If you’re a small business owner, you’re probably trying to find ways to get just a little bit bigger, and you might be doing this by trying to acquire as many new customers as you can. But if you’re focusing too much on getting new customers, you could be ignoring a better and cheaper way to grow your business: customer retention. After all, now that every business has an online presence, it’s a crowded world out there, and competing for new clicks and conversions can take a whole lot of time, energy, and money. So when was the last time you thought about your strategy for keeping your existing customers, or spent time marketing specifically to them? If you hesitated when thinking about your answer, it might be time to check out some ways to build your customer retention strategy.
Why Work on Retention?
First of all, what do we mean when we talk about customer retention? It’s not just hoping that the power of your product or service will keep people coming back for more! Customer retention means focusing activities on increasing the number of repeat customers you have, and increasing the profitability of each existing customer. You offer value to your customers so you can build a customer base (acquisition), then you need to work to continue to get value from your customers. You do this by not only continuing to offer value to them, but by building relationships with them.
If you start spending a little more time on customer retention, you’ll be in the minority, but you’ll be in the very smart minority. Did you know that, while 44% of businesses focus on customer acquisition, and only 18% focus on customer retention, studies show that almost 65% of a company’s business comes from repeat customers? Seems like something is a little wrong there! Not only that, but:
- The probability of selling to an existing customer is between 60% and 70%, while the probability of selling to a new customer is only between 5% to 20%.
- Existing customers are 50% more likely to try your business’s new product.
- Existing customers are 31% more likely to spend more on their average order with your business.
- The average loyal customer spends 67% more in their 31st to 36th month with a brand than in their first six months of the relationship.
- A 5% increase in customer retention can boost profits by 25% to 95%.
- 82% of companies agree that retention is cheaper than acquisition, and studies show it costs 5-10 times more to acquire a new customer than it does to retain one.
- An average of 68% of new customers come from current customers.
By now, you’re probably ready to get out there and start selling to your existing customers! But, before we get into that, a quick side note on how much time you should spend on customer retention. It all depends on where you are in the life cycle of your business:
- If you’re just starting out (no sales), you should be focused solely on customer acquisition.
- If you’re at around 1-5 sales a week, you should be beginning to think about customer retention strategies, so spend about 15% of your marketing efforts on retention.
- When you hit a more consistent sales level (at least one sale a day), start spending closer to 30% of your time on retention.
- Once you’re established with about 10 sales per day, consider splitting your time 50/50 between acquisition and retention.
- And when you’ve hit that milestone of being well established, and are making more than 10 sales a day, you can tip the scales and start focusing more of your marketing efforts on retention (say around 60% or more, depending on your business).
And one more thing before we move on. When thinking about what customer retention means for your business, remember to keep tabs on the following metrics:
- Repeat customer rate, or the percentage of customers willing to make a second purchase from you.
- Purchase frequency, or how often customers are coming back to buy from you.
- Average Order Value (AOV), or how much your customers are spending when they buy from you.
You can find online tools to help you calculate these metrics, and you can then use them to find your customer value, which helps you understand how much each customer is actually worth. Experts suggest you do the following calculation to find out this useful info: Customer Value = Purchase Frequency x Average Order Value.
Now it’s time to look at what you can do to keep those customers coming back for more!
Customer Retention Strategies
1. Build trust
Just because a customer has bought something from you doesn’t mean they automatically or instantly trust your business. But 81% of customers say that “trust” is an important factor in their decision to make a purchase. That means you have to consistently follow through on each and every one of your promises, or make things right if you don’t or can’t, so you can build what is perceived as a trustworthy brand.
2. Start a feedback loop
In order to retain customers you have to please them, right? And in order to please them, you have to know what they want, and how satisfied they are with what they get. That means starting a customer feedback loop, which can include a system for collecting, analyzing, and distributing customer reviews and surveys. Try using online tools to create and collect surveys, or consider conducting focus groups or asking customers to participate in user testing.
Once you’ve gotten the info, make sure you analyze your results, and look for customer trends that can help you address criticism, focus on your strengths, and improve customer experience – all of which will help you boost retention rates.
3. Encourage customer accounts
Customer accounts are a great idea, but you do have to be careful with how you encourage them on your site. Giving your customers the option to create an account when they make a purchase can make the sales process easier next time, so the hope is that they’ll be more likely to simply click and buy. But some people can be put off by the prospect of taking the time to input all of their info and create an account, so they will simply use the option to checkout as a guest.
So how do you get customers to create an account, and become likely repeat customers? Offer the option to create an account after checkout, so that they can simply save their info for later. Another option? Send them an invitation to create an account after they’ve made a purchase with you, which leads us to…
4. Keep in touch
Don’t underestimate the importance of staying in contact with your customers. Now, we don’t mean you should be up in their business all of the time, but you don’t want them to forget about you, either! Research shows that a great way to keep in touch with your customers is through email. After all, Shopify data shows that, relative to other sources, email has the highest conversion rate at 4.29%, followed by search in second.
And email is not just great for making that initial sale: studies show that email marketing is 56% more effective for customer retention than any other method, making it the most effective approach. How to use email effectively? Follow-up emails can make customers feel appreciated and entice them to come back for more. For example, you can send a follow-up email a week after a purchase to thank your customer, and make them feel appreciated and good about their decision to do business with you. You can then send emails that offer valuable content like product recommendations, info on upcoming sales, and discounts.
And did you know that you can use online tools, like a communication calendar, to keep track of customer communication? These calendars can tell you the last time that a customer reached out to you, and alert you when existing customers haven’t interacted with your business. Keeping on top of who you need to communicate with can be invaluable when it comes to customer retention, as it will make sure that you’re reminding customers of things like when their subscription is about to expire, and that you’re removing any roadblocks to purchasing before customers even know they’re there.
5. Be humble
Two of the hardest words to say can be “I’m sorry,” right? But if you’re running a small business, you have to know when and how to apologize to your customers. After all, according to HubSpot Research, in cases of company error, 96% of survey respondents would continue buying from a company they regularly purchased from if they apologized and rectified the situation. That means you need to develop a plan for those mistakes you are going to inevitably make, which means knowing how you are going to apologize and how you are going to solve things quickly, so you can move forward and retain your loyal customers.
6. Work on your customer support system
Customers these days expect a totally smooth and seamless purchasing experience, as well as instant and helpful support. If you can, try having a support system, like live chat or a help desk, so that you can quickly turn a complaint or problem into a resolution. If you can’t offer real-time help, be sure that you’re easily accessible via email, messaging, or phone, since an effectively resolved complaint or problem can turn an unhappy customer into a loyal, repeat customer.
And never forget the power of surprising and delighting your customers. Your support team should feel empowered to give benefits and thank-yous to customers who are in need of a little encouragement to become repeat customers, or who are about to cancel a membership or finish up with a free trial.
7. Start a loyalty program
Loyalty programs are an effective way to increase purchase frequency because they motivate customers to purchase more often in order to earn valuable rewards. They are easy to implement, and just check out these numbers:
- 58% of customers belonging to a brand’s loyalty program buy from that brand at least once per month.
- 69% of customers choose their retailer based on where they can earn customer loyalty rewards and points.
- 50% of customers change their habits just to get to a higher tier of a loyalty program they participate in.
- 46% of customers agree to spend more after they join a loyalty program.
- 83% of people say joining a loyalty program will keep them making purchases at that business.
Loyalty programs can simply mean rewarding customers after they make a purchase, or they can involve an app that rewards your customers – they can even include gamifying bringing in more customers.
Offer discounts for repeat business
While experts often warn against starting a race to the bottom, or devaluing your product/service, by constantly offering discounts, sending a thank-you discount to a first-time buyer can do wonders in boosting customer retention, as can sending a surprise discount to a customer who hasn’t purchased in a while. Consider offering more than the standard 10% off to help you stand out from the crowd.
Maybe you were already aware that keeping customers is cheaper than going out and getting new ones, but now you know exactly how important customer retention is, and just how much of an asset your existing customer base is. Your existing customers know you and your brand, and they appreciate your service and what you have to offer. That means it’s time to focus on them, and use the above tips to improve their experience, so you can deliver more value and give a big boost to your bottom line!