If you are not putting energy into retaining your customers, then you are probably losing money. This means that instead of thinking about each customer as a once off opportunity, you should rather be concentrating your efforts on turning first time customers into regulars who will bring repeat business and promote you with word-of-mouth marketing. Bear in mind that new customers are expensive to acquire and so it is far more cost effective to retain the customers you already have.
You can estimate your acquisition cost by adding up all your sales and marketing expenses and then dividing that by the amount of new customers you have received in a given period. This should be your cap purchase for a new customer. Run this exercise and you will quickly understand how expensive this can be and why it is very important to implement a customer retention strategy in your business.
So what is customer retention?
Customer retention refers to the measure of customer loyalty you receive from your customer base as well as how effectively you get your customers to return to purchase over time. If you enjoy a high customer retention rate it means that most of your base continuously and repeatedly choose to buy from you and stay in what is known as the ‘loyalty loop’.
This is no easy feat as it requires you to prove to your customer that you are better than your competitor, that your brand engages with their needs and keeps things interesting. To achieve this, there are various strategies you can implement in order to promote customer retention including loyalty schemes, special offers, customer return offers, customer relationship management and finding innovative ways to build a mutual relationship.
Why customer retention matters
Simply put, customer retention can be the difference between a flash-in-the-pan business and one that enjoys lasting success. Customer retention ensures that a business becomes well established and retains long term revenue. Loyal customers are also willing to explore your initiatives, try new products and recommend your product or service to friends and family. This only works however, if you engage with them effectively and carefully monitor your success over time.
How do you measure your customer retention efforts
The first step in measuring your customer retention efforts is to really analyse your brand’s strengths and weaknesses. Armed with this important information, you can then set goals in order to measure how well your efforts are working to retain existing customers. Each brand will need to define their own strategy for customer retention, but there are generally key metrics you always need to be tracking:
- Churn rate: This helps you imagine the percentage of customers who are not currently engaging with your brand
- Customer retention rate: This gives you an overall picture of the number of loyal customers you have secured over a particular period.
- Existing customer revenue growth rate: This metric allows you to understand the amount of revenue gained from your customer retention, loyalty efforts and overall success.
- Customer lifetime value: This metric is used to measure how much revenue you have managed to generate from an individual customer.
The bottom line
It is very important to have a good sense of your customer retention success. Finding new customers costs way more than retaining current ones. Meaning that this is an important art that every serious business owner should understand, implement and master. So to invest in your customer retention strategy, be it with research, marketing or exciting customer engagements, consider a Merchant Cash Advance from Merchant Capital. Our lending product works directly in line with your turnover meaning that you can fund your initiative within 48 hours and repay in a way that is both manageable, strategic and ultimately, successful