Customer Retention

By def­i­n­i­tion cus­tomer reten­tion is the activ­ity a com­pany under­takes to pre­vent cus­tomers from defect­ing to alter­na­tive com­pa­nies. Suc­cess­ful cus­tomer reten­tion starts with the first con­tact and con­tin­ues through­out the entire life­time of the relationship.

There are typically three reasons why a customer may leave you:

• 68% leave because they are unhappy with the service they receive.
• 14% are unhappy with the product or service.
• 9% decide to use a competitor.

Some helpful and commonly quoted research statistics:

• A 5% increase in customer retention can increase your company’s profitability by 75% - Bain and Co
• 80% of your company’s future revenue will come from just 20% of your existing customers - Gartner Group
• Attracting new customers will cost your company 5 times more than keeping an existing customer - Lee Resource Inc.

Calculating Your Customer Retention Rate

In order to calculate your customer retention rate you need to know:

1. Number of customers at the end of the period – E
2. Number of new customers acquired during that period – N
3. Number of customers at the start of the period – S

Once you have those the formula is pretty straight-forward:

CRR = ((E-N)/S)*100

Let’s say you started the quarter with 200 customers (S), you lose 20 customers but gained 40 customers (N) so when the period was over you had 220(E).

Using the formula we get ((220-40)/200)*100=90 or in other words, a 90% retention rate. 

A word of caution: do not take the average across your entire customer base. Averages can distort reality and be very misleading. A better approach is to calculate retention rates across customer segments. This is not only more realistic but it also makes it easier to make projections, budget allocations, and have a baseline to build strategies.

customer Retention tactics

Now that you know the benefits of customer retention and how to calculate it, you need some effective tactics.

1. Set appropriate customer expectations - By setting expectations early and a bit lower than you can provide, you can eliminate uncertainty as to the level of service you need to offer to ensure your clients are happy. This clear vision enables your company to build KPIs around specific expectations and ensure you are always over delivering. Customers tend to remember negative experiences. So if you've over delivered on the past 20 occasions, but, once, you undelivered – your customer will no doubt quote that negative experience as a reason to cancel his or her contract with you.
2. Speed is secondary to quality - When it comes to customer service that keeps people coming back, the research shows that quality matters more than speed. According to a study by the Gallup Group, customers were nine times more likely to be engaged with a brand when they evaluated the service as "courteous, willing, and helpful," versus the "speedy" evaluation, which only made customers six times more likely to be engaged.
3. Build trust - “What differentiates you from competitors?” Once they answer, remember that and make a note to do some extra research and find ways that you can assist them with strengthening that point of differentiation through the services you provide. Give them a follow-up call the next week and let them know what you came up with. This shows you have a shared value and are genuinely interested in their business.
4. Be proactive - Anticipatory service is a proactive approach to customer service. Instead of waiting for problems to occur, a company that implements anticipatory service can eliminate problems before they happen.
5. Build on-line relationships - Your customers are online, so let’s start building relationships with them while they are glued to their computer screens. With the rise of social media, connecting with your clients through these mediums makes sense. I would focus my efforts on building social profiles on LinkedIn, Twitter, and Facebook. The majority of your customers will have active profiles on at least one of these websites.