What is Customer Retention and why do you need to focus on it?

If I ask you, ‘What is the most essential thing for any business?’, what would you answer? Of course ‘customers’ right? Absolutely, and why not? Customers drive revenue and they’re the reason why a business continues to exist. But should you solely focus on getting more logos for your business? What about your current customers? Data shows that focusing on the current customers is very crucial as a mere 5% increase in customer retention can increase the bottom line by?25% to 95%.

Also, acquiring new customers is much more expensive than retaining existing customers. Thus, to ensure sustainable and organic growth for your business, it is extremely critical that you serve your current customers to their satisfaction.

“Do what you do so well that they will want to see it again and bring their friends,”?said Walt Disney. Apply this to the SaaS world and it fits in perfectly. When you bring value to your customers, they not only stick with you but also become your brand advocates.

To put it simply, you need more money and time to attract new customers, but if you retain your current ones and they keep bringing you recurring revenue – it pretty much does the same thing at a much lower expense. This is why customer retention is so important. Let’s dive a little deeper into it in this article:

What is Customer Retention?

It literally means retaining or keeping your current customers. Customer retention is all about fostering long-term relationships with your customers by enhancing the value they derive from the products or services you offer. Every interaction your customers have with your business or product plays an important role in shaping the overall experience. Meeting their said and unsaid needs and expectations at the right time is the only way to build customer loyalty and trust. And that is how they will buy from you – again and again. And again.

As per Harvard Business School and?research?done by Frederick Reichheld of Bain & Company,?‘Companies are 50% more likely to get current customers to purchase a new product or service than to get new customers to do that’.

Many businesses often have a myopic focus on attracting new customers, which is important of course, but you need to remember that around?65% of business generally comes from the existing customer base.?Hence, customer retention is the factor that can differentiate you from the competition.

“Loyal customers, they just don’t come back; they don’t simply recommend you; they insist that their friends do business with you.”

Chip R. Bell, World-Renowned Author

But why is Customer Retention so important?

A retained customer is a blessing for any business. Did you know that your existing customer spends?almost 67%?more on you than a new one? There’s a?50% higher chance?of an existing customer buying your new product or service compared to the new one. There’s a?65% probability?of selling any of your products or services to your existing customer! Isn’t that crazy?

On the other hand, it costs around 5X more to acquire a new customer than to keep the one you’ve got. Need I say more? It’s pretty much clear why a business under no circumstances can ignore customer retention. It’s what makes your business sustainable!

How to calculate customer retention?

There are three most common metrics used to establish customer retention for a business:

• Customer Retention Rate
• Customer Churn Rate, and
• Customer Lifetime Value

1. Customer Retention Rate (CRR):

Simply put, CRR is the percentage of customers that the business was able to retain at the end of a given period of time. So, to put it into a formula we have:

2. Customer Churn Rate (CCR):

3. Customer Lifetime Value (CLV):

The total revenue a business earns from a customer during the entire tenure of their relationship with the company is called the Customer Lifetime Value. This metric is mostly used to identify the most loyal customers for a business.

Conclusion

Customer retention is not an overnight activity. It takes years of persistence and dedication towards understanding customers’ needs and wants and giving them exactly that, at the right time.

And that is when they’ll be happy to buy from you every time you want them to! In partnership with Sailthru, Forbes Insights conducted a global survey of 300 retail and media executives to examine their customer retention strategies. To their surprise, despite the widely known benefits of retention,?only 14% of the survey companies?focused on and excelled in customer retention.

Are you dedicated to focusing more on retention?

Published on ZapScale