Studies show increasing customer retention by 5% could lead to a 25% to 95% increase in profits. So, why don't we focus more on this crucial metric? Read on for an easy way to calculate, and then wildly improve, your customer retention rate.
When we acquire a new customer, subscription-based businesses set off confetti cannons, shout from the rooftops, and post on social media.
More logos! More clients! More customers! More revenue!
We are clearly living the dream, right? After all, this is how we acquire revenue growth?
Sadly, many businesses have come face-to-face with the pitfalls of this mistaken belief during a season of crisis.
Subscription-based and SaaS businesses are realizing in droves that the key indicator of growth and health of your company actually has less to do with customer acquisition and more to do with increasing your customer retention rate.
Now, this piece is as crucial as ever.
What is Customer Retention Rate?
While customer retention essentially is your company’s ability to keep its customers and maintain company-consumer relationships, customer retention rate is an important metric to be able to measure at the drop of a hat.
Typically, this is seen as going hand-in-hand with your customer churn rate. The higher the customer retention rate, the lower the customer churn rate – and vice versa, of course.
Customer Retention Rate Formula
Number of Customers at End of Time Frame - Number of Customers Gained During Time Frame / Number of Customers at Start of Time Frame X 100 = Customer Retention Rate
How to Calculate Retention Rate
Step 1: Choose a set time frame.
Step 2: Calculate number of subscribers or customers remaining at the end of this time frame.
Step 3: Calculate number of subscribers or customers acquired during this time period.
Step 4: Subtract the number of customers acquired from the total number of customers that remain.
Step 5: Divide that number by the number of customers at the beginning of the time frame.
Step 6: Take that number and multiply it by 100.
To give this a practical spin, let’s pretend you start the year with 200 customers, gain 50 new customers in the first quarter, and have 10 customers churn.
((240 - 50) / 200) x 100 = 95% customer retention rate
Now, if you are sitting at a 95% customer retention rate, you have every reason to celebrate.
However, every percentage point below 100% means you have room for improvement.
Still, it can be more than easy to ignore customer retention rate in favor of more buzz-friendly focus on acquisition.
Before you throw it back to Customer Success to figure it out without care, here are some statistics we have previously shared that should give you pause as to why you should care as much about customer retention rate as your CS team.
1. Forrester Research, Inc. found that 69% of people surveyed said that they choose to shop more frequently at retailers with consistent customer service.
2. Forrester also found that the most important thing a company can do to provide a quality customer service experience (according to 66% of people asked) is to value customer time.
3. PWC found that 32% of the people they asked said that, after just one bad experience, consumers would stop doing business with a brand or company they’d previously loved.
4. Not only does providing a great experience help you to keep customers but you can also charge more for your service. According to PWC, companies that are excellent at creating brilliant customer experiences charge a 16% premium on their services.
5. More than half (54%) of survey respondents said that companies need to do better at providing a good customer experience.
6. A survey from the Temkin Group shows that bad news isn’t the only thing that travels fast. They found that 77% of customers would recommend a company to a friend where they’ve had a great experience.
7. Not only are satisfied customers less likely to cancel a subscription, McKinsey found that happy customers are also willing to add services or upgrade their existing packages.
The Importance of Increasing Your Customer Retention Rate
In an economic climate where you can easily acquire new customers, you might wonder why you should bother focusing on this at all.
After all, it’s costly and time consuming to turn your attention from winning over new customers to instead focus on retaining the ones you have.
In fact, you may be thinking, “We give our customers high-quality, consistent and FAST customer service. Isn’t that enough?”
That may have been enough in our previous economy.
But, as we all know, we aren't in Kansas anymore.
Mediocrity used to cut it. Not anymore.
The growth-minded economy left months ago. The need to move to a retention-mindset is crucial for survival and is actually the key to growth.
The Bad News: While a mediocre customer experience used to be an acceptable standard, you are now merely at basecamp now. Customers are expecting more.
The Good News: With a few simple tweaks, you and your team can scale the customer retention rate mountain as good as the pros.
A focus on improving your customer retention rate is increasingly important if your business is going to survive the current — and future — climate.
Don’t be fooled into thinking once a customer, always a customer.
Here are some of the many reasons why you need to care about your current customers.
1. Save on Marketing
It costs 5 times more to build a relationship with a new customer than to keep an existing one. Hard stop. You will save both money and effort marketing to your existing customers.
There's no need to convince your existing customers they have to buy from you because the hard work is already done.
2. Improve Your Business
Your customers are the ideal people to help you improve your service offering.
They can let you know whether what you’re providing is good enough, whether you meet expectations, and how they feel about the value.
3. More Profits
When you sell to your existing customers, you don't have to focus on price as much because they already trust you.
It's easier to convince them to sign up for more of your products if they are happy with what you are currently offering. According to Bain and Company, increasing customer retention by 5% could lead to a 25% to 95% increase in profits.
How To Improve Your Customer Retention Rate
Now that you know how to track your customer retention rate and why you should keep a keen eye on it, how exactly do you go about boosting your customer retention rate?
Here are 5 proven ways that will help you to keep your best customers, turn them into raving fans and reduce churn rate while you are at it.
I’d say that’s a pretty big win!
1. Your Best Customers Should Take Center Stage
Keep data and information about your most loyal customers in a CRM. They don't have to give you their business, but they choose to use your services or product.
They could easily go to a competitor, so show them you appreciate them by giving discounts, bonuses (free piece of content, percentage off next purchase, etc.) other incentives from time to time. Utilize content marketing to spread the word about your new products, bonuses and discounts. Consider promoting a loyalty program that incentives your customers to talk about your brand on social media.
2. Understand the WHY Behind Your Customer Churn Rate
Understanding why people are leaving is key to plugging any holes and gaps in increasing your customer retention rate. You must figure out whether churn is voluntary or involuntary.
For voluntary churn, find out why the customers have chosen to leave your business in the first place.
One way to do this is through forms and feedback surveys to find out the reasons why they weren't happy with your service.
Use the results of the customer feedback to fuel improvements in areas that customers have mentioned.
If you need help in finding the true cost of failed credit card payments and involuntary churn in your business, schedule an easy, no-brainer chat with Gravy to find out what’s actually going on in the back of your business. We'll go through customer retention strategies with you.
3. Your Leading Churn Indicators Paint a Big Picture
The risk points of a customer leaving look different for different businesses. For instance, it could be that your customer hasn't logged in for a certain amount of time.
Your retention strategy should have details about what to look for and what will happen when a customer hits a risk point — in other words when they wave a red flag.
For example, if a customer hasn't logged into your subscription-based business or your membership sites for three months, you can reach out to them and find out what is going on and how you can help them re-engage.
You must also pay close attention to customers who have made complaints. This is a point where they will feel most frustrated and might be looking for other alternatives to your company if the complaint isn't sorted out properly. You need your customer base to love your brand so that they send referrals your way.
4. To Chat Bot or Not?
The resounding answer is, well, YES.
You should make it as easy as possible for your customers to get ahold of you. Customers will not wait 24 or 48 hours to be contacted by email when they have a complaint or a question...and neither should you. Handling customer complaints in real-time is critical.
Therefore, if you don't offer live chat, you’re failing to cater to the needs of over half of your subscriber base or membership base. User experience, customer support, and customer satisfaction are super important to your bottom line.
5. The Mother of All Onboarding
Your journey to improving your customer retention rate can and should start the moment you acquire a customer.
Onboarding should be a simple and effective process, clearly explaining how to use your products and highlighting the value at every single turn.
Customers are after quick and painless experiences, and your onboarding should deliver it.
Think about using easy-to-read language when sending an onboarding email. The email productivity app, Boomerang found that email messages written at the reading level of a third grader had a higher chance (36%) of receiving a response, than those written at a college reading level (17%).
Paying Attention to Customer Retention Pays Off
While increasing your customer retention rate won't happen overnight, it absolutely can happen over a significant period of time when you have knowledge and forethought.
Customers actually want to be retained. Believe it or not, it doesn't take a ton of effort to focus on improving your customer retention rate. Repeat customers will be some of your best customers and will naturally promote your brand using word-of-mouth.
It also doesn't take a ton of effort to lose a customer, either.
The sooner you wrap your head around where your retention rate stands, and then partner with a company like Gravy who is dedicated to dramatically improving your customer retention rate, reducing your customer churn rate, and increasing your customer lifetime value — all at once — through recovering failed credit card payments, the sooner you can dramatically increase revenue to your business.
The Secret to Improving Your Customer Retention Rate Quickly
If it seems like there is too much to focus on to retain customers well and reduce involuntary churn due to failed credit card payments, you are not alone. We work with businesses like yours each and every day.
Because we believe that even in the midst of chaos and crisis, your business deserves to thrive. And we are here to help you do just that.
In fact, our personalized payment recovery at scale dramatically increases customer loyalty while reducing the cash you lose to credit card payment failure.
Powered by people, Gravy’s human-based approach can save up to 3X more customers and revenue than your current software or solution. Our proven approach recovers more revenue than anything or anyone you have tried before.
By keeping the customers you have staying — and paying — longer, your business can achieve the stability and oxygen it needs to be poised for growth in the weeks to come.
Schedule an EASY, one-call consultation with our team today, and learn exactly how much we can recover and retain for you, and have you up and running.
Our experts in revenue recovery will help you come out of this season stronger through retaining your customers and returning revenue to you seamlessly — and successfully.
Don't miss your chance to secure guaranteed revenue and customers through our industry-leading, empathetic, human-based failed payment recovery and customer retention service.
Stoke that curiosity — and let's chat.
Conversations matter. Revenue matters more than ever.
Let us help you keep more of it.