What is Customer Retention and the Strategies to Increase Sales and Promote Long-term Customer Relationship

by Corey Philip //  November 15, 2019

How do you grow your business?

In general, people talk a lot about getting as many customers as possible. For some, that may be the best way to earn a profit but it’s not applicable to all, though.

While it’s important to get more people to buy from you, there are some types of businesses wherein growth happens quicker when they get more quality customers than new customers. That’s what customer retention is about.

Allotting as much effort into it as you would with customer acquisition has more probability of increasing your sales than focusing on the latter alone. If you’re at a loss as to how you could start implementing customer retention strategies with your sales team, this post is all about the what’s and how’s of customer retention.

What is Customer Retention?

Customer retention is the means of engaging previous customers into buying from your business again. Its process involves all the actions and strategies a company employs to foster a deep relationship with customers who already bought from them.

There are several sales strategies but one thing that differentiates customer retention strategies from lead generation or customer acquisition is that they require for the target person to have been converted at least once.

Having a great product and a good value on it are sometimes influential enough to make people buy again. This is a big reason why a lot of companies think customer acquisition is enough sales strategy. They think previous customers will automatically do business again with them after experiencing their product.

However, that is likely going to be surpassed by good customer service as the main driving force of customer retention.

Formula to Get a Company’s Retention Rate

Retention rate is the number of customers a business was able to keep measured against the number of new customers it acquired and the number of customers who defected over a set period of time.

The exact percentage is computed using this formula:

Retention Rate formula

Customer Retention vs. Customer Acquisition

  • Customer retention is known to be more cost-effective, while customer acquisition can cost up to 7 times more.
  • The success rate of sales to previous customers is 60 to 70 percent whereas the success rate of sales to new customers is only 5 to 20 percent.
  • The value of a lost customer is $243 in the US and $289 globally.
  • Increasing customer retention efforts even just by 5 percent can give you a greater ROI anywhere from 25 to 95 percent higher.
  • 68 percent of customers cuts relationship with a company because they deem them indifferent.

The differences between customer retention and customer acquisition and the significant advantage of the former is prominently seen in the statistics. These metrics above are based on statistics at least as of 2018.

If you apply the 80/20 rule, it presumes that 20 percent of a business’ customers drive in 80 percent of its profit. It may not be the exact division but it’s generally true of any business. Your best customers are not the ones who buy from you once and never again, but those who repeatedly buys your product or service and generally patronizes your brand out of loyalty.

Factors that Influence Customer Retention

Several factors affect customer retention. When you incorporate retention strategies with your sales team and start to take note of its effects in your business, these are the things that you need to consider:

Attrition Rate

Attrition rate is the exact opposite of retention rate. It’s the percentage of previous customers you lost over a set period of time. If you have a 45 percent retention rate, the attrition rate is automatically 55 percent.

Some businesses don’t pay much attention to customer retention strategies because there’s the argument that the ideal customers will keep coming back if they fit with your brand or if they’re the target of your product.

However, when you think about it as a way to decrease attrition rate, it switches the perspective. Entrepreneurs can add value to them as they see fit for their business because every company would want to prevent losing their past customers. This may be more acceptable than the idea of spending extra costs just to make past customers buy again.

Customer Churn Rate

Churn rate is the percentage of previous customers who have canceled their subscription or froze their accounts for a set amount of time. The difference of churn rate to attrition rate is that it doesn’t automatically mean losing a customer.

It’s applicable to types of businesses that require customers to pay on a recurring arrangement. These are service-based businesses that operate for a long period of time, SaaS, or any businesses with subscription-based products.

Customer Lifetime Value

Because customer behavior is unpredictable and therefore can’t be measured with objective accuracy, it’s often overlooked by some companies as extra unnecessary work. Shopify has found a way to simplify the calculation of the customer lifetime value.

According to their method, CLV relies on 3 core elements: Recency, Frequency, and Monetary Value, or RFM as they call it. You can calculate for the customer value by multiplying the average order value by the purchase frequency of one customer.

After getting the customer value, multiply it with the average lifespan of customer relationships for your business. That should give you an idea of how much a customer will contribute to your business.

Customer Satisfaction

A single satisfying experience will likely leave a positive impact on a customer and drive them to make a purchase again in the future. Customer satisfaction is a serious factor that could improve your customer retention.

However, you can’t objectively measure customer’s satisfaction because it’s a subjective concept. Some customers may be fully satisfied while others are only somewhat satisfied, but you can consider both as positive.

Still, a fully satisfied customer is likely to make a repeat transaction that drives 2.6 times more profit than a customer who was only somewhat satisfied. That’s quite a big number and, when compounded, really makes an impact on a business.

Customer Service

While you cannot measure customer satisfaction objectively, you can still do something to make every customer fully satisfied despite mistakes or lack of quality of product or service. The answer is customer service. You can’t go wrong with an impeccable service because that’s what most people remember.

After a bad experience, the customer service that you provide matters the most to customers. If they had been treated fairly, given an incentive or discount, it makes people switch their initial bad opinion.

As I said, mere good impression with a customer isn’t enough to make them do business again. Actually, 71 percent of customers actually take their business to a competitor just because of poor customer service. That’s such a big number to ignore straightening up your customer service as one of your focus on customer retention strategies.

How to Improve Customer Retention

If you’re just starting to incorporate customer retention into your business, I’d say don’t focus too much on all the statistics I just mentioned.

Stripped down to its core, customer retention is really all about keeping connections with customers as you would with friends and acquaintances. If you’ve converted them once, they likely only need to be assured that you’re keen on keeping ties after that first transaction.

This brings us to customer retention strategies, which should be your focus more than the statistics or formulas.

Set up a loyalty program

It’s shocking how much companies downplay the role of customer retention in growing their business. About 57 percent of marketers don’t see or believe their loyalty program as fully effective.

What makes loyalty programs most effective are surprise rewards, discounts, and promos. I can see how businesses could see this as a loss, but it encourages past customers to buy again. Offering these special runs are important because customers who feel they’re given special attention will likely support your business more in return for the extra effort towards them.

Offer a relevant upsell or cross sell with a high perceived value

Upselling or cross selling are two strategies that make follow-ups more sensible and enticing. Sometimes, when you approach customers with the obvious intention of making them buy from you again, it may come across as inauthentic.

At least with upselling or cross selling, you can angle your approach as a way to extend help. It also sends a message that you take notice of your customers because you upsell or cross sell them another product that would be helpful for them based on what they previously purchased.

Set customer expectations

Let’s get on a relationship tangent for a sec here. Not to be totally cheesy, but in relationships (and I mean in general, not just romantic), we’re often advised to set the grounds for how you want a person to treat you. So when you meet another person, they know exactly how to respect you, love you, or basically treat you.

The same goes for customers. What’s your ideal customer? How do they interact with you? What do they think of your business? What are their problems and needs? How do they approach buying from you? Once you have this set out, build your business so that customers will know exactly how to interact with you the ideal way you want them to.

Create a customer communication calendar

If you have a social media calendar, you know the importance of tracking and scheduling every piece of content that goes out to both your prospects and customers. You should treat every interaction made with your existing customers with the same level of attention.

Creating a customer communication calendar is the best way to keep track of when you last followed up with a customer, or when they last made contact with your business. This will make it easier to not lose any customer by forgetting to follow up.

Straighten out your corporate social responsibility program

I’d like to think the age of consumerism is starting to fade. The truth is, it is, and growing your business seems more certain when you’re a couple steps ahead.

Customers nowadays are not only paying attention to your product or service, they’re watching your every move. People like to support businesses with a supporting cause or with good core moral values. This could blend well with branding, because if you have a solid CSR program, your authenticity is reflected in every aspect of your business.

A decision of going towards better sustainability efforts is a CSR program that many are willing to get behind. Sometimes that’s all the reason they need to support your business.

Bonus: The Importance of a CRM System

All of these strategies are important to increase customer retention. However, vital to the implementation of all these strategies is a CRM system. They all go hand in hand as the strategies can’t be fully effective without consulting the data first, and information from your CRM can’t affect retention on its own.

Your CRM will inform you of customer behaviors, specifically purchase frequency, the amount paid by each customer, the attrition and churn rate, among other things. These details will allow you to make changes to your strategies that best fit your business goals.


If there’s only one fact that you need to know about customer retention, it’s that it has a bigger ROI for the lesser costs it requires compared to customer acquisition. It’s still such a big loss that so many companies choose to ditch this in their sales efforts. At least that’s what the statistics are revealing.

It means year by year, several companies are losing millions in potential sales. That’s significant profit. On the other hand, it’s all the more reason to get into it. Be one of the few businesses that choose to invest more in their customer retention strategies. See how your business grow rapidly.

About the author

Corey Philip

Corey Philip is a small business owner / investor with a focus on home service businesses.

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