start diligently measuring the customer retention rate at milestones, and start implementing strategies designed to delight customers while artfully sidestepping the pitfalls – this is when you will be able to cultivate the relationships your business needs to thrive. Frequently Asked Questions What is customer retention? Customer retention is the practice of maintaining an ongoing relationship with your existing customers, ensuring they continue to choose your products or services over time. Why is customer retention important? It’s much easier to retain an existing customer and get them to by either more products or new ones, than it is to find new customers – both in terms of time and money. This has been proven time and time again as one of the most effective ways to boost business profits with better efficiency. What are the main pitfalls when it comes to customer retention? The most common pitfalls when it comes to customer retention are ignoring customer feedback, inconsistent communication and poor customer service. Share this post facebook twitter linkedin Tags Essential Guides Written by: Stephanie Lennox Writer Stephanie Lennox is the resident funding & finance expert at Startups: A successful startup founder in her own right, 2x bestselling author and business strategist, she covers everything from business grants and loans to venture capital and angel investing. With over 11 years of hands-on experience in the startup industry, Stephanie is passionate about how business owners can not only survive but thrive in the face of turbulent financial times and economic crises. With a background in media, publishing, finance and sales psychology, and an education at Oxford University, Stephanie has been featured on all things 'entrepreneur' in such prominent media outlets as The Bookseller, The Guardian, TimeOut, The Southbank Centre and ITV News, as well as several other national publications.