Loyal Customer: Knowing the Right Customer Retention Strategies

So, lets get back to basic...

What is customer loyalty? What is customer retention? Why do marketers keep repeating these two terms over and over again? The answer to the later is that the two terms play a very important role for every business inside any industry.

I define customer loyalty as the bond that connects a business to their customers. On the other hand, customer retention refers to the relationship between a business and their customers. You may also benefit by knowing the term customer retention rate as one of the terms to know how many customers you retain over a given period of time.

As a business owner, we all need to know the right customer retention strategies, which are calculated by the customer retention rate. It is calculated by measuring the number of customers retained after a certain period of time.

So, lets jump to my version of the Top 3 Customer Retention Strategies that works:

Review Your Complaints

This is the first and most significant (also time intensive) solution to retain your customers. You should know why your customers are leaving your site, why they didn’t end up buying your product or services.

“Understanding why your customers leave may be a game changer to your site”. It is typical for inexperienced online businesses to leave these details about their business. Maybe after knowing that increasing customer retention rates by 5% increases profits by 25% to 95% (Harvard Business School), you will have a second thought.

In large, by converting 5% of your customers, say 200 potential customers per month. You could gain as much as $3,000 more profits if each customer brings you $15 of profit. This converts to $36,000 per year. Maybe it’s not huge, but definitely important for some of us.

With that being said, there are many reasons for potential customers to leave your site. One of which is the lack of payment method, which could be solved by adding more payment alternatives to your site. You can read more about payment method here.

Other reasons such as unfriendly site, complicated payment method, or even unclear information in your site could be the primary reason for a customer to leave. You can easily include third party analytics or create your own survey to understand more about your customers. This may ultimately brings you a step closer in achieving a high retention rate.

Don’t Lose Your Customers

It’s much easier to retain your customers than attracting new ones. If you don’t believe me, you should calculate your cost of obtaining a new customer and compare it to the cost of retaining a customer. I will let you calculate it, but I can tell you that the cost of retaining a customer is basically a good and satisfying service.

Imagine your business possesses a retention rate of 70% and adds new customers at a rate of 25% per year. Since you have a high rate of new customers, you assume that your business is doing well, but in fact you are losing 5% every year.

The effect of customer retention is compounded over time and it is important to acknowledge the difference between retained customers and leaving customers, as stated on the above example. A step-by-step approach to retain your customers can have a massive impact to your business if implemented correctly.

Create a Loyalty System

A loyalty system is a system that has a sole purpose of keeping your customers, turning them into a consistent buyer, a technique to obtain loyal customers.

While there are many types of loyalty system, but most of them will involve reward points and card. The conventional way of a loyalty starts in the coffee industry where customers are given stamps after each purchase. Later, reward card is introduced into the market, which allow points to be inserted electronically. Customers can collect reward points that can be redeemed in the future.

It is a challenge for any businesses across various size and industry to implement their own working loyalty system. Two of the main difficulties lie in managing the system and the capital needed in creating a working ecosystem of the system. Thus, some businesses rather transfer all the risk to a third party business that focuses in minimizing and managing these risks.

Utilizing a working loyalty system may assist you in converting your customer to a loyal customer. As such, you will gain by higher retention rate and thus higher profits (which is our ultimate goal).

The three strategies can be an important framework to capture the necessary needs of your customers. However, it becomes your responsibility as a business to execute the necessary means that will be beneficial for you and your business.

I understand that we want to implement every strategy possible, but the resources bind us to choose the most efficient strategy. Thus, my ultimate advice is to make your customers happy. Happy customers go a long way, which is what you want for your business.