The Importance of Customer Retention
In the era of online shopping, consumers have more choice in the marketplace than ever before. With the easy availability of comparisons in price and quality, it can be difficult to attract customers to your brand instead of to a competitor. Once you create a conversion, why lose the consumer’s business after they purchase? Customer retention is an essential for any marketing strategy and can form the backbone of a successful business. Here’s how to measure your customer retention, why it matters, and how to boost your retention rate.
Customer Retention Calculations
Customer retention is the practice of trying to keep your customers returning to your business in order to create repeat clients. It’s easy to calculate your consumer retention rate using a simple formula. Decide what period of time you’d like to calculate your rate for, such as the month of February. To find the consumer retention rate for that period, find the total number of clients you have at the end of the month. Subtract the number of new clients you gained in February; since they became customers after the start period of February 1st, they don’t count in this rate. Then divide [total number of clients at end of month – number of new clients from that month] by the number of clients from the start of the month. This answer will give you a decimal. Multiply it by 100 to create a percentage and that’s your consumer retention rate!
Basically, this formula is measuring how many repeat clients you have by taking the total number of customers for the month and subtracting out all the new clients, leaving only returning customers. Dividing this number of returners by the total number of clients you had at the beginning of the month creates a percentage rate of how many of your clients are returning to your business.
(Total number of clients at end of month – number of new clients from that month) / number of clients from start of month x 100
Why It Matters
But why does knowing your customer retention rate really matter? The long and short of it is that customer retention strategies save time, money, and effort while increasing the amount of business your company receives. Repeat customers spend an average of 31% more than first time clients. Companies are also 40% more likely to generate a sale from a repeat customer than from trying to create new conversions. It’s easier to keep customers returning than to find new ones, and repeat customers can build brand loyalty or even become brand ambassadors, recommending your business to family, friends, and followers. An increase of only 5% in customer retention can boost profits by a staggering 25-95%. It’s important to know what your customer retention rates are so you can assess your number of repeat clients and work to increase your customer loyalty.
Tips and Tricks
It’s much less expensive to create a repeat customer than it is to convert a new lead, but you have to entice clients to return. A great way to do this is through email marketing. Subscribing customers to a weekly newsletter keeps your business at the front of their mind and advertises all your newest products. It keeps customers involved with your brand and is also a great way to send exclusive coupons and sales to encourage clients to return. Another way to encourage repeat business is to set up a rewards program, where purchases earn points towards discounts and free products. Setting up a rewards system where the more you buy, the more you save not only gives the clients great value but gets them excited about making their next purchase. Lastly, offering a branded luxury experience is a great way to create loyal customers and boost customer retention. By not just selling a product but creating an experience the client won’t get elsewhere, you ensure brand loyalty that will have the client coming back again and again.
Because customer retention can be so cost effective and increase sales by such a high percentage, it deserves an important spot in your overall marketing strategy. It’s still important to generate new leads, but once you’ve done the work to attract the client, why lose them after they purchase? By investing time into your customer retention strategies, you can boost sales by creating loyal customers who help your business thrive.
To increase your customer retention or just to optimize your marketing strategy, contact the team at Kraus Marketing today!