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“Make new friends, but keep the old. One is silver, and the other’s gold.”

This classic adage doesn’t just apply to personal friendships but also to business-customer relationships. New buyers are exciting and help your company grow, but your loyal customers are the ones who keep your business going.

Customer retention strategies are vital to keeping those customers on your side. The term “retention strategy” might sound complicated, but don’t let it scare you off. It’s simply about listening to your customers and giving each one what they need.

From the value of a retention email to simple tactics for personalization, here’s what you need to know to increase customer retention in your business. But first, let’s look at the standard customer retention definition.

Constant Contact managed by Spearhead Multimedia

What is customer retention?

Customer retention is the rate at which customers stay with your business instead of defaulting to competitors. It measures customer loyalty and how well you meet your buyers’ needs.

Customer retention also refers to strategies that build loyalty and encourage repeat purchases. Without solid customer retention strategies, it’s difficult for even the most innovative companies to drive growth.

How does customer retention affect business growth?

Customer acquisition and retention are essential elements of growth, but retention often gets left behind — much to a business’s loss. Retained customers drive the steady revenue a business needs to stay healthy, expand, and build its reputation.

Why increasing customer retention is crucial for business growth

Loyal customers drive revenue growth in many ways. They spend reliably over time, and with the right tools and data, you can calculate how much income you can expect from them.

Retained customers also bring in new customers. Data from the business services group KPMG revealed that 86% of loyal customers would recommend a company to friends and family. That’s free marketing as long as those customers stay with you.

The financial impact of retaining customers versus acquiring new ones

New customers are exciting — and expensive. Research by McKinsey & Company shows it often takes more than a year, or closer to four in some cases, for certain types of businesses to recover customer acquisition costs. Retained customers are already on your side.

Plus, loyal customers spend more. A recent report shows that 90% of customers buy more from brands that understand their needs, and 77% will increase spending when they have relationships with a brand.

Retain customers with these ten customer retention strategies

The facts don’t lie — retention is financially crucial for any business looking to grow. Here are ten strategies you can implement today to keep more of your customers.

1. Leverage customer feedback

Customer feedback is invaluable to help you improve customer retention. It tells you how well you meet customers’ needs and where you might fall short.

The role of feedback in understanding customer needs and expectations

Consider the last time you switched to a new service provider, such as an auto mechanic or dentist. Chances are, there was something the previous provider didn’t offer that the new one did.

Customer feedback tells you what those missing pieces are — and what you’re doing right — soon enough for you to fix it.

Implement feedback loops and take action to address customer concerns

A feedback loop turns customer comments into action, which feeds your customer retention program. The loop has four steps:

  1. Send customer surveys using multiple channels, such as email and social media.
  2. Organize results based on customer segments — groups of customers with similar interests and needs.
  3. Act on the provided feedback to improve the customer experience.
  4. Share changes with your audience and thank them for their help, inviting them to stay in touch and share more of their thoughts.

When done right, the end of this process becomes the beginning of the next. Here’s what that looks like:

Customer Feedback Loop
This is an excellent visualization of a robust customer feedback loop. The customer feels heard and develops a stronger connection to your business. Image source: Qualtrics.

Feedback loops strengthen relationships by making customers feel heard. People can see their comments become action and change, strengthening their connection to your business.

2. Build stronger customer relationships

When customers feel they have a strong connection with you, they’re likelier to choose your business over a competitor. In fact, according to MarTech data, 39.4% of customers will spend more to buy from a brand they’re loyal to.

Strong customer relationships come from active two-way communication and a commitment to meeting customers’ needs. Use customer feedback to design relevant customer messaging. Send different emails to different audience segments, noticing which messages get positive responses and which fall flat.

Related: Why Word-of-Mouth Referrals Should Be Your Number One Metric of Success

3. Implement a customer loyalty program

Customer loyalty programs are practical relationship-building tools that keep customers returning. There are multiple types of loyalty programs, including:

  • Points-based: Customers accumulate points to redeem for rewards, such as discounts or freebies.
  • Tiered: Customers receive different benefits based on their rewards level, which usually depends on customer spending.
  • Fee-based: Customers pay a membership cost to receive exclusive benefits, as in the Amazon Prime model.
  • Value-based: Businesses make donations to charitable causes when customers spend a certain amount.

Some rewards programs are hybrid models, taking features from two or more program types to create something unique. For example, if your customers are value-oriented, you might create a value-based program that works on a points system. When customers accumulate a certain number of points, they can choose a charity to receive their donation.

The proper program structure depends entirely on your customers and what motivates them. If possible, survey your loyal customer base and ask what kind of program would draw their participation. Give them a few options and go from there.

Related: A Rewards Program. 3 Secret Reasons Why Your Brand Needs One.

4. Offer your customers personalized experiences

Personalized experiences are becoming a standard technique for customer retention strategies. In Twilio’s 2023 State of Personalization Report, 62% of business leaders said personalized customer experiences improve customer retention.

Consumer respondents agreed, with 56% saying they’d become repeat buyers after a personalized interaction. That number has increased by 7% in the past year alone.

Fortunately for businesses, technology has made personalization simpler and more scalable. Even the smallest company can personalize customer messages throughout the buying cycle.

Customize marketing messages and experiences to cater to individual customers.

Personalized marketing creates meaningful experiences for current and future customers. The key is to use available marketing and sales data to develop relevant customer segments. Then, you can send the right message at the right time to each segment.

Done well, your customer retention strategies will target not just a type of customer but each individual. You want each reader to know you’ve been paying attention to their needs. This attentiveness makes customers feel heard.

Imagine you’re a 35-year-old mother of two young children. You love reading and baking, and you recently decided to take up running, so you search for running shoes, finding models from a few stores, including Sam’s Sneakers.

Over the next week, you see two social media ads from shoe companies. One sends you an advertisement for 25% off of kids’ sneakers. Another, Sam’s Sneakers, sends you discounts for the brand you looked at earlier.

The first ad is vaguely relevant, but the second is personal. Best of all, you don’t need a massive data system to create that kind of message. You need to connect your online store with your email platform.

Use data and technology to deliver personalized offers and recommendations

Store integrations are an effective tool for sending personalized messages. The more you know about what people buy, the more specific your promotions can be. You can also send transaction-related emails, such as abandoned cart reminders.

However, e-commerce sites aren’t the only ones that can gather customer data. You can design email list signup forms that collect essential information, such as a customer’s name, age, and interests, and use that data to target your recommendations and promotions.

For example, you can personalize email messages by adding the customer’s name. Something as simple as “Hey Jamie, we don’t want you to miss this” can turn an everyday ad into a personalized insider tip.

But you don’t have to stop there. If Jamie clicks on that message and looks at a product on sale, and your system adds that data to the customer’s profile, you can follow up with more offers about that product or something similar.

Related: Customer Loyalty: Ten Ways to Earn More Repeat Buyers

5. Provide timely support through multiple communication channels

Customer care is essential in all customer retention strategies and is not just about answering the phone. Today’s customers want options for reaching you.

According to recent research, 89% of consumers want more accessible and convenient ways to contact businesses. And 64% wish to communicate via the same channels they use to talk with friends and family.

Data shows that 60% of customer service teams offer support via three or more channels. If you view three as your minimum, you’ll have the best chance of staying competitive. Consider traditional options like phone and email and newer methods, such as social media messaging and chatbots.

Of course, it’s not enough to communicate via a customer’s preferred channel. You must also respond quickly with a satisfying resolution, ideally without making the customer talk to multiple people.

In a Twilio survey, 15% of respondents said they’d leave a company that transferred them multiple times to different service representatives. Empower your team members to solve as many problems as possible to avoid “passing the buck.”

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6. Send engaging email newsletters

Newsletters are essential elements in customer retention strategies. They help you stay in touch and offer value between purchases. However, making your newsletter something customers look forward to is vital, or it could get lost in the noise.

In a presentation software group Storydoc survey, 90% of respondents said they subscribed to at least one newsletter, and 74% reported subscribing to 10 or more. Their reasons for subscribing, from most to least popular, were:

  • Getting discounts
  • Hearing company news
  • Learning about a topic of interest
  • Receiving exclusive content
  • Getting product updates

Aim to offer several interest points in each newsletter, and remember to make the layout visually engaging. Start with an eye-catching design, such as this one advertising cooking classes:

This image shows an example of an advertisement for cooking classes.
This creator used Constant Contact’s email template to create an attractive yet accessible layout. Notice the blend of enticing offers and fun facts — and the navigation buttons prompting the reader to learn more. Image source: Constant Contact.

Finally, remember to target your content to the customer. When Storydoc asked for respondents’ top reasons for unsubscribing to newsletters, 24% pointed to irrelevant emails, and 11% noted a lack of personalization. To stay in people’s inboxes,  offer relevant content.

7. Simplify product returns

According to a 2021 Power Reviews survey, 88% of consumers return products at least occasionally. It’s an inevitable part of doing business; unless it happens at high volumes, it’s usually not a sign you’re doing anything wrong.

A smooth return experience can even help retain more customers. According to the conversion optimization group Invesp, 92% of customers will buy from a company again if the return process is easy.

Review the steps to simplify your return process and consider what friction you can remove for the customer. Here are some ideas to get you started:

  • Allow customers to initiate returns online, ensuring your website’s returns page is easy to find.
  • Automate intermediary steps, such as approvals and emailing of return labels.
  • Create a simple return policy and publish it on your website.
  • Offer in-store returns if you have physical locations.
  • Accept multiple return shipment options.

The more barriers you can remove, the better. For example, did you know that 55% of Americans don’t own a printer? Offer a print-free option — such as UPS’s 360 Returns program that lets people scan a barcode to ship — and people will remember how easy you made it.

8. Keep shipping and delivery times short

The product delivery experience is another chance to impress customers and earn their loyalty. As online shopping has become a regular experience for hundreds of millions of people, waiting for your package has become a relatable struggle. Google “shipping and delivery memes,” and you’ll see many graphics like this one:

This is an example of a meme.
This meme offers an entertaining insight into the online shopper’s mindset. As this man would tell you, packages can’t arrive soon enough. Image source:

According to Statista, more than 40% of consumers expect to receive an online purchase in two to three days. If that’s not realistic for you, don’t panic. Determine how quickly you can get a package to which regions and publish that information on your website.

Customers also appreciate having real-time shipping and product tracking information on a business’s website. Talk with your shipping partners to see what might be possible.

9. Set and monitor retention KPIs (key performance indicators)

KPIs are data-generated measurements of your business’s performance. Each KPI relates to a specific performance aspect — in this case, how well you retain customers. KPIs clearly show your retention success, so you don’t have to rely on guesswork.

Key metrics to measure customer retention

Your customer retention rate is the standard way to measure how many customers go elsewhere. It’s a KPI on its own, and you’ll learn more about it later, but it’s not the only one that will tell you about customer loyalty.

Other KPIs for customer retention strategies include:

  • Loyal customer rate: Your ratio of repeat customers to total purchases
  • Customer satisfaction score (CSAT): Your balance of positive reviews to total reviews
  • Monthly recurring revenue (MRR): Average earnings per account divided by total earnings

Choose the customer retention metrics that make the most sense for your business. For example, MRR is ideal for a subscription model, but a service-based business would be better off tracking CSATs.

Analyze retention data and make data-driven decisions for improvement

As with any KPIs, your retention data is only as valuable as you make it. Review your retention trends and when your scores go up or down. For example, if your MRR holds steady and starts increasing, you’ve done something to encourage more people to stay.

If things don’t look suitable — for example, if your loyal customer rate starts dropping or is too low at baseline — it’s a sign that something needs to change. Analyze the data and what it correlates with. For example, you might have changed your service procedure that people didn’t like. Adjust accordingly and see what happens.

10. Consistently exceed customer expectations

Meeting expectations isn’t enough to keep customers loyal to your business. You must go above and beyond so people know they’ve found something special. If they think they can’t get service like yours anywhere else, they have a solid motivation to stay.

How to calculate customer retention rate

To calculate your customer retention rate, start by choosing a time frame. For example, you might decide to look at your retention monthly, quarterly, or yearly.

Next, you’ll need to find three numbers. The customer retention rate formula expresses those numbers as letter variables:

  • S: Your customer count at the start of your chosen period
  • E: Your customer count at the end of your chosen period
  • N: How many new customers did you gain during that period

With those variables, the retention rate formula looks like this:

[(E – N) / S] x 100

For example, suppose you have 200 customers at the beginning of the quarter and 250 at the end (with this end-quarter figure including 75 new customers and 25 lost ones). Plugging these example numbers into the formula, your customer retention rate would be:

[(250-75)/200] x 100 = 75%

Your first calculation gives you a baseline and tells you how you’re doing compared to others in your industry.

What is a reasonable customer retention rate?

Customer retention rates vary by industry. Consider these median rates from CustomerGauge’s most recent data:

This is a chart showing average customer retention rates.
This chart shows the wide range of average customer retention rates in various sectors. When calculating your current rate, consider which category best fits your business. Image source: CustomerGauge.

You probably noticed that the industry with the most loyal customers — energy and utilities — has nearly double the customer retention rate of wholesale. Part of the difference is attributable to the payoff of loyalty. It’s easier for customers to change their grocery store than their energy provider.

But these trends are no reason for high-loyalty businesses to take customers for granted or for high-churn businesses to lose hope. A stellar customer experience drives high customer growth and retention, just as poor service and lackluster communication lead to churn.

Understand customer churn and its effects.

You have plenty of company if you’re unfamiliar with customer churn or don’t regularly consider it in business planning. In 2021, Constant Contact polled attendees of a webinar on customer retention and value. They asked whether participants knew their churn rate and received the following answers:

customer churn rate data
Understanding your churn rate can give you an advantage over the competition. More than 90% of surveyed small business owners don’t know their churn rates. Image source: Constant Contact.

Customer churn is the percentage of people who stop buying from you during a set period. For example, assume you’re a hairstylist with six clients who switch salons in January. Those six people have churned.

To calculate your churn rate, divide the number of customers lost in a period, such as monthly or quarterly, by your total customer number at the beginning. Take the previous example. If you have 100 regular clients in your salon and six left, your churn rate is 6%.

According to the Constant Contact webinar referenced earlier, a reasonable churn rate is under 5%. If your churn rate is over 10%, it probably signals a problem.

Too much customer churn translates to an ongoing revenue loss. The more customers you lose, the more you have to bring in to make up the difference — and those churned customers can make it harder to get more. Recent Zendesk research shows that when customers have a bad experience, 52% will tell others not to buy from that brand.

Fortunately, there’s a silver lining. The same study showed that after a good customer experience, 67% of people recommend the company’s products or services, and 54% return to buy more.

Retain more customers with a robust collection of marketing tools

By now, you’ve learned the basics of customer retention strategies. You know how to use customer information to create segments and personalize based on that information. You understand how to use customer feedback to adjust your offerings and exceed expectations at every buyer journey stage.

You can use these customer retention strategies for any related purpose, from loyalty-building in retail to donor retention for nonprofits. Automated tools like contact list segmentation, automated email messaging, and drag-and-drop email builders make it easier. Create the right emails and send them to audiences when the time is right.

There’s much to explore, but you don’t have to do it all simultaneously! Start by creating a targeted promotional message for one or two of your top-earning segments. Keep an eye on the results, and if it does well, start crafting a newsletter with similar messaging. It’s hard to go wrong when your customers show you what they love.

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Customer Retention by Ellie Diamond

Article by Ellie Diamond

Ellie Diamond has been creating digital content since 2011. Her clients range from real estate companies and mortgage lenders to education providers. She’s able to leverage her background in education to craft accessible guides on complex topics like refinancing your mortgage.