You’re probably no stranger to the term “customer retention”. For marketers, keeping customers coming back to your business is a constant struggle.
You’re trying out new tricks to get them to return to your local store or perhaps, your website. The good news is that you’re not alone. A customer retention plan can be the solution to keeping your users coming back to your business.
We analyzed some of the basics of client retention, why customer retention is important, and how to create a retention strategy.
What is Customer Retention?
Customer retention is the practice of keeping existing customers coming back for more products or services from your business.
Retaining customers is a challenge for any company, especially in today’s digital economy. Today’s customers are quick to switch to find better service. This happens if they are not getting a good experience from your business.
Companies that can retain customers in the long run often have lower costs of operation than those that struggle to do so. This is because there are fewer advertising marketing plans needed to maintain an already established customer base.
Why Is Customer Retention Plan Important To Every Brand?
A customer retention plan is a strategy that helps businesses to retain their customers for a longer period of time after they've made their first purchase. Companies use different customer retention strategies depending on their industry, competitors, and market share.
A customer/ client retention plan entails:
- Identifying what customers want and giving them more of it. (This might include discounts or other incentives).
- Upselling/cross-selling products and services. This can be done through targeted email and mobile marketing.
- Creating an easy return policy so that customers can return any product they don’t like.
Client retention is essential to the performance of any business because it helps maintain revenue, and lowers the cost of acquiring new customers.
It costs five times as much to attract a new customer as it does to keep an existing one. Plus, a 5% increase in customer retention can bring about an increase in profits by 25%+.
3 Ways How To Measure Your Customer Retention Plan
It costs more to acquire new customers than it does to retain existing ones. But if you’re not measuring your retention process, you may be missing out on valuable insights.
Here are three customer/ client retention metrics that should matter to every business.
Repeat Purchase Rate (RPR)
RPR is the percentage of customers who purchase again within a specific period. This is usually one year of their initial purchase. It's particularly important for businesses with long-term contracts. If for example, 50 percent of your customers renew their contract after 12 months, then your RPR is 50 percent. A good RPR is between 20 to 30 percent.
Knowing how often your customers buy from you is an important first step in determining client retention. The next step is to know what your purchase frequency looks like. This is a measurement of how often customers make a purchase after their initial purchase. Purchase frequency is important because it directly relates to revenue.
To calculate your purchase frequency rate, divide the total number of purchases made by the total number of unique customers who have made a purchase during the same time period.
Average Order Value
Understanding your average order value (AOV) is essential when calculating the success of your customer retention process. Your AOV shows how much revenue each customer generates. With this information, you can calculate the lifetime value of a customer and understand the importance of investing in client retention.
AOV can also help you understand your customers' spending habits and get a better sense of what they're willing to pay for certain items or services.
Calculate AOV by dividing total sales during a given period by the number of orders during that period. For example, if you have total sales of $400 and 50 orders, your AOV is $8.