Many entrepreneurs underestimate the value of regular customers for their economic success. Companies and startups that can bind first-time buyers to their company through targeted retention marketing usually generate higher sales than companies that have to concentrate on acquiring new customers.
A key indicator of proactively measuring customer loyalty is the so-called customer retention rate (CRR). In the following blog post, you will determine what retention marketing and customer retention exactly mean and how you can use them profitably.
What does retention marketing mean?
In a nutshell, retention marketing includes all measures with which your customers’ relationships can be maintained, expanded, and intensified. Customer retention refers to a company’s ability to retain customers over some time.
A high level of customer loyalty usually means higher income per customer. However, increased customer retention also means that customers are less inclined to migrate to the competition. A company’s ability to acquire and retain new customers doesn’t just depend on its products or services.
Often how it serves its existing customers and communicates with them is more decisive for customer loyalty than product features or low prices.
What are the goals of retention marketing?
Retention marketing aims to retain customers who are essential to your company in the long term. This should reduce the churn rate.
Profitable customers are the focus of retention marketing. To identify these customers, the existing customers are analyzed and divided into customer segments that are as homogeneous as possible based on their purchasing behavior.
These customer groups can be specifically addressed. Also, retention marketing can be used for that
- Increase in the value of the goods for subsequent purchases
- Growth in the number of purchases per customer
- Increase in customer satisfaction
- Development of less profitable customers
Focusing retention marketing on the most profitable customers sometimes means letting less fortunate customers go their way—for example, those who try to keep prices down with regular complaints after every purchase.
Why should you use retention marketing?
One reason for the increasing importance of retention marketing is the declining brand loyalty of many buyers. Most products today are arbitrary and can be swapped out without anyone noticing a huge difference.
Today, the focus is mostly on the price and not the brand. Also, there is hardly a market segment that is not saturated and hotly contested. This means that high customer loyalty is becoming more and more critical for long-term economic success.
The first advantage of retention marketing is that the cost of customer loyalty is lower than the price of acquiring new customers.
Numerous statistics from the past decades and, most recently, an evaluation by Bain & Company have shown that it costs about seven times more to win a new customer than to keep an existing customer.
The second advantage is that existing customers spend more money on further purchases than new customers on their first purchase.
Existing customers spend more money than first-time buyers.
Studies show that regular customers spend 33% more money on further purchases than new customers. When customers know that they can trust you and your company, it dramatically influences the purchase decision.
Trust causes customers to be willing to spend more money because they no longer take any risks with the purchase due to their positive experience with the first purchase.
Existing customers are more likely to buy again than new customers for the first time.
In an extensive study of buyer behavior, Adobe found that an existing customer is nine times more likely to make new purchase than the likelihood of a prospect making their first purchase.
The first purchase breaks the ice. Customers who have bought from you before are much more likely to say yes the next time you want to sell something to them.
A high customer retention rate increases the return on investment.
Sustainable customer loyalty through targeted and effective retention marketing usually results in a significant increase in ROI. The reason for this is a substantial increase in Customer Lifetime Value (CLV).
This means that the value that a customer represents for your company over their entire life cycle is significantly increased. Measuring ROI based solely on the cost of new customer acquisition and the first purchase value leads to a skewed picture.
When you consider the CLV, you gain a completely different understanding of the long-term value that an existing customer represents for your company.
Five tips for better customer retention
Retention marketing is not an invention of the digital age. Even in the days before the Internet, far-sighted companies recognized their existing customers’ value and courted them accordingly.
The simplest example is small gifts that make a company remembered. This strategy still works today.
The possibilities of retention marketing are still more diverse today and can be implemented more easily without a large budget. The following five tips can help you increase customer loyalty to your company.
Tip # 1: Offer excellent customer service
Friendly and competent customer service is one of the most essential building blocks for high customer retention. With live chat, hotline, or help desk available, a customer question can be turned into a sale or a customer complaint can be turned into a solution.
An effectively resolved complaint or a social problem can turn dissatisfied buyers into loyal, returning customers. Take the time to optimize your customer service continuously.
Show your customers that you take their complaints seriously and that you don’t leave them alone if they have problems. Then they feel that they are in good hands, customer loyalty is strengthened, and they will come back.
Tip # 2: exceed your customers’ expectations
Underpromise and overdeliver – promise your customers less than you can deliver and deliver more than they expect. This has long been a proven tactic to improve customer retention and customer experience.
If you keep exceeding your customers’ expectations, they will develop positive associations with your company. These positive associations stay in the memory longer than negative ones. Customers who have had a positive experience are more likely to come back and buy again.
Tip # 3: Develop personal relationships with your customers
The more personal you can design a customer relationship, the closer the customer will feel connected to your company. While there is inherent loyalty to this relationship, it will also keep your company in your customers’ minds longer.
Use personalized social media posts and personalization in email marketing to communicate with your customers. For example, if you know their birthday, send them something special to show them that you think of them.
Greetings for a birthday, Christmas, Easter, or the child’s birth are an excellent opportunity to encourage your customers to buy with a discount or a voucher code.
Tip # 4: Coupons, discounts, and specials
Little gifts keep the friendship alive, as the saying goes. And exclusive offers are also an effective retention marketing strategy for converting first-time buyers into existing customers.
An example is a voucher for the second purchase. Send this voucher with your thank you email for the first purchase. There aren’t many people who let a gift expire. You can emphasize coupons, discounts, and special promotions by calling them exclusive and limited in time.
Another option is offered that complement the initial purchase and offer buyers additional benefits. With cross-selling, you can increase the value of each asset. It works equally well for first-time buyers and existing customers.
Tip # 5: Establish your company as a trusted expert
Become an expert in anything and everything related to your industry. The better you can provide your customers with solutions to their problems and answers to their questions, the higher their appreciation will be. They will consider your business the best option for future purchases.
Create content that you share on your blog, social media, and email to help your customers solve problems. A measure of your activities’ effectiveness to improve customer loyalty is the so-called retention rate or customer retention rate.
The retention rate is a key figure that indicates what percentage of your customers are still part of your customer base after a certain period; for example, a calendar year.
Example of calculating the customer retention rate
The formula for calculating the Customer Retention Rate (CRR) is very simple and is: CRR = ((CE-CN) / CS)) x 100%
So it would help if you had the following critical figures for the calculation:
CS = number of customers at the beginning of the observation period
CE = number of customers at the end of the observation period
CN = number of new customers acquired within the observation period
For example, at the beginning of the year, a computer hardware dealer had 2,500 customers in its database. In the financial year, he was able to acquire 450 new customers. At the end of the year, the dealer had a total of 2,650 customers. With these figures, the following customer loyalty rate results:
Customer Retention Rate = (2,650 – 450) / 2,500) x 100% = 88%
This means that the retailer could retain 88% or 2,200 of its customers from the beginning of the year and count among its customers at the end of the year.
Conclusion: customer loyalty is cheaper than customer acquisition
Retention marketing starts immediately after a customer makes their first purchase. As soon as a lead converts, they have developed an individual essential trust in your company.
The likelihood that he will buy from you again and spend more money in the process is high. Customer loyalty activities typically only require a small portion of the marketing budget.
This means that your earnings from measures to improve customer retention can be much greater than those from your customer acquisition activities.
On no account, let this potential of your existing customers go unused. But never neglect the acquisition of new customers.