Your customers are the backbone of your business. As a savvy business leader, you likely have several metrics that you keep in mind as you plan for the weeks, months, and quarters ahead. From tracking quarterly revenue figures to reviewing customer feedback, establishing a good knowledge base can help keep things pointed in the right direction. One figure that you should keep an eye on as far as business growth is concerned is customer retention.

Finding ways to entice customers to come back is paramount for continued growth. Not only because it engenders customer familiarity within your business, but also because keeping old customers coming back is typically 5 to 25 times more cost effective than seeking out new ones. By understanding how to measure and react to your customer retention rate, you can better guide your business toward greater success.

What is Customer Retention?

At its base level, customer retention is exactly what it sounds like—it’s the ability for a company to turn new customers into repeat buyers. Those repeat buyers usually return for any number of reasons and it’s up to you to learn what those reasons are. By bolstering what people like about your brand and diminishing the things that people don’t, you can create an atmosphere that customers trust and helps keep them away from your competition.

How Do You Measure Your Customer Retention Rate?

So far, your business’s retention rate has been discussed as a “feelings” kind of metric—your brand is liked or disliked so much that it has an impact on the customers that come around. And while your customers’ inclination to like one business over another is always going to be a major facet of customer retention, it’s only part of the equation. In fact, there’s an actual equation you can use to measure your business’s retention rate.

To begin, you’re going to need the figures for the following values:

• The number of customers you have at the end of a time period (monthly, quarterly, yearly). For the sake of the equation, this is Group E.
• The number of new customers that frequented your business during that time period. This is Group N.
• The number of customers you had at the beginning of that time period. This is Group B.

Once you have those figures, you can plug them into the following equation: [(E-N)/S]x100=Your customer retention rate. Here’s how this equation works:

1. Start by subtracting the new customers from the customers you had at the end of the chosen time period. Since you’re trying to calculate customer retention, any newcomers should be removed from consideration.
2. Divide this new number by the number of customers counted at the beginning of the chosen time period.
3. Multiply the result of the second equation by 100. This is simply to convert your findings into a percentage.

So, if your business had 165 customers at the start of the third quarter, 185 customers at the end of the third quarter, but saw 35 new customers during that same time, the equation would look like this: [(185-35))/165]x100. In this example, the business in question has a 91% retention rate.

Once you calculate your retention rate, you can easily determine your attrition or churn rate as well, since it’s the inverse of your retention rate. In our previous example, the business retained 91% of its customers, but lost 9% by the end of the third quarter. With that information in hand, you can then try to determine why that 9% went away and try to come up with a strategy for reducing that number in the future.

Why is Retention Critical for Business Growth?

In today’s fast-paced and high-tech world, your customers are not starving for options. What used to be competition with other businesses in your area has become a global competition across the world. As such, the best businesses will be the ones that can manage to retain their customer base while drawing in newcomers as well.

By keeping existing customers happy, you don’t have to spend as much time and energy trying to replace the ones you lost to attrition. Coming up with a good customer retention strategy also promotes loyalty with your brand. This causes those loyal customers to effectively become cheerleaders for your company, urging the people in their immediate circles to check out your products. Thanks to social media, that loyalty can spread, further drawing interest among new customers that could eventually join into the fold.

What Are Some Proven Strategies to Boost Customer Retention?

Though customer retention is critical for nearly every type of business imaginable, how your business attains a good retention rate is subjective. After all, what may work for one company may not work for yours. To help you get started, here’s a few strategies to consider as you get started.

• Ensure a good first impression. As a business, you always want to make sure your customers get the best out of what you’re offering. By making sure that your company looks good and offers good service right out of the gate, you give customers a positive experience that they’d likely be willing to seek out again.
• Establish a brand voice. Some of today’s most memorable brands have a sort of personality about them. By laying out your company’s values and maintaining a consistent approach to communication, you can create a sense of familiarity and brand loyalty with your customers.
• Offer excellent customer service. Nobody wants to deal with a business that has subpar customer service. By putting the right people in customer-facing positions, you can reduce the amount of friction in each transaction. Service that is friendly, efficient, and individualized creates a positive experience that people will want to experience again.
• Work to customize your customer’s experience. There are multiple ways you can make your customers feel like they’re part of something bigger. Loyalty programs and targeted marketing efforts can do just that.
• Open the lines of communication. Your customers are going to have questions, concerns, or comments about your business. Respond to them! The more easily accessible your company is to its customers, the more likely people will want to continue frequenting your business. This can also be used in a proactive way. Get on social media and engage with your customers there.
• Create worthwhile content. We live in a digital world, so it could be worth your while to create quality content on various platforms. Make engaging tweets on Twitter. Showcase your business’s offerings on Instagram. There are plenty of options to choose from.
• Give special sales to returning customers. Reward recurring customers by offering them exclusive sales. You can make this easier by onboarding your customers into a loyalty program or getting them to sign up for an email newsletter. This also gives your customers a feeling that they’re part of your company’s community.
• Seek out feedback. No one is perfect, and that goes just as much for businesses. Send out surveys to your customer base to find out what’s working and what’s not. Most importantly, take that information and follow up. By showing that you’re listening, you give your customers a reason to trust you with their needs and concerns moving forward.

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Creating a Connection Takes Effort and Time

Though there are numerous ways to measure and bolster customer retention rates in any business, it’s important to note that at the end of the day your customers are people. They have the same wants and needs that you do and want to be treated with respect. In 2022, that means being more communicative, reacting to constructive criticism, and making a good first impression. If you streamline your customers’ journey across these touch-points, you can expect to see a lot of familiar faces in the future.