Guest Post by Podium
Customer retention is the lifeblood of local business. Nearly 65% of a company’s business comes from repeat customers. And a 5% increase in customer retention can boost profits by 25% to 95%.
Customer retention allows businesses to thrive and grow a customer base, increasing their revenue and brand reputation over time. Without customer retention, much of the money businesses put toward customer acquisition is lost.
In our competitive marketplace, the ability to retain customers can literally make or break a company. Consequently, knowing how to correctly calculate and improve your customer retention rate is crucial to the health of your business.
What is customer retention rate?
Your customer retention rate is the number of customers who stay with your business over an extended period of time or even utilize additional services you provide. In the financial industry, this might include how many customers open a checking account AND have a home mortgage loan.
Your customer retention rate is different from your employee retention rate. Your employee retention rate is your ability to retain employees over a period of time while your customer retention rate is your ability to retain customers over a period of time.
Through its significant influence on ROI and growth, customer retention rates are critical in determining the success of a business.
Customer acquisition can be very costly; it’s much cheaper to retain current customers than it is to find new ones over time. In fact, getting a new customer can cost your business 5-25 times more than retaining a current customer.
Loyal customers also bring in more revenue. Customers who are loyal to your business are 5 times as likely to repurchase, 5times as likely to forgive, 4 times as likely to refer, and 7 times as likely to try a new offering.
While acquiring new customers is important, retaining the customers you already have is less expensive, more rewarding, and helpful in optimizing your customer journey.
How do you calculate retention rate?
Calculating your customer retention rate is easy to do, even if you don’t like math. First, track the number of customers at the beginning and end of a time period alongside the number of new customers acquired during this same period. The formula should look like this:
Retention Rate = ((CE-CN) / CS))
CE = number of customers at the end of a certain time period
CN = number of new customers acquired during the same time period
CS = number of customers at the start of the time period
Example:
In January 2020, a financial branch had 1,000 customers. In January 2021, the branch had 1,400 customers. 500 customers were acquired in the year 2020.
((1,400 – 500) / 1,000)) = 90% retention rate in 2020.
How can I boost my customer retention rate?
There are many factors that can go into one’s customer retention rate. It really all depends on your customers. Is it your product that may be lacking? Is it your customer service that is struggling? Whatever the problem, customer experience is often at the heart.
According to a recent survey, 70% of consumers who had an unpleasant customer experience during the pandemic say they are less likely to purchase goods or services from that business in the future. Customer service is the leading motivator in consumers leaving a five-star (or one-star) review.
Investing in improving your customer experience is always a strong way to boost your customer retention rate.
Customer expectations are always changing. But one key trend remains consistent: customers want more convenience. 86% of consumers expect local businesses to offer more convenient communication than they did prior to COVID-19.
It is crucial to connect with customers through the communication channels they prefer and meet them where they are. Consequently, investing in software that enhances your customer experience can greatly impact your retention rate.
To boost your customer retention rate:
- Create a personalized experience with a textable number customers can use to communicate and engage with staff. Enabling customers to text your business significantly improves your customer experience, especially in terms of offering more convenience.
65.6% of consumers think that texting makes working with a local business more convenient. 40.5% of consumers say they are likely to switch to a different business because they offer text messaging to communicate. And consumers are almost twice as likely to prefer texting over any other communication method.
- Prioritize your current customer base. The top reason customers switch brands is a lack of attention or appreciation. You can prioritize your customers by personalizing their experience. Address them by name in communication, send relevant promotions and information, and establish a personal relationship.
To make this a light lift for your employees, you can automate your systems. This will allow you to connect with your customers at important touch points without letting any slip through the cracks.
- Send regular texts or check-ins to find out what’s working for your customers and what needs to be fixed. Getting authentic, regular feedback is crucial to creating an experience that keeps customers engaged.
Perhaps you find out that a couple of customers have left because they felt that they had to wait too long in finance after engaging with your auto business. You might take this feedback and implement a free cleaning while the paperwork is being finished.
Collecting and implementing feedback is vital for any healthy business. To make this easy for your employees, you can use a tool like Podium Feedback to obtain valuable insights and make critical changes.
(Related: Here’s How SaaS Companies Can Avoid Customer Churn)
How can I lower my customer acquisition costs over time?
To lower your customer acquisition costs, you need to first determine your costs. Finding your customer acquisition cost is very straightforward.
First, determine what actions define the transition from lead to customer—in the finance industry, this might include opening a checking account, taking out a loan, etc.
Next, take the total spend for acquiring new customers in a given time period. This encompasses marketing spend (including ad spend) and salaries (including commissions and bonuses, overhead, etc.). Divide by the number of new customers acquired in that time.
Example:
A credit union spent $5,000 in ads and marketing programs in September. If you add $10,000 for salaries and $2,500 for overhead and divide by the number of new customers acquired in September, your equation should look like this:
$17,500 / 10 = $1,750 per customer
To improve your customer acquisition cost:
- Optimize your Google My Business listing by claiming each location, updating business hours, and verifying your website from the Google Map Pack. To rank in search results, you must verify your Google My Business listing. Because Google wants to prevent any of their users from being scammed by businesses they recommend, Google will often list verified results higher than those they’re unsure about.
You also need to add as much relevant information as possible to your GMB listing. According to Google, “businesses with complete and accurate information are easier to match with the right searches.”
Fill your customer-facing descriptions with engaging and relevant information. This is a very cheap and effective way to acquire new customers.
- Pause digital marketing techniques that increase your customer acquisition cost beyond a comfortable range. According to experts, your main digital marketing focus should be on reviews. Obtaining consistent and authentic reviews can have a huge influence on finding and converting leads and is one of the cheapest marketing tactics available.
88% of consumers say reviews influence them in discovering a local business. Approximately half of consumers are willing to travel farther and pay more to patronize a business with higher reviews.
Google pays close attention to businesses’ reviews when ranking and lists your rating and reviews in your listing. But remember, it’s not just higher reviews, or even more reviews, that helps you top results. Google carefully analyzes your review recency, frequency, quality, and quantity when ranking.
To make this an effective marketing channel, you should focus on collecting authentic and regular reviews through a reputation management platform like Podium Reviews.
Conclusion
The money optimizing your customer retention rate can not only save, but make, for your company is significant. And if you optimize correctly, it can even create an acquisition loop.
When your customers are happy, they stay; and they can bring friends and family with them. On top of the business you receive from them (these customers spend more and buy more often than newer customers), you acquire new customers at no cost. You deliver an outstanding experience, they refer friends and family, and the cycle repeats.
Don’t pour your money down the drain. Put your resources in the right places by accurately calculating your customer retention rate and investing to improve it. Through factors such as text, feedback, and personalization, you can deliver a customer experience that will make your customers want to stay for life.
This is a guest blog post from Podium, the premiere messaging platform that connects businesses with their customers and enhances customer satisfaction. All images courtesy of Podium.
