How Customer Retention Can Drive Your Sales

7 min read

Customer retention isn't just a pretty metric to throw around but a key measurement of how well your business is doing and how to improve your sales.

Why is Customer Retention Important?

Customer retention is important because it helps to increase sales to your business. You want customers to keep coming back and purchasing your product or service and customer retention helps keep them satisfied so they become repeat customers.

Businesses that make retention a part of their Customer Success strategy spend less on customer acquisition and ultimately increase the lifetime value of their existing customers. Let’s explore exactly what customer retention is, and how you can implement retention strategies in your business.

What Is Customer Retention?

Simply put, customer retention is a strategy used to reduce churn and increase the number of repeat customers. This not only increases the overall number of clients but improves the profitability of each client served. Loyalty programs, customer success management, and personalized products are a few examples of customer retention in action.

In contrast, customer acquisition is the process of finding new clients. Cold calls, display ads, networking events, and content marketing are forms of acquisition strategies. Acquisition strategies often take a lot of time and money to execute, making them an expensive but necessary expense for any growing company.

But before building a strategy to make sure our customers stay with us, we must first understand why they would want to leave in the first place.

What Causes Customers To Leave?

By understanding why customers leave, you can engineer a strategy based on your own metrics to reduce churn and improve retention rates. While every business is different most clients leave because:

They are unhappy with their price

Price discussions are often difficult, as long as they focus purely on price. Therefore, make sure your customers quickly find the use of your product. As they move on their customer journey you want them to discover new features and an increased value working with you - not the other way around. Also, make sure you have a good custom fit. Trying to avoid price discussions by constantly promising product development can actually cost you even more in the long run.

Your product didn’t solve their problem

Make sure you have a dedicated CS team that puts in the time and effort during the onboarding phase to ensure everybody aligns on the customer’s business goals, and find the best ways to solve them. Try to keep a high-level approach to the initial discussions and not get stuck in the product details. It´s the big problem you want to solve.

They received a poor experience

Your product may have bugs, glitches, or even downtime which can frustrate your users. However, with a qualified customer service team, these issues can be handled. Also, live chat, FAQs, and NPS are all great tools that ensure you keep track of your customers' experiences. Even better. An active CSM can identify upcoming issues before they become a problem. That way you are able to turn a potentially poor product experience into a professional business experience.

They don’t feel heard or seen as individuals

To buy into a product, and then feel abandoned as soon as you've paid for the first 12 months, is a bad experience from the beginning. Make sure you have playbooks in place for all your customers - from high touch to low touch - that include regular check-ins and a proper feedback process. This way, every user will feel heard, seen, and valued.

They no longer have a use for your product or service

Businesses evolve, and so does your product. Therefore, make it a priority to understand your customer’s business goals in the long term so that you can adapt your solution to fit their specific needs – as they grow. Also, don´t forget to remind your clients of the value your product actually creates by regularly showcasing the progress they make.

How To Calculate Customer Retention

To calculate your retention rate, you’ll need three pieces of information:

  • The number of existing clients at the start of that period (S)

  • The number of new clients added within that period (N)

  • The number of clients at the end of that period. (E)

With these numbers, we can calculate the retention rate as a percentage (X) for that time period:

Customer Retention Formula

(E-N)/S * 100 = X

Similarly, you can calculate customer churn by dividing the number of lost customers (LC) by the number of total customers (TC) during a set time period. Churn is basically the inverse of your retention rate.

Customer Churn Formula

(LC/TC) * 100 = Customer Churn Rate

Retention rates will fluctuate depending on the industry. For example, IT services can expect a rate of around 80% whereas businesses in the retail space hover around 60%.

These numbers differ based on how competitive the market is, how easy it is to switch solutions, and how customized clients feel their service is to them.

If you’ve crunched the numbers for business and aren’t happy with your rates, here are a few strategies you can use to get those numbers up.

How To Improve Customer Retention

Implement Customer Success Strategies

Customer success starts on a strong foundation of best practices and dedicated Customer Success Managers. This strategy takes a more proactive approach to answering questions, resolving problems, and ensuring clients are getting the value they seek from your product.

A Customer Success strategy goes beyond customer service and works to provide personalized solutions and hands-on assistance when needed. By employing these strategies clients will stick with you longer, and you’ll have the opportunity to repair relationships before pain points lead to churn.

Collect Customer Feedback

Along with monitoring your churn and retention rates, collecting feedback is vital to understanding how they feel. Surveys are perfect for collecting and calculating metrics such as customer satisfaction and Net Promoter Score.

Collecting this information can help identify trends, uncover pain points, and act as an early warning system for clients who may churn soon.

Provide Smooth Onboarding

Onboarding is often the first real test in the relationship between the customer and company. A rough onboarding process can cause the client to lose faith in the company early on, or get frustrated and abandon the product.

Onboarding should be a smooth predictable process with Customer Success Managers available to resolve any issues as soon as possible. Every person is different in terms of their goals and problems. If you can customize your onboarding to match their unique challenges, they’ll stick around for the long term. The key here is to reduce as much friction as possible.

Leverage Customer Retention Software

Improving customer retention across a company requires continuous monitoring, and deploying a tailored solution when metrics shift in the wrong direction. Retention software is a powerful tool that can immediately identify signs of dissatisfaction and work to immediately resolve the issue.

Both small and large organizations can use software to cut costs and automate the repetitive aspects of managing client relationships. This gives your team more time to focus on providing white-glove service, and building lasting relationships between the customer and your brand.

How Planhat can help

Planhat connects all the customer data, gets actionable insights, and drives actions to manage renewals, reduce churn and boost expansion.

Planhat also provides a unified view of your customers all in one place, identifies risks and opportunities, creates clear, repeatable processes through the customer lifecycle, and offers multi-channel communication as well as customized inboxes for teams.

With Planhat Portals, it is possible to share success plans, playbooks, dashboards, goals, documents, and align on business goals with your clients in a branded Customer Portal.

Altogether, Planhat is a complete Customer platform that lets you track the KPIs that matter the most for the future growth of your business.

To find out more:

Customer Onboarding | Software, Solutions & Success

Customer onboarding software is a great resource for customer success teams to make a good first impression with their customer but which is the best software?

How to Build the Best Customer Success Team

When's the best time to hire for your customer success team, what's a CSM and why do you need customer success in the first place? Keep reading to find out!

The key behind Planhats success in the G2 Winter Report

One key reason for Planhats success in the G2 Winter report is a culture of constantly developing the software, led by co-founder Niklas Skog.

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