Successful Customer Retention: The What, the Why, and the How
Merriam-Webster’s dictionary defines the word loyal as, “faithful to a cause, ideal, custom, institution, or product.” Given this definition, would you say your customers are truly faithful to your company or product? If the answer is no, there is a high likelihood you have a customer retention problem.
The Cost of Customer Retention
The term “customer retention” simply means the number of repeat customers your business has within a designated period of time. This is a simple concept, but it can be difficult to fully understand buyer patterns and customer churn rate. And, what’s worse is that customer retention problems can have a significant impact to your bottom line.
Research shows that acquiring a new customer can cost 5 times more than retaining an existing one. FIVE TIMES! Additionally, the success rate of selling to a customer you already have is 60-70%. If you are surprised by this, consider that increasing your customer retention by 5% can increase your profits from 25% to 95%. If you ever doubted the importance of maintaining a strong relationship with your current customer base, you shouldn’t. These loyal, repeat purchasers are your greatest asset and likely your best marketing tool.
Suffice it to say that most businesses place too much emphasis on the new sale – on the new customer. They believe that in order to reach their sales goals, they must be crazy busy, hitting the streets to drum up more and more customers. In reality, though, the exact opposite is true. Most businesses simply need to reduce their customer churn rate and increase their customer retention.
Calculating your Retention Rate
Before you focus on how to retain your current customer base, you must first understand what your current customer retention rate is. Our friends at HubSpot have developed a remarkably easy and accurate tool to define this for you.
Customer Retention Rate = ((# Customers at End of Period – # Customers Acquired During Period) / # Customers at Start of Period) X 100
For example: Let’s say you began 2020 (the awful year it was) with 20 customers. You then gain 5 new customers in the first quarter and lost 1 customer. Here’s your Q1 customer retention calculation:
((24 -5)/20)) x 100 = 95% retention
Another example: You have 44 customers at the end of Q3, 2020. In Q4, 2020 you gain 12 new customers, and lose 13. Your Q4,2020 customer retention calculation:
((44-12)/44) x 100 = 72% retention
In the second example, you may be retaining 72% of your customers, but this also means that you are churning 28% of your customers. In other words, nearly one-third of your customers are choosing to do business elsewhere.
As an SMB, what do you do if 28% of your customers are actively choosing your competitor? Do you know why they are leaving? Or, for those loyal customers, do you know why they stay? It is virtually have a successful customer retention rate or reduce your customer churn rate if you don’t understand why your customers are making the purchasing decisions they are.
Some might say you need to do an internal audit of your sales force and better understand how well they are managing the relationship with your customers, or how well they are representing your product. Others might say you need to cut right to the chase and contact each customer directly. Both of these responses could be correct…they could also be very time consuming, difficult, and expensive. But they don’t have to be.
TruVoice Software by Primary Intelligence delivers dynamic reporting that will help you understand why you are retaining business and why are losing it. TruVoice offers direct insight to your customers’ experiences with your sales team, their satisfaction with your product, and their purchasing decision criteria. It also uncovers any pain points your buyer experienced along the way. Summed up, TruVoice will tell you exactly why you are winning and exactly why you are losing.
Sounds expensive, right? Actually, it’s not. Because TruVoice is automated and integrates into your existing CRM software, both the implementation and subscription costs are very affordable for most SMB.
Once you have all the real-time analytics available to you through TruVoice, you will have the power to make big changes, adjust your business model with minor tweaks, or simply know that you are on the right track to continued growth. The actionable insights of TruVoice will open an entire world of possibility! Our recommendation is that you use this valuable data to strategically cultivate the relationship you have with your current customers by:
- Evaluating whether or not your product is solving the customer’s true problem or pain point. If it is not, you know you will need to innovate to remain relevant.
- Understanding the customer’s journey post-sale. TruVoice displays how effective your team is in transitioning from the sales process to implementing your product or solution to solve their needs. Customer Experience Analysis highlights any issues that creep up that could erode loyalty in your company.
- Solving roadblocks that cause delays and lead to customer churn or even defection.
- Realizing the best practices your company exhibits in transitioning clients post-sale and what creates a successful client relationship.
- Discovering opportunities for upselling when it is beneficial to your customer’s success.
The right customer experience program will help you reduce customer churn, improve client relations, and solve the business problems for which your customers engaged you in the first place. Contact us for more information on how TruVoice from Primary Intelligence can help you.
 Landis, Taylor. “Customer Retention Marketing vs. Customer Acquisition Marketing.” OutboundEngine, www.outboundengine.com/blog/customer-retention-marketing-vs-customer-acquisition-marketing/#:~:text=Acquiring%20a%20new%20customer%20can,customer%20is%205%2D20%25.