What is Customer Retention?
Whatever stage your start-up is in, an existing customer network is vital in creating a solid foundation for your business to move forward.
You could be the founder of the greatest and most ground-breaking start-up ever…but if you have no customer network, you have nobody to sell to and therefore no revenue.
You will need to consider how your start-up is going to position itself in order to secure a market share and drive revenue from it. If your start-up has no existing network of customers, you need to have a clear strategy of how to get their attention.
The next step is to consider how you keep these customers coming back. In other words, you need a customer retention plan.
Customer retention is the ability to retain customers. The strategy you employ to achieve this will be tailored to whatever industry segment you operate in and who your target consumer is. There is no off the shelf template to achieve customer retention, but there are some common things that can be done by all companies in order to provide a good customer experience and ultimately provide a boost to your start-up.
Measuring Customer Retention
You can calculate the customer retention rate using the method below.
Customer Retention Rate = ((E – N) / B) x 100
Where: E = Number of customers at the end of a period.
B = Number of customers at the beginning of a period.
N = Number of new customers.
This calculation provides companies with a % rate of customer retention. Companies should aim for as high a rate as is possible. In some industries customer churn is unavoidable, however, the attrition of your customer base should be avoided where at all possible.
Now we know what customer retention is and how to calculate it, we can answer the question…
Why is Customer Retention Important and What are the Benefits?
Keeping your existing customers is much cheaper than winning new ones, but besides that, there are other important reasons why retaining customers is important.
As your existing customer network gets to know you, they will become familiar with you and access your products/services more. Selling products to existing customers can lower your marketing costs as they are already aware of your business/brand and they don’t need to be tempted by offers or price reductions that eat into your revenue.
An additional benefit of keeping customers loyal and happy is that they can do your marketing for you. With social media being ubiquitous a happy customer is likely to share positive experiences with their social circle. This is essentially free advertising, and even better, your message is delivered to people by someone they trust. This can be a powerful tool.
Customer engagement is increased by retaining customers. These loyal customers are more likely to provide feedback and make suggestions to you, as they are invested in your offer. At a more macro level, loyal customers can give you feedback by analysing their purchasing behaviour. Products/services that are bought often can be viewed as popular and successful, whereas products/services not so popular might have some problems.
Customer Retention Strategies
- Customer feedback:
This is essential when it comes to retaining customers. Capturing the thoughts and feelings of your customer following their experience with your business is invaluable as it provides information on whether they decide to become a loyal customer or if they will spend their money elsewhere. This feedback can be captured in lots of different ways, through online surveys for example. The timing of feedback is important and you should direct your feedback methods in a way that best meets your needs.
For example, if you want meaningful feedback on the functionality of a product, you would not time your feedback request for the day following the purchase. However, if you wanted to follow up on a customer service interaction, within an hour of the conversation might be appropriate.
Customer feedback can boost your start-up by directly involving your customers in shaping your business, in turn making them feel more attached to your company.
2. Customer Expectations:
Managing expectations with your customers should be done in an honest and transparent way. If your start-up promises high quality and excellence you should live up to this promise. If you get things wrong, you should apologise and find a way to move forward that the customer finds acceptable.
Customer expectations should be managed throughout your interaction with them and be consistent across all channels. The sooner the customer knows what to expect from you the better. Expectations of your product/service should be realistic, allowing you to exceed them where possible.
For example, if you state that you respond to all enquiries within twenty-four hours but then take three days to respond, your potential customer has been let down. Alternatively, if you responded within six hours then you have exceeded their expectation and made a positive impact. This makes it more likely that your customer will return to make further purchases.
Managing your customer’s expectations can improve the performance of your start-up by being able to meet the needs of your customers, while your customers will take away a pleasant experience and spread that through word of mouth.
- Develop a Social Responsibility Policy:
Corporate social responsibility policy is a model that your start-up can follow that outlines how you will be conscious of different aspects of society and your business’ impact on them. Having a corporate responsibility policy makes you accountable to your customers, employees and other stakeholders.
A corporate responsibility policy should consider such things as the environment and the social and economic characteristics of the communities you operate in.
Operating under this policy can take many forms, your employees may take part in volunteer programmes or your business may make philanthropic contributions that benefit society while boosting your brand recognition and integrity.
Increasingly, your customers will look for your corporate stance on certain social matters, and these will have a material impact on their spending behaviours. For example, making a pledge to be an equal opportunities employer.
In this sense, customer retention can be realised through social responsibility as customers become loyal in a response to the benefits your policy provides to them. These reciprocal benefits provide an emotional attachment between your start-up and your customer network.
This sense of shared values can provide a powerful uplift to your start-up, and if done right can be even more effective than your existing marketing strategy.
3. Creating Loyalty and Referral Programs:
Keeping hold of your customers is challenging, especially in a competitive market where other companies will be doing their best to win your customers over with offers and large marketing budgets.
Having a loyalty program encourages a connection between you and your customer. A good loyalty program should be designed to offer a large benefit to your customer through incentives. Building an emotional connection between your customers and your start-up in order to create a pattern of repeated spending behaviour has obvious benefits to your business in driving revenue. Loyalty programs can form part of a bigger promotion, increasingly, loyalty is rewarded through connections to third party schemes that form part of a lifestyle reward (such as cinema or restaurant benefits). These schemes are constructed and designed to reflect your brand and meet the needs of your customers.
An emotional connection can be a compelling influence when it comes to loyalty, and such things as customer birthday benefits and other one-off rewards can help to construct this relationship. Making these available only to members of your loyalty program makes the customer feel more exclusive and special, further developing your affiliation with them and increasing their loyalty to your start-up.
Having a pool of customers who already like and interact with your brand are useful in that they will refer your services to their friends and family. This will happen organically but having a referral scheme in place will leverage this opportunity and make it both more likely and increase the frequency.
In addition, these programs can give your start-up a boost by you not having to compete on price alone, as you have created an emotional attachment that keeps customers coming back.
4. Creating a Positive Customer Experience
A customer experience is a relationship between a business and a customer (existing or new). Every interaction matters in this sense, no matter how brief and irrelevant of whether a purchase is made. All contact, whether in person or a fleeting visit to your website contributes towards the experience of the customer. The aggregated feelings of your customer following their experience(s) is the most important factor.
Your products and services: These must meet (or exceed) the needs and demands of your customers. Companies with excellent customer experiences will anticipate the needs of the client and adapt their offer before they ask for assistance. This approach reduces the need for post-purchase support which can harm perceptions if your consumer forms the opinion that your product/service doesn’t function as expected.
Your people: All your client-facing employees have a role to play in providing a positive experience. Your staff should all have the correct training, motivation and skills required to support, direct and respond to your clients. The right interactions can turn a negative feeling into a positive one if the client believes they have been listened to and supported with any issues. This is important as opinions are formed quickly and your company may only get one chance to directly interact with customers.
Technology: If your start-up offers technology solutions and/or channels these need to be optimised for ease of use, navigation and accessibility. During the development of any technology/channels, you have an opportunity to receive feedback from your target consumer in order to get this right.
Customer experiences matter to your start-up because they have an impact on the revenue of your business. The “feeling” you create when customers interact with you is directly linked to customer retention and brand loyalty.
When you get this right there is a positive impact on your startup bottom line. If you get this wrong, there are plenty of competitors who will be happy to accept any customers you lose.
Investing in customer retention matters to your start-up, it not only allows you to boost revenue but helps attract new customers and move towards accelerated growth. Keeping hold of the customers you already have, and who already know you, should be easier (and cheaper), than attracting new customers.
Focusing resources on retaining customers can only benefit your business. In terms of brand value and customer loyalty, taking care of your existing customers is paramount. If you follow the elements of customer retention in this article you will have the foundation of an outstanding strategy.
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