Definition – What is Customer Retention?

Customer retention is the actions companies take to get their customers to continue using their services. Surprisingly, it is not a high priority for most businesses. According to Forbes, as recently as 2012 many businesses ranked “driving sales” as their top priority while “building customer loyalty” was the last place.

25% to 40% of the total revenues of the most stable businesses come from returning customers. Repeat customers drive 3-7 times the revenue per visit as one-time buyers.Edward Gotham

Bringing on new customers is important but it is even more important to keep the customers you already have. The higher your customer retention, the more profitable your brand will be.

Customer Retention Benefits

Many companies spend time and money trying to bring in new customers because they see it as an easy way to increase revenue but the truth is, retaining your current customers is actually faster and more effective. It is far easier to sell to a customer you have already built a relationship with than to spend time marketing to and trying to convert new ones.

Once companies shift their focus to customer retention they often find it to be much more effective. Your current customers are already familiar with your company and already have an interest in your products so retaining them is a key strategy for sustainable growth.

The reality is, it costs up to five times as much to sign up a new customer as opposed to keeping the old one and a five percent increase in customer retention can increase profits by as much as 125 percent.

Measuring Customer Retention

There are probably many ways to track customer retention but this formula used in Inc. is a good place to start: ((CE-CN)/CS)) X 100

CE is the total number of customers at the end of the period, CN is how many new customers were acquired, and CS is the number of customers you had at the beginning of that period.

How good your customer retention rate is will depend on your industry and business goals, although generally, the goal is to keep retention rates as high as possible. Tracking your retention rate is important because it gives you a way to track your results over time.

Improving Customer Retention

Once a company has realized the importance of customer retention, they must develop a strategy for doing so. This article points out 10 different steps businesses can use for increasing customer retention. Here are a few different ideas you can try as well:

  • Set customer expectations early on and always promise less than you can deliver. A good rule of thumb is to under promise and over deliver.
  • Build relationships with your customers and let them know they can trust you.
  • Always use proactive service so you can eliminate problems before they happen.
  • Set yourself up as the expert in your field so you will gain your customers’ brand loyalty.
  • Continue to sell your customer
  • Use LinkedIn, Twitter, and Facebook to communicate with your customers. Give them a space to share feedback about your company and offer support.
  • Always go above and beyond to meet the needs of your customers.

Many companies will also utilize customer retention software and there are companies that provide customer experience management solutions to improve customer retention rates.

Building Strong Customer Relationships

The average business will lose about 20 percent of their customers by simply failing to build strong customer relationships. In some industries, this percentage is much higher. The results of customer retention compound over time and even a small change in customer retention can make a big impact. Listed below are four strategies for building strong relationships with your customers:

  1. Track your inactive customers

Many businesses invest a lot of time and money into building that initial customer relationship but then they forget about it completely once the initial sale has been made. As we have already established, the easiest way to grow your business is by keeping your current customers. Begin tracking how many of your customers have gone inactive and work to repair those relationships.

Your work has only just begun after you make that first initial sale. Now it is time to put a pattern in place to continue to sell to your current customers. Not only will this remind them they made the right decision by doing business with you it is much easier than going out and trying to find all new customers.

  1. Bring back customers you lost

Most of your inactive customers will be open to renewing their business with you if they are approached in the right way. This is one of the quickest and easiest ways to boost sales because they have already shown they are willing to do business with you and are interested in your products. Contact your inactive customers, find out why they stopped buying from you and show them you still value their business.

  1. Frequent communication calendar

To build relationships with your customers it is a good idea to have some kind of constant communication system in place. This is a preprogrammed system of emails, phone calls, or special offers that will occur automatically. This will go over well with your customers because it lets them know you appreciate them and reminds them why they decided to do business with you in the first place.

  1. Great customer service

The best way to hang onto a customer is by delivering excellent customer service. This will also bring in new customers because your current customers will share how well they were treated when they did business with you. Always respond immediately to customers, be sure to go above and beyond what your customers expect, and always deliver on your promises.


It is important to continue bringing on new business but doesn’t make the mistake of focusing on marketing to new customers at the expense of the ones you already have. It costs seven times as much money to bring on new customers than it does to keep the ones you have. Customer retention strategies pay off big time in the long run and will help you build a more solid business.

Begin creating successful customer retention strategies to convert new customers into lifetime customers. This will allow you to spend less and earn more in the long run, which is the goal of any business.

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About the author - Amit Kothari

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