Customer retention: The key to revenue growth5 min readReading Time: 4 minutes
Creating a killer product and identifying your target audience can kick off revenue growth in your company. But it’s important to dedicate as many resources to retaining existing customers as to selling to new ones. Getting a customer to the door is the first step, but low customer retention and a high customer churn rate can destroy a company’s growth potential.
Customer retention is more than just answering customer calls or helping them get accustomed to your new software; it’s about creating a foundation from the very beginning that is built on communication, trust and mutual growth.
Here, we’ll discuss customer retention, its impact, and how we can improve it to boost revenue growth in your company.
Customer retention formula
Before diving into the strategies, you need to understand your customer retention rate. First, you need to define the period, e.g., yearly or quarterly, and follow this formula.
(#customers acquired at the end of the period – (minus) #customers received during that period/ (over) customers at the start of the period) X100.
For example, if you started the year with 20 customers, gained five new customers in the first quarter and had one customer churn, your customer retention rate would be;
[ (24-5) / 20] x 100 = 95% retention rate.
Once you’ve known your rate, you can consider auditing your churned customers to determine the similarities in why they leave or the types of customers. Our data-driven platform, Upzelo, helps you do all that and more.
Customer retention rate by industry
Customer retention rates vary across industries. The average rates include:
• Banking: 75%
• Telecom: 78%
• Retail: 63%
• IT: 81%
• Insurance: 83%
• Professional services: 84%
• Media: 84%
• SaaS: 35%
You can use these industry customer retention rates to assess whether you are meeting your customer’s expectations or not and how you’re performing within the broader sector.
Importance of customer retention
Retaining new customers is easier and more cost-effective than acquiring new ones. Returning customers spend more, buy more often and refer friends and family. A 5% increase in customer retention can increase your company revenue by 25-29%.
No doubt, retaining existing customers brings your company a lot of ROI. Here are a few reasons why customer retention is essential to your company’s growth and success.
- It’s very affordable: Acquiring a new customer is 6 to 7 times more expensive than retaining an existing one.
- ROI: A 5% increase in customer retention can increase your company revenue by 25-29%.
- Customer Loyalty: Retained customers spend more and more often. They have learned the value and service of your product, so they will always come back, again and again.
- Free referrals: Satisfied customers are mainly likely to sing your company’s name and refer their family and friends, hence bringing in new customers.
It might seem obvious, but existing customers can easily slip through your grasp once your company starts to grow without a stable customer support program.
Best practices for customer retention.
Some of the strategies to help you improve customer retention include:
1. Focus on case studies during the sales process.
During the sales process, a significant portion should be focused on determining whether your company’s prospects are the right fit. You can share previous case studies that show how you communicated and collaborated with previous customers and the results you achieved with them. You could also share testimonials from your current customers to bring them closer and be part of your business.
2. Set early expectations.
Customers can quickly become upset if you don’t set expectations and communicate early. Customers might find it hard to believe in you when you constantly delay your set expectations. Additionally, customers are different. One customer might feel they need high expertise and a “white glove” customer service since they think your prices are high, and another customer cares more about your ability to collaborate than care for the brand. Understanding this different point of view and setting up communication deadlines, your process, your progress towards the goal, etc., is essential in ensuring your expectations are met. This, in turn, will make your customers happy and nurture your relationship with them.
3. Establish a roadmap for your customer relationship.
Most people say company- customer relationship is like dating, and that’s not far from the truth. In a dating cycle, a partner would want to know if the relationship “is going somewhere” or how the “plan” for the future looks like. This desire to know the next step can also be applied in business relationships. A customer-company relationship can easily fall victim to routine, and it can get boring quickly, making a customer realise how uninspired and unmotivated your company is. You should always create and revise your roadmap regularly. You can build initiatives that both parties can be excited about, taking your relationship to the next step.
4. Make memories of your success.
People tend to dwell on negative experiences even when there are more positive events. The bad occurrences may be the longest lasting one’s memories; even worse, they may share them with their friends, families and even on social media. So, you need to know how you can create better, more memorable memories around positive occurrences and successes. When something negative happens (e.g., delayed product delivery to the customer), the team overly communicates, discusses plans to fix the issue and apologises. But why can’t you do the same thing when something genuinely incredible happens?
5. Use a proper software retention tool.
You can improve your customer retention rate by using software tools such as Upzelo. Upzelo is a data driven platform that gives value to your customers by;
• Removing manual processes and decisions during cancellation.
• Finding more retention strategies for your business.
• Providing data on why and when customers are cancelling.
• Offering guidance on reducing churn rate.
• Driving customer retention.
• Increasing lifetime value by targeting customer segments.
Let us help you.
Customer acquisition and retention are critical aspects of a business as you can retain loyal customers over a long period and boost your revenue growth. At Upzelo, we offer detailed insights into your customer base to enable you to make tactical moves to retain existing customers and tailor solutions specific to them. Book a demo with us and enjoy success in your customer acquisition and retention efforts.