- What is customer retention?
- Why is customer retention important?
- How to calculate customer retention rate
- 11 Strategies, tips, and tools to improve customer retention
- #1 Why do customers buy from you in the first place?
- #2 Ask this question – WHY do customers stay with you?
- #3 Ask this question – WHY do customers leave?
- #4 Which customers do we want to keep?
- #5 Don’t ignore them
- #6 Get their feedback
- #7 But don’t overwhelm them either
- #8 Be data-aware
- #9 Bust those functional silos!
- #10 Bust the tech silos
- #11 Create a Trust Enablement Customer Plan
Growing your business through new customer acquisition alone will not take you far — you must keep your existing customers and do more business with them. Customer retention is key.
What is customer retention?
Customer retention refers to the number of customers retained by a business over time.
In our guide on metrics, we discuss customer churn, which is the opposite of retention and is the loss of customers over time.
Why is customer retention important?
We have all heard the statement — it’s easier to sell to new customers than to acquire new customers.
Here are a couple of stats to keep in mind:
- It is generally 5-25 times more expensive to acquire a new customer than it is to keep an existing one!
- Improving customer retention by 5% can increase profits by 25% – 95%.
How to calculate customer retention rate
Unfortunately, there are a few different methods companies use to calculate customer retention rates.
The simplest method is to:
- Determine how many customers you start the period (e.g., your initial number at the beginning of a quarter).
- Use the number of customers you still have at the end of the period.
Calculate the rate as:
Retention Rate = ( (# at End of Period / # at Start of Period) * 100
If you have 100 customers at the beginning of the quarter, 99 at the end, your retention rate would be:
(99/100) * 100
You may see a challenge with the retention rate — it hides a lot of information. In this simple example:
- Did you lose one customer?
- Did you lose 21 customers and win 20?
- Did the overall business revenue increase?
- and so on.
Like most metrics, customer retention rates should be examined more deeply than just the number presented.
11 Strategies, tips, and tools to improve customer retention
There are millions of ways to improve this vital metric. They all should begin with tip #1.
#1 Why do customers buy from you in the first place?
You need to know this.
If you don’t, your sales success, if it exists, is pure luck.
Customer retention is even more random.
This is basic information, but getting the basics right matters.
- Are you clear about the pain points your product or solution overcomes?
- Do you know who actually buys your product, for what reason, and what the perceived value is for your solution?
- Have you interviewed existing customers to hear from them, in an unbiased manner, about what your solutions really mean for their business? Not what you think, but what your customers think.
#2 Ask this question – WHY do customers stay with you?
Hopefully, you understand why they bought from you in the first place.
Those customers that have repurchased, or renewed their subscription, are the ones you now need to speak with.
We all hate rocking the boat and asking our customers the following questions.
We worry they will decide they made a mistake and ask for their money back.
Ask these questions and listen.
- Why did you renew your subscription or buy/upgrade?
- How did you justify the purchase to your procurement team? Your boss?
- What value are we creating for your business?
- What would the impact be on you or your business if you had not renewed?
- Was the decision to renew up in the air? If yes, what concerns existed and what alleviated those concerns?
#3 Ask this question – WHY do customers leave?
As much as we hate rocking the boat with customers that renewed, we feel uncomfortable going back to the customers we lost.
And these customers often feel just as uncomfortable.
Just as we advocate in the win-loss analysis process, make clear to these ex-customers that you are not trying to have them reconsider, you are trying to learn and improve.
Don’t be defensive.
- Did we help you solve the problem you bought us for in the first place?
- If yes, did the problem go away or did our solution become less effective?
- Did you decide to solve the problem in-house or go with another solution?
- Either way, what analysis did you do, and what factors weighted into you going in the direction you did?
- During our time working together, what did we do well, and where should we strive to do better?
#4 Which customers do we want to keep?
Wait, don’t we want them all?
In most businesses, some customers are more profitable than others.
If you have customers you lose money on, do you want them?
The answer is, maybe, and you have to answer that based upon strategic drivers beyond just the monetary value.
#5 Don’t ignore them
For B2B sales, your customer success team should have regular touchpoints after onboarding is completed.
Do you have quarterly reviews?
Do you touch base with them on a cadence comfortable for them and supportive of where they are in the adoption and value realization stage they are in?
#6 Get their feedback
When you meet with them, have honest conversations about how you, your solutions, and your company is meeting their needs.
Send out Net Promoter Score (NPS) surveys after key touchpoints such as:
- Onboarding completed
- QBR completed
- Customer support/service interactions
#7 But don’t overwhelm them either
Most of the time, they don’t need to hear from you constantly.
37 emails a day from your marketing, sales, and customer success teams will likely leave them overwhelmed and potentially angry.
As a revenue team, you must coordinate your activities around each customer.
Personalize, to the degree possible, what each customer, and each person who plays a role within that customer, receives for updates.
#8 Be data-aware
Architect your solution to enable you to identify if the customer is achieving their business objectives. Are they on track?
When you have direct conversations with the customer, document the meeting and capture thoughts on how the customer is feeling about your business and the solutions they use.
#9 Bust those functional silos!
The key is to create a cross-functional team for every single customer. Marketing, sales, customer success, customer service, should meet on a regular cadence to review the health of that customer and coordinate follow-up activities.
This will allow a level of personalization in approach and avoid teams stepping on each other’s toes.
It will also increase opportunities to sell more solutions to a customer as all teams focus not only on retention but helping the customer solve as many problems as possible by working with your business.
#10 Bust the tech silos
If a tool creates or leverages data, it must be integrated into your teach stack so that all tools can share data to inform and drive the next steps.
Review our work on The Best Sales Tools as we are focused on analyzing existing tools, identifying which are best for specific scenarios, industries, and existing tech stacks.
#11 Create a Trust Enablement Customer Plan
We defined these plans on our page for Chief Revenue Officers, and they are critical for retention success.
The Trust Enablement Customer Plan is constructed by a cross-functional go-to-market team with the express purpose of:
- Ensuring renewals
- Support efforts to sell more
The idea is fleshed out further on the CRO page (linked to just above), please give a read to learn more.
More tips are coming soon, but that’s it for today.
What ideas would you recommend we add to these?