Guide to Customer Retention (Definition, Rates, Strategies & More)

Guide to Customer Retention (Definition, Rates, Strategies & More)

It's cheaper to keep an old customer than to acquire a new one‚ÄĒwith that in mind, we'll walk you through customer retention strategies and ideas.

I’ll speak my truth: It’s much harder to keep a customer happy overtime than to sell them on a one time deal. Sales teams may disagree. But from my perspective, the hard work really starts once the sale becomes a relationship

It’s like a first date versus a ten-year relationship—you tell me which requires more work. The good news is the work is worth it. And for e-commerce businesses, the ROI for customer retention is clear.

In “The Economics of E-Loyalty,” Frederick F. Reichheld and Phil Schefter found that customer acquisition costs are especially high for online retailers, costing 20-40% more than traditional retail stores. 

But that dip more than rebounds as you retain customers. 

Repeat customers spend more than twice as much after 24 months. They go on to say that customers become more loyal to an online brand as well, often referring new customers. 

It makes sense that a customer lifecycle chart for e-commerce looks something like this:

Retention is an undeniable factor for growth and revenue. When you master not just attracting customers, but retaining them, it sets a solid foundation for your entire organization. 

What is customer retention?

Customer retention describes the ability of a company to maintain its current customer base after acquisition. The goal of customer retention is to increase revenue by generating repeat sales from current customers rather than sinking costs into acquiring new customers. 

Customer retention strategies revolve around improving metrics for customer lifetime value (CLTV), customer satisfaction (CSAT), and Net Promoter Score (NPS), among others. Customer support, customer success, marketing, or sales teams can all be involved in customer retention efforts.  

Benefits of customer retention

There really aren’t any downsides to customer retention. But seeing the benefits spelled out might make you stop what you’re doing and create a customer retention plan right now. 

Here’s a short list of the benefits of customer retention:

  • Decrease acquisition costs
  • Increase CLTV
  • More stable growth predictions 
  • Increase overall profitability
  • Increase word of mouth referrals

Marketing teams can actually decrease spending while increasing loyalty and customer lifetime value. 

The data proves it. According to The Harvard Business Review acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one. And, increasing customer retention rates by 5% increases profits by 25% to 95%.

That’s a huge bump for a relatively small effort. With margins as tight as they are in e-commerce, focusing on customer retention allows you to broaden your store’s scope without taking as much of a risk.  

Customer retention metrics

Customer retention metrics guide your analysis and the success of various strategies. They can help you decide which retention strategies to put more effort into and which ones to put aside. 

Follow these six retention metrics to understand the health of your current customer base and where to dedicate your time.

1. Customer retention rate 

Customer retention rate quantifies the ability of a company to maintain its current customer base after acquisition.

How to calculate customer retention rate

First, set a time period you want to measure (i.e. past week, month, quarter, year) then gather the number of customers:

  • At the end of the time period
  • Added during the time period
  • At the start of the time period

Subtract the number of customers added from the number at the end of the period, divide by the number at the start, and multiply by 100.

2. Customer churn

Customer churn describes the drop off in engagement with a customer, whether they no longer actively use a product or formally end a service agreement.

How to calculate customer churn

Set a time period you want to measure (i.e. past week, month, quarter, year) then gather the number of customers:

  • At the end of the time period
  • At the start of the time period

Subtract the number of customers at the end of the period from the number at the start, divide by the number at the start, and multiply by 100.

3. Customer lifetime value (CLTV)

CLTV or CLV (Customer lifetime value) measures the potential amount of money a customer could bring to your business over the entirety of their relationship.

How to calculate CLTV (customer lifetime value)

Gather the average:

  • Order value of one of your product(s) or service(s)
  • Number of repeat purchases
  • Time your customers stay with you

Multiply average order value by average amount of repeat purchases, then multiply again by average amount of time customers stick around.

4. Customer satisfaction (CSAT)

CSAT (Customer Satisfaction) surveys reveal customer happiness as it relates to a particular interaction.

How to calculate customer satisfaction (CSAT)

The CSAT formula is the sum of all scores divided by the number of respondents, multiplied by 100 (to get a percent) .

CSAT is measured as a percent on a 0-100 scale. The closer you get to 100%, the better. That said, if you’re craving a basic breakdown of scores, here’s some general guidance:

  • 0-40% poor CSAT
  • 40-60% okay CSAT
  • 60-80% good CSAT
  • 80-100% excellent CSAT

5. NPS (Net Promoter Score)

NPS (Net Promoter Score) measures a customer’s desire to recommend your product or service.

How to calculate NPS 

To calculate NPS, subtract the percent of detractors from the percent of promoters.

NPS is measured on a -100 to +100 scale:

  • -100-0 = Bad NPS
  • 0-50 = Good NPS
  • 50-70 = Excellent NPS
  • 70-100 = World-class NPS

6. CES (Customer Effort Score)

CES (Customer Effort Score) defines the amount of effort a customer needs to exert to resolve an issue with a product or service.

How to calculate CES (customer effort score)

The CES formula is calculated by adding up all the scores and dividing by the number of respondents.

CES ranges depending on the scale you use. Generally, low scores indicate heavy customer lift and high scores reflect minimal effort.

Using a 7-point scale:

  • 0-3 bad CES
  • 4-5 okay CES
  • 6-7 good CES

All of these metrics combined will give you a 360-degree view of your customer retention. Even tracking one or a few statistics, though, will enlighten your retention strategy. 

The most important thing is to track something pertaining to customer retention. You can tell what a company values by what it measures—make sure customer retention is on your list. 

15 customer retention strategies

The best customer retention strategies pull from your unique brand voice and customer experience. Take these examples as a starting point, then spin them to work for your company. 

In practice, your customer retention strategies will continue to evolve and change as your business grows. But I encourage you to focus on retention before growth. If you keep your current customers happy, then growth will follow.

1. Provide proactive customer support

Most customers who have a problem with your product won’t tell you about it—they’ll just churn. In fact, one study suggested that on average for every customer who complains about an issue, there are 26 who don’t say anything; they simply leave.

One way to find those issues—and solve them before they turn a customer into a former customer—is with proactive customer support emails sent to customers whose usage appears to be slipping.

Identify high-risk events (like cart abandonment or unanswered surveys) that typically lead to churn. Then, engage with those customers as soon as you notice the warning signs. You’ll have a decent chance at preventing churn.

2. Reduce customer effort

The Harvard Business Review published some findings which suggest that the single greatest factor in customer loyalty isn’t “WOW’ing the customer” so much as reducing customer effort. Make life easier for your customers, and they’ll have a great reason to stick around.

An easy way to do this is by using a fully packed customer support platform. With a sidebar pulling in all relevant customer information, you can eliminate unnecessary (and frustrating) back and forth emails. 

Reference purchase history, previous messages, and more without needing to leave the inbox. This way, you can provide fast and efficient support to every customer who needs it. 

3. Educate your customers

We’ve slowly veered away from “lowest common denominator” advertising over the years. Consumers are as savvy as ever. And if you want to reel them in, it’s worth treating them with respect and honesty. 

The simplest way to embody this is to educate your customers. Whether it’s about your product on a small scale (i.e. how you source and package your materials) or how your business works as part of a larger mission (i.e. reducing global food waste). Customers will appreciate your teachings and return the favor by sticking around for years to come. 

Use a knowledge base to house all the answers to these questions and more. 

It’s an easy way to publish everything about your business in one easy-to-find place. Lean on both marketing and customer service teams to create copy that’s compelling and educational. 

4. Make it easy to reach you

When a customer wants to get help or ask you a question, they’re already having a less-than-perfect experience. Don’t make it any worse by forcing them to work to figure out how to get in touch.

Make it ridiculously easy to reach you, either by prominently displaying instructions for getting in touch, or with a support widget on every page that’ll let the customer get help from anywhere.

Offer support wherever your customers can be found: Facebook, Instagram, WhatsApp, Mars… you get the idea. 

5. Regularly send and evaluate Net Promoter Score (NPS) surveys

NPS (Net Promoter Score) surveys measure a customer’s desire to recommend your product or service. By tracking this score, you can get a handle on two things: (1) How likely you are to attract new customers and (2) How likely you are to retain your current ones. 

Keep a pulse on these surveys to determine when and how to implement retention incentives or improve your offerings. Ideally, you send the survey on a rolling basis. Set up an automated email to reach out to new customers after a few days, weeks, or months. Then touch base with them again after their next purchase. 

By tying the survey to your customer’s life cycle rather than a static date (i.e. sending once a quarter from your team), you can get constant feedback rather than a deluge of information at once. 

The survey questions are simple enough:

  • How likely are you to recommend our store on a scale from 0 to 10?
  • Optional: Why did you choose this rating?

Results from the first question tell you how many of your customers are promoters (those who respond with a 9 or 10), passives (7 or 8) and detractors (0 to 6). Results from the second question tell you why, and most importantly, give clear direction on what to do to increase customer retention, both for individual customers and across the board for all users.

6. Surprise customers with delightful experiences 

In today’s e-commerce landscape, great customer service needs to be the norm. But exceeding expectations is a powerful way to get your customers talking. After all, one survey found that 69% of people would recommend a company to others after a positive customer experience.

To go above and beyond, surprise your customers with small customer appreciation gifts, handwritten notes, or even a personal email to say thanks.

7. Reinforce your value

You work hard to deliver big value for your customers through your products or services. And if you’re doing your job, then your customers should see that.

But a small reminder never hurts.

It all comes down to a psychological phenomenon called reciprocity. The idea is that if someone does something nice for us, we’ll probably do nice things for them (and vice versa).

One study found that when restaurant waiters brought candy when they gave diners their checks, tips went up. And when the waiters came back afterwards with extra candy—delighting the customers—the tips got even bigger.

Delight your customers with “candy,” either through surprises like the examples in the section above, or simply by reminding them of the value you deliver.

Take the example of Imperfect Foods, a sustainable grocery delivery service. They regularly remind customers of the impact they’re making by shopping with them. 

Seeing numbers like this encourages customers to feel like they’re part of a larger mission and makes them appreciate the service that much more. It’s also a great reminder to keep doing business with you.

8. Deliver excellent customer service

When it comes to customer retention, the importance of customer service is clear: 89% of consumers begin doing business with a competitor following a poor customer experience.

Products have issues. Services have flaws. But if you can provide a seamless customer service experience, people will be forgiving.

Rather than push them right into the enemy’s arms, focus on excellent customer service to prevent customers from churning. Match your customer service orientation with your brand voice, mirror your customers’ tone, and offer support wherever your customers live to deliver excellent service. 

9. Review CSAT scores and incorporate feedback

CSAT (customer satisfaction score) reveals whether a customer experience was good or bad. A customer satisfaction survey is typically presented after ticket resolution to gather customer sentiment. It asks the customer to rate their support experience on a scale ranging from good to bad.

Your help desk should track this score automatically. This makes it an easy data point to follow and find out how your customers feel about your support. 

We know that better customer support leads to better customer retention. Use CSAT to help you identify what customers love about your customer service and what needs improvement. 

10. Go above and beyond with onboarding

If you’ve ever gone through the sign-up process for a software product and then simply been dumped into the app with no guidance, then you know how frustrating poor onboarding is.

Many consumers churn due to poor onboarding—but it’s an easy fix. Optimize your onboarding to score a few more retention points. Look at how simple and clear the instructions are in the steps of Slack’s onboarding process.

And once you get started using Slack, the helpfulness continues, even telling you what to expect from outside of the app.

Follow this one simple rule to design an onboarding flow that works: your users should never be left wondering what to do next, or why.

11. Delineate channels for acquisition vs retention 

It’s important to separate out the channels you plan to use for acquisition versus retention. You’ll be able to put the right team members on the right channels and present your offerings in the most helpful way. 

A study by econsultancy.com found that most customer retention strategies were carried out via email. Mobile messaging, mobile apps, and social media marketing followed closely behind. In contrast, paid search, online advertising, and SEO were seen as acquisition channels by the vast majority of respondents.

Look at your own data to determine where your current customers are and where you’re finding new ones. Then, tailor the content on each channel to speak to the right person.  

12. Handle angry customers with care 

The “service recovery paradox” presumes that angry customers can be converted to loyal customers if they experience a positive customer service experience. Meaning angry customers can actually increase retention rather than contribute to churn—if you handle it the right way. 

A study using tweets to airlines found that time to respond greatly affected customer loyalty.

A quick response to customer requests could make all the difference in customer retention. Pay attention to your customer service team’s response time when working on retention strategies. 

By using a platform like Groove to pull all your communication channels into a shared inbox, you can receive immediate notifications for social media messages. Your team can respond in an instant, making sure even angry customers are handled with the utmost care. 

13. Automate retention messages

Automated messaging presents a low-effort, high-reward tactic that can save customers and revenue. Advanced automation does the heavy-lifting, rather than account managers manually reaching out to individual customers.

Create a set of automated emails to target retention for current customers. Since you’re looking at people who already bought your product, you have much richer data to play with. You can even set up metrics using cookies on the backend to track user behavior to help improve UX and build better features for your online shop.

Use all this data to pinpoint certain customers who could benefit from more retention tactics and product education.  

For example, Thrive Market, an e-commerce grocery store, follows up with customers using automated emails tailored to their shopping preferences. 

By featuring products they know the customer is interested in, they increase the likelihood of them opening the email. And ultimately, they improve the chances of a consumer coming back to purchase more products. 

These recurring emails may be the nudge someone needs to get back onto your online store. 

14. Take advantage of thoughtful upsells

After customers have been buying from you frequently and responding positively to your engagement, it’s time to upsell. Not because you want to squeeze more money out of them, but because they could genuinely benefit from more of your products. 

Keep this mentality in mind when upselling and customers will receive it as a thoughtful gesture rather than a sleazy sales grab. 

This example leads with the benefit to the customer. By switching from a monthly to an annual subscription, they can save money.

For your business, this strategy increases CLTV and retention. Send these emails only once you know customers are happy and would actually want to upgrade.  

15. Offer e-commerce discounts

E-commerce discounts are a great way to incentivize customers to stay loyal. Pop-ups on your website provide a quick and easy way to capture leads while offering a discount to new customers. 

You can set up an autoresponder to immediately send over a coupon to your customer’s email address.

The discount makes it super compelling to convert website visitors to paid customers. This is a great, clear example of an e-commerce autoresponder that could work for a variety of store owners.

E-commerce stores are at the forefront of new retention strategies and innovative sales tactics. Lean on your unique brand voice and story to compel more customers to stick with your shop for the long run. 

Let these fifteen strategies guide you to create retention-enhancing customer experiences to keep your customer base and your revenue growing beyond the imaginable. 

Grow Blog
Melissa Rosen

Melissa is a CX Lead and content creator at Groove. Her background spans running customer support at startups to running script changes on live TV shows. Her goal is to help businesses grow by offering practical and actionable ways to improve customer experience.

Read all of Melissa's articles

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