How to Improve Customer Retention and Churn Rates

One of the most valuable commodities a business can possess is satisfied customers. They lead to repeat business and can provide recommendations to others and bring in additional customers. Having already experienced a company's product or service, they are more likely to continue doing business as long as their experience is positive.

There is also less work and expense in keeping existing customers. According to the Harvard Business Review, acquiring a new customer is 5-25 times more expensive than retaining one. The topic of customer retention was recently covered in an article in Aspiration Marketing.  Here are some of the recommendations on how businesses can keep customers and reduce churn.

The importance of customer retention

Some studies show that retaining just five percent more of your customers can increase profits by 25-95 percent. In many ways, successful customer retention is an absolute necessity for sustainable business growth.

One way to track customer retention is through the following formula:

(Starting Customers – Lost Customers)/Starting Customers x 100 

What is churn rate?

Churn rate is the opposite of customer retention, a metric that measures the amount of customers lost over a given period of time. Given the importance of customer retention, it is vital to track a company's churn rate. Although no business wants to see a high churn rate, some information can be gleaned from its findings. It can identify any reasons for decreased revenue and potentially address areas for improvement.

The following formula can be used to calculate churn rate:

(Churned Customers/Starting Customers) x 100

How to improve customer retention

There are several ways companies can track customer retention or churn and improve those areas to ensure the highest amount of repeat business. The first step is to identify any reasons why customers are leaving. The answers can come through surveys or exit interviews and that feedback can provide insight on whether a customer feels they are not receiving proper value or service for their money.

Happy customers are loyal customers. There are several ways in which businesses can meet their needs and exceed expectations through customer satisfaction. This can be done through personal communication with the customer or loyalty programs to reward people for their continued business. Both give customers a greater feeling of individualized service and appreciation.

Keeping customers engaged is one way to decrease churn, as it keeps them feeling connected with the brand. Companies can increase engagement by providing exclusive content or educational resources that are relevant to the customers’ needs and interests. It is another way for the business to establish credibility on a topic and foster long-term relationships with the customer.

Another way to attract customers who are already familiar with a business’s products or services is to attempt to win back those who have previously left. This strategy involves additional time and energy, but can be worth it if you are able to bring additional customers back into the fold.

Companies can individually message former customers, express appreciation for past business, address the reason why they left, and attempt to bring them back. Incentivize their return through discounts or free trials. Businesses can also segment their customer base by tailoring their retention efforts to meet their specific needs. They can identify high-value customers who bring in the most revenue and have a high likelihood of repeat business.

Building and retaining a loyal customer base is the foundation of any successful business. Satisfied customers are the lifeblood of a business, driving repeat revenue, positive word-of-mouth, and brand advocacy. Companies need to prioritize the customer experience to retain consumers while reducing churn.

The full article on customer retention and churn can be found here.