Customer retention isn’t just a buzzword; it’s a key pillar for the sustainability and profitability of a business.

Countless studies have shown that retaining existing customers is not only more cost-effective than acquiring new ones, but also leads to a significant increase in profits and long-term viability. This is especially true for micro-business who rely heavily on satisfied customers to get not just regular business, but to also get the word out and gain a larger customer base. 

However, retaining customers is no easy feat and requires dedication, organisation, and a willingness to better serve your customers. In this article, we cover all you need to know about the basics of customer retention: why customer retention matters and what it means to your business, the metrics you need to follow, and the techniques you can use to boost your retention rate.

1. What Is Customer Retention?

Customer retention is a business’s ability to keep its existing customers over time. 

Studies have shown that it costs 5 times less to retain a customer than to attract a new one to generate a sale, and it is why businesses ought to employ customer retention strategies. It is also more likely (60% to 70%) for an existing customer to buy something else from you, compared to just 5% to 20% for new customers. A study by Bain & Company has found that boosting customer retention by just 5% could increase profits by 25% to 95%. 

If a high rate of customers come back to your business because they enjoy your product’s selection, customer service, or convenience of your services, then that is a good sign you're retaining your customers. 

2. The Customer Retention Metrics You Should Know (& How To Calculate Them)

Taking data-driven decisions is key to running a profitable and successful business. Keeping an eye on the main customer retention metrics will provide you measure the effectiveness of your initiatives, and give you actionable insights to help you keep your customers coming back.

Customer Retention Rate (CRR)

This is the metric you need to know, of all the customers you’ve acquired (meaning who have bought a product or service from you), what percentage have come back for another purchase within a given period. In fact, a study conducted by Bain & Company found that a simple 5% improvement in customer retention could lead to an amplification of profits by 25% to 95%.

This is how you calculate your CRR :

With : 

• E : The number of customers at the end of a period (or how many individual people bought something from you)
• B : The number of customers at the beginning of a period.
• T : The total number of new customers you had during a period.

For example, let’s say that you operate a service-based business, such as a hairdressing salon : 

• On the 1st of March, you started with 300 customers who had bought a haircut from you the month before.
• On the 31st of March, you had a total of 400 customers who bought a haircut from you.
• Of the total of 400 customers, 120 of these were new customers. 

This means that you had a customer retention rate of : 

CRR = (400-300) / 120 x 100 = 83%

This means that 83% of your customers came back for a haircut during that period. 

That’s a pretty good number!

But is this number good, or bad? Statista reported the following Customer Retention Rates per industry. 

The Customer Value (CV)

A great way to measure the importance of retaining customers, is understanding the value that each of these customers brings to you - or how much they spend with you - on average, during a given period. 

With 

And

For example, if during a given month you had 325 orders from 300 customers, then your Purchase Frequency would be 325/300 = 1.083 orders per customer.

And if during a given month you had a revenue of $40,000 from 325 orders, then your average order was of 40,000/325 = $123 per order. 

Not bad !

Finally, your Customer Value would be : 1.083 x 123 = $133.2 

This means that every one of your customers purchases $133.2 worth of products, once per month, on average. 

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How To Interpret This Number

There are many ways to interpret this number. One of them is to understand that - with your purchase frequency being 1 - the chances that a customer puts in more than one order a month is unlikely. 

This means that should you wish to increase your Customer Value, these are some of the strategies you could employ: 

• Train your team to upsell your customers, by proposing products that would complement the item they bought. For example, a set of cutlery that goes with the plates bought.
• Refresh your stock and add new products or services that attract customers into your business more than once a month. 
• Ensure you set up clear communication channels that enable you to communicate new product arrivals on time.
• If you’re in the services business, you could upsell packages while your customer is “hot”, meaning when they’ve just experienced the quality of service your business offers and would like to purchase it again in bulk and at a reduced price. 

Customer Lifetime Value (CLV)

The customer lifetime value represents the total revenue you could expect from a client during their lifetime, and helps measure their loyalty.

For example, if a customer spends about $50 per order, 5 times a year, and your business has a retention rate of 70%, then your CLV would be equal to 50 * 5 * 0.7 = $175

Customer Churn Rate (CCR)

The customer churn rate is a similar metric to the Customer Retention Rate, but is just a little less direct. The Churn Rate is calculated in the following way : 

For example, if you had 100 customers at the start of march, and lost 28 customers (none of them have come back to you for a purchase), then your CCR is of (28/130) * 100 = 22%

To conclude, your customer retention rate represents the percentage of customers who keep coming back to your business, the customer value is the amount and frequency a customer spends in your business, and the customer lifetime value is the total revenue you can expect from a client during their lifetime. These metrics should act as your guiding light in measuring the impact of your efforts in retaining customers. 

3. 16 Strategies To Maximize Customer Retention

Customer retention is all about giving your customers a good reason to come back your business. 

• They enjoy your collection of products
• They enjoy your customer service
• They enjoy the convenience that your business offers
• They enjoy the quality of the services provided
• etc.

Before employing a customer retention strategy, it is important to first and foremost recognize why your customers enjoy your business, and then for you to build a strategy around these “customer magnets”.

1. Launch A Loyalty Program

Rewarding your regular customers is one of the most effective ways to not only strengthen the relationship between your business and your customers, but also to incentivize customers to keep coming back. For example, if you’re a flower shop, you could offer a free bouquet for every 20 bouquets bought. If you’re a hairdresser, you could give a 20% discount on your service for every 10 cuts. 

This could be activated with a simple loyalty / stamping card. It is great to use when you don’t have a CRM system in place. Also, having the card in your customer’s wallet means they’ll often be reminded about your business.

It is worth noting that a physical card is often lost or forgotten. By registering your customer’s profile onto your system, you could track the number of purchases they make across your channels, offer customized rewards, and reach out to your customers with more powerful messages when, for example, they’re about to unlock a good reward. 

Messaging : Sign up customers in seconds using a QR code. Built your custom loyalty programs. 

You could also go beyond the simple buy-many-get-one-free model, by offering a new service for free. This not only gives the customers a new experience to try, but also allows you to increase your chances of upselling the customers later on. 

If, for example, you’re a shoe polishing business and a customer kept on sending their shoes for a regular polish, you could offer an additional nourishing service for free, or a new set of laces for free. 

2. Offer Rewards Beyond Money

Your rewards could go beyond discounts or products for free. Sometimes, working towards a “status” is enough to incentivize customers to keep buying. For example, if you run a salon, you could offer customers a VIP status where they receive a free glass of champagne or priority booking.

Attaining Gold Status is something most customers would like to do. Furthermore, these types of status can come with their own discount benefits (for example, 10% off every plant for gold status members of your plant shop). Members can also get invited to special events, such as the launch of a new branch.

3. Reward Referrals

What better advertising than a direct recommendation from a friend?

Your existing customers are the most powerful advertising you cannot buy. Leverage their support by setting up a referral program. Numerous referral programs enable you to easily set up a Refer & Earn program. Reward your customers with loyalty points, or if you don’t have a point-based loyalty program, a simple reward for every 3 referrals.

4. Communicate With Your Customers On Special Occasions

Everyone likes to feel special on their birthday or “subscription anniversary”. Sending a short and sweet message on your customers’ special day makes them feel extra special and contributes to creating a more solid bond with your business.

You can set these messages up with automated emails and auto-generated discount or access codes. You could also, if you want to be extra special, actually call your customers on their birthday to just wish them a happy birthday, and without offering them any discount, so as not to make it feel like you’re trying to get them to buy. Being genuine is the actual reward, and will certainly play in your favor. 

5. Have Strong Values - & Express Them Clearly

Customers want to be associated with brands that share the same values as them. For customers to want to be associated with your business, you should not only have strong values, but also be good at communicating them, so as to enable general brand recognition from the general public.

For example, The Giving Mouvement celebrates being a Made-In-UAE brand, producing sustainable, eco-friendly clothes, and being a company that gives back to the community.

Customers wear their clothes loud and proud, because they want to be associated with these values. If your branding reflects values your customers share, your customers will feel good about being associated with you, and will keep coming back.

6. Deliver Exceptional Customer Service

Dealing with staff members that are smiling, friendly, and helpful, will score you solid points amongst customers. People want to feel cared for and supported in their queries, or during their experience with you. From the way you greet them on the phone to the way you deal with them in person, every detail matters. Typically, negative customer feedback comes from a lack of staff empathy, or an over-reliance on AI-based chatbots, especially when someone wants to have someone to talk to.

In a world of full digitisation, robots, and AI, having a good human connection is not something to overlook. Train your staff to build relations with your customers, remember aspects of their lives in order to talk about them during their next interaction, such as the birthday party your customer was planning for their kid, or the new house they bought and are purchasing furniture for. 

7. Offer Returns And Refunds - When Possible

If your customers know that they can purchase products from you “safely”, meaning with the ability to bring them back if they’re not happy with it, then you should definitely consider setting a returns and refund policy, as well as making it easy for your customers to do so.

8. Be Accessible

With chatbots taking over for the sake of large merchant convenience, giving your customers a direct access to your Whatsapp Business Account gives them the satisfaction of interacting with a real person in real time. 

This not only provides your customers with a great service, but it also helps you capture sales opportunities. For example, if a customer would like to know the price of an item and is not satisfied with the price provided, you have a chance to try to negotiate on the spot to generate a sale. 

Therefore, being accessible is a strong and impactful decision that will affect your customer retention rate. 

9. Keep Your Customer Profiles Up To Date

Build and maintain a solid record of customer profiles. Not only do you maintain a clean database with relevant information that helps you sell more, such as birthdays or special days, but you’re also able to uncover patterns about your customer base. For example, which demographic is your most profitable? What products do they purchase the most?

This kind of valuable insight helps you better serve your most profitable group of customer, and optimize your operations and sales strategy for maximized profits. 

It is key, in this instance, to train your staff in capturing key customer insights. For example, if you sell a candle shop and notice that the majority of your buyers are females, and that your best selling product is a rose-scented candle, you could diversify your collection to offer a wider range of flower-based candles.

10. Sell Great Products

Selling great products, whether it’s decorative items or great coffee, is an obvious key to success, yet one that some merchants overlook. If you’d like to retain a high customer retention rate, it is imperative that you work on the quality of your stock and curation of products. Refreshing your collection of items, updating your inventory with newer versions of products, and selling products that look, feel, and perform as advertised is key to building a good reputation and relationship with your customers. 

11. Provide Buy-Now-Pay-Later Options

BNPL solutions are making the world more affordable for the world. Businesses who decide to provide BNPL as a payment solution maximizes their profits. By making your products more affordable for customers, you open the doors to a larger customer base over time. Customers may come back to you to purchase new products because they know they’ll be able to divide their payment in 4 or 6 times rather than pay once and hold on to less money in their account. 

12. Leverage Automation For Engagement

Yes, chatbots and AI are making significant advancements and are helping both merchants and customers by alleviating manual tasks for the former, and providing direct answers to the latter. This is where human connection gains in value, and where you could gain an advantage by opting for a solution that balances automation and human interaction. 

13. Be Consistent

Customers who’ve bought from you will have expectations in their minds, when they come back for another purchase. Over time, if their expectations keep on being met, they will build trust towards your small business and will choose to visit your store or sign up for your service instantly. Consistency is a big part of why customers keep coming back, and the smallest of mistakes may put the trust you will have taken months to build, to break. 

14. Offer Convenience

In a world that is busier than ever, convenience triumphs. Convenience spans across each step involved in running a small business : 

• The convenience of your store’s location
• The convenience of paying in several ways (card, cash, BNPL, cash on delivery, payment link…)
• The convenience of free delivery, instant or scheduled.
• The convenience of ordering, either through an app, or through WhatsApp
• The convenience of having someone to talk to directly for requests or questions. 

Convenience might help you stand out from the competition and earn you higher profits.

15. Leverage Social Proof !

Just like Word of Mouth, your customers are your best advertisers. Leverage user generated content and your social platforms to promote your products or services. Encourage users to leave you reviews on Google, to showcase trust and quality. 

16. Leverage Personalization : Send The Right Message Through The Right Channel, At The Right Time

It is key to value human connection in this day and age, and to compete on convenience. 

Having an updated customer base enables you to understand what each of your customers want, and to reach out to them when a product is available, a new collection has arrived, or you’ve started your sales season. 

This, mixed with the convenience of ordering, paying, and delivering on the spot adds to the seamlessness of your customer experience, and therefore to the customer satisfaction. 

4. The Toolset You Need For Customer Retention

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Multi-Channel POS

A POS software will enable you to capture orders and accept payments. POS comes in several forms, the most popular being a wide screen. As a micro-business, you should consider opting for a POS that is compatible with your payment terminal in order to not only save space, but to also avoid purchasing a separate machine. A multi-channel POS  also enables you to sell through several channels easily, enabling you to maximize your reach without significant investment. This adds to the convenience of purchasing for your customers, and therefore in their retention. 

Order Management System (OMS)

An OMS will enable you to aggregate all orders received from all channels, and track their progress throughout the order processing cycle. This ensures you’re able to accept orders from anywhere, and deliver them to customers through numerous channels. It enables you to also measure which channel performs the most, and improve the flow of that channel in order to maximize convenience and performance for your customers, thus maximizing retention. 

Customer Relations Management (CRM)

A CRM will help you update and keep track of your customer profile, thus enabling you to know when and how to reach out, and for what matter. CRM are often complex and advanced systems that offer features that are too sophisticated for micro businesses, and for which you end up paying for. Keep an eye out for CRMs that deliver just what you need to grow your business. 

Opt for a CRM that also provides ease of communication between you and your customers. If your customers prefer to be reached out to via whatsapp, privilege that channel. Pre-write messages that sound human, link all your products to your online catalog, and set up the automated triggers to reach out to customers with specific preferences whenever a product comes in store. 

Loyalty Program Software

Loyalty programs can include tried-and-true programs, but can also enable you to create your own loyalty programs based on the needs of your business. Opt for loyalty software that give you not just the flexibility to create your own programs, but to also track your customer’s purchasing activity and reward them on time and seamlessly, with little interaction on your end : the automated sending of the reward, the automated generation of a discount code, etc. 

Opt for an Omnichannel Solution

An omnichannel solution brings all of these technical needs under a single umbrella, benefiting both businesses and customers. By enabling businesses to sell online and offline (physically in stores, or when delivering) and interact with customers through any channel, an omnichannel solution is the key to maximized sales and boosted growth

Conclusion

Having a solid customer retention rate is one of the signs you’re running a successful business. Your customers have many reasons to come back to you; from the level of customer service, to the quality of your products, or the convenience of your store, every detail plays a role in bringing clients back. 

As we’ve talked about in this comprehensive guide, nurturing your customers and keeping them close to and informed about your business is not just a cost-effective strategy, but a lucrative one. From loyalty programs to personalized messaging, the arsenal of customer retention techniques is vast and adaptable. 

To support you in maintaining a healthy business, consider adopting cutting-edge tools like multi-channel POS systems and customer relationship management software. These will help you run your operations seamlessly while better serving your customers. 

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