When it comes to CX, your CFO, CMO, and CEO only really care about a few key metrics:
- Customer lifetime value
- Customer retention
- Customer acquisition cost
Their minds are tuned to hear the word ‘growth’, and nothing else, because… well, who doesn’t love the idea of continuous growth?
But it’s a pie in the sky kind of dream. You’re going to hit lulls eventually. You’re going to face a recession at some point. In fact, we think we hear one looming over the economy’s shoulder’s right now.
In such times– and frankly, all the time– it’s prudent to think about customer loyalty and retention.
After all, a 5% increase in focus on customer retention can boost revenue growth by a minimum of 25%, but up to 95%.
You know it, and you’re here for it. Below, you’ll find a more accurate way to calculate customer retention rates and several ways to boost customer loyalty and retention without spending a tonne of cash.
How to Calculate Customer Retention Rate
Most approaches for calculating customer retention rates are wrong, even for brands with a big customer base, such as Expedia or Airbnb.
There is the general calculation for customer retention rates, using three pieces of information:
- S (the number of customers you have at the start of the given period you’re calculating for)
- N (the number of new customers within that given period of time)
- E (the number of customers you have at the end of the given period of time)
The formula for calculating customer retention rates is:
[(E-N) / S] x 100 = CRR
Where most companies go wrong is – the period of time they measure generally isn’t long enough. Naturally, the period of time you measure is the determining factor in the outcome.
Many brands don’t wait to calculate CRR for an entire year, focusing largely on quarters at a time instead. This often isn’t long enough to get a full view of your CRR.
Another issue challenging the calculation, is a lack of segmentation of your customers. They’re not buying the same.
Users across platforms and product categories likely to have different rates of retention. It’s worth segmenting them to discover if there’s a link between your churn and mobile vs desktop, for example.
Customer Loyalty vs. Customer Retention
In the retail world, customer retention occurs when they choose to buy from you rather than a customer.
Customer loyalty, on the other hand, is when customers actively look for reasons to buy from you. They buy again and again, provide reviews, and refer your brand to other potential customers. They may even promote you on their social media, in the hopes that you’ll grow and others will love you as much as they do.
You can have customer retention without customer loyalty, but you can’t have loyalty without retention.
Here’s the challenge to this… 92% of customers across the globe aren’t brand loyal. Or at least, they don’t consider themselves such.
Yet, an increasing percentage of customers expect brands to understand their every need (up to 66% of global customers), and meet those needs with personalised experiences. It’s now a determining factor in whether or not they’ll even make their first purchase from you.
One way to determine customer loyalty, if you can achieve even some measure of it, is with a Net Promoter Score (NPS).
Typically, any customers that rate your company over 7 or 8 are considered “loyal”, or at least “promoters”.
A Net Promoter Score doesn’t tell you much about the customers themselves though, and why they’ve rated you the way they did.
If you really want to gain insights from a Net Promoter Score, you need 1) the right approach 2) a much larger data set by pulling in data points from additional sources, and 3) the right tool to provide context around the score – a tool like Impact Analysis can help.
In a general sense, you can activate these customers by:
- Offering discounts
- Start a rewards program
- Encourage referrals with a referral or incentive program
- Engage with your customers on social media
- Respond to feedback and suggestions
- User personalisation at every turn
- Open lines of communication to improve customer service
How to Boost Customer Loyalty & Retention
Keeping or expanding your existing revenue through improvements in customer loyalty and retention will always be a smart goal.
The key though, is to think about these boosts separately from every other CX, product, UX, and marketing effort. In other words, don’t hold retention efforts to the same level as acquisition, despite your ability to support those efforts.
Building customer relationships takes a long time. Years even. There’s no accurate way to measure it.
With that in mind, there are several ways to boost customer loyalty and retention without over-stretching your budget or your team’s capabilities (and without infringing on acquisition efforts).
Proactively identify trends in your customer data
Run an audit on your CAC and any other overhead every single quarter, especially if you’re introducing new tools, such as customer retention software (and to ensure that your team still uses the tools they have).
You’ll likely see your CAC and churn rates too high. Other common trends you might see in your data:
- High exit rates
- High abandoned cart rates
- High product return rates
You can’t optimise customer retention efforts (or your acquisition) without first dipping into the data.
Focus on how to make your customers feel truly valued
You’re more likely to sell to existing customers than you are to new ones, but only if you can keep them. The best way to keep your customers, is to make them feel that acquiring them wasn’t your biggest goal. That they provide long term value to you – as they should.
To help them feel they’re valued, you must first know where they don’t.
Survey customers directly after they purchase your product. They may make you aware of issues such as:
- A lack of customer support
- A perception that your product or service doesn’t live up to expectations
- That your product or service doesn’t fit their budget
If you’re not addressing your customers’ pain points, they’re turn to your competitors.
But you can go beyond simply fixing systemic issues in your customer’s experience. You can make them feel heard and valued with additions like:
- Free text responses (which require automated processing and analysing)
- Personalising their shopping experience with tools that analyse their clickstream data, remember their history, and provide more tailored search results that more accurately match search queries
- Improve customer support communication, with quick responses and answers to customer questions
- Ask for customer feedback regularly, and act on their suggestions or requests
Focus on core customers to improve customer retention & don’t just chase the new ones
The biggest mistake most companies make is chasing after every customer, instead of the right customers.
Why does this matter if they’re buying anyway?
Well, the right customers are less likely to feel like you don’t understand them, or value them, because your experience was designed for them. For their style. For their problem. For their business.
They’re more likely to engage with any content or perks you create, and therefore more likely to receive the intended value (as well as more likely to purchase any upsells).
Everyone else will feel there’s something missing. It’s impossible to make a customer that isn’t the right fit feel valued long term.
Empower your CX, product, and CS teams with the right tools
Only 10% of CX professionals feel they have full visibility into customer data, according to a survey at the International Customer Experience Management Summit.
CX, product, and CS departments have massive tech sacks full of customer data, but none is connected. Each piece of tech contains bits of data, and that’s where it stays.
Worse, not every team, or everyone on the team, has access to that data. Product teams can’t improve products.
Logistics teams can’t make proper shipping decisions.
Customer support teams can only react to issues, rather than understanding which is driving customer churn.
And customer experience teams can’t understand what customers need to retain them.
The right tools help to eliminate friction in the buying process, and retain customers by building relationships with them over time. The right tech automates processes while unifying customer data points, and analysing them at scale for a full view of your customers.
Use Unified Customer Intelligence to better understand customers and drive loyalty and retention
To gain that visibility into your customers, with millions of data points in a centralised platform, you need Unified Customer Intelligence.
Unified Customer Intelligence uses AI to deliver insights into what is and isn’t working for your customers.
Without prompts – and the bias that comes with them – you can find out what your customers really think through their feedback, conversations, support data, app store reviews, post-purchase surveys, and assessments.
You’ll gain a deep understanding of how your customers really feel, and build your customer service and CX strategies on their reality.