For many companies, customer retention efforts tend to be passive or automated. These brands operate on the assumption that good products and decent service are enough to retain customers they’ve already courted and won.
But winning a loyal customer isn’t a one-time effort. Dedicating energy to effective customer retention strategies helps both enterprise and small businesses create loyalty that lasts, resulting in higher revenue, invaluable word-of-mouth marketing, and a built-in base of market research participants.
The bottom line is this: by applying the right client retention strategies, you can support your local business in growing both loyalty and revenue.
Importance of customer retention
A faithful existing customer may not be worth their literal weight in gold, but it’s worth treating them as if they were. Studies show that:
- Boosting your customer retention rate by 5% can increase profits by 25%–95%
- Existing customers spend 31% more than new customers
- Acquiring a new customer is 5–7 times costlier than retaining an existing customer
- Current customers are 50% more likely to try new products
Although these stats are widely available, companies often overinvest in lead generation while skimping on customer retention.
Understand your customer turnover
Not every customer has a happily-ever-after ending with a business they frequent. Before you move on to retention marketing strategies, you need to understand where your business currently stands with customer loss.
Measure and benchmark customer churn
Customer turnover—how many customers you lose over a period of time—is also called attrition or churn. You can measure it by selecting a time period (day, month, quarter, or year), and then applying this formula:
(Number of Lost Customers ÷ Total Customers at the Start of Time Period) × 100 = Churn Rate
For example, if you had 279 clients at the start of June and lost 17 by June 30, then your monthly churn rate is 6%.
Benchmark targets vary depending on your business size and industry. While most sources will advocate for single-digit goals in customer churn rates (or slightly higher for start-ups and small businesses), industry averages are:
- Professional services: 27%
- Consumer packaged goods: 40%
- Manufacturing: 35%
- Wholesale: 56%
- IT services: 12%
- Computer software: 14%
- Financial services: 19%
- Telecommunications: 31%
The most important starting point is your own business. Calculate your monthly and annual churn rates for the last few years (and going forward) to:
- Identify seasonal cycles
- Identify connection to price or product changes
- Compare whether your churn rate is getting larger or smaller over time
As you start tracing your retention and churn rates, you also need to consider the reasons behind them.
Determine the causes of customer turnover
You won’t always know the “why” behind a lost client, but attempt to capture it (i.e., through automated online surveys or direct emails or calls). Common rationales include:
- Poor service
- Product performance or fit
- Customer experience
- Price point
- End of an introductory offer without adequate incentive to remain
- Competitor marketing or special offers
Ask about reasons at a general level, and where possible, try to get down to details. Customers leaving your client base can often point out problems you hadn’t prioritized, identify product glitches, or simply provide a deeper understanding of your base’s motivating factors.
Identify patterns of decline in customer retention
In addition to seeking explanations from clients as they exit, look at your customer data from a larger perspective. A drop in your retention rates typically points to a problematic loss of customers and revenue that could be related to:
- Demographics – Do you have a customer base that includes aging out of your services, dying, leaving the neighborhood, or no longer in need of your products?
- Company change – Rebranding, product redesign, change of ownership—when there’s a major change that impacts customer experience and/or perception, customer retention may be an indicator of change management success.
- Market change – Not all changes come from your business decisions or the customers themselves. Inflation, personal safety, social pressure—significant socioeconomic and cultural shifts can ripple out to increase churn from multiple angles.
Consider how you can respond to these customer behavior patterns, challenges, and opportunities at solution, service, and messaging levels.
Watch for an increase in customer complaints or inquiries
Track every customer interaction with an eye toward changing levels of confusion and dissatisfaction, whether displayed face-to-face or through chats, posts, calls, or even the use of an online how-to section.
If multiple customers are spending more time reaching out, look for common stress points that help illustrate where you can adjust processes, tighten up supply lines, or provide clearer instructions.
Proven customer retention strategies
If you focus on the “relationship” in customer relationship building as the cornerstone of loyalty and retention, then the initial customer acquisition is the courting and honeymoon stage. Once converted, however, clients of some businesses languish as if the romance is over.
Tried-and-true client retention strategies include:
Create an effective communication and engagement plan
Although modes vary by industry and business model, let’s look at a general retention communication plan. You may want to include:
- Customer loyalty programs with purchase and longevity (vs. new customer) rewards
- Onboarding and training appropriate to your product or service
- Content designed to enhance current user experience and maximize value
- At-a-click ads, emails, or other points with prefilled data that make re-upping simple
- Countdown communication campaigns for annual renewals or seasonal purchases
To ensure effectiveness, you can tweak the language and approaches above for your unique needs.
Utilize customer feedback and follow up with them
Who knows your products better than long-time clients? Whether you're working on a marketing campaign, a new service offering, or any other change or new project, your current customers are the ideal audience to ask for feedback.
To that end, consider:
- Exit surveys from customers who leave
- Feedback requests during calls, visits, and other exchanges
- Follow-up surveys after a customer service call, major purchase, etc.
- Annual market research surveys for current customers
- Invitations to participate in focus groups, product trials, member forums, etc.
- Incentives when you ask for significant time or information
Once you have the data, you can leverage it. This means you can:
- Set up a process to review, discuss, and make the data actionable
- Funnel useful information to relevant individuals or departments
- Assign follow-up to individuals (with deadlines and report-back processes)
- Communicate customer-facing changes with user updates, emails, etc.
- Individually thank any customers whose feedback spurred change
Does this sound more like how to leverage your clients vs how to develop customer retention strategies? While loyal customers can help you understand your audience habits, improve your products, and otherwise succeed, looping back around to the customer (as well as continuous improvement of your offerings and interactions) is what affects retention levels.
Customize and personalize your exchanges
Have you ever received a marketing message trying to sell you something you already purchased from a company or auto-filling the wrong name for you in a personalized message?
Customers want to be known to businesses—whether that’s at a human level during an exchange or through a website that retains their preferences and purchase history in ways that save time and add value.
So, consider fostering more personalized communications through:
- Anniversary or other periodic gifts or vouchers
- A user experience that recognizes their customer data and purchase history
- Opt-in newsletters with tailored content choices
Build trust and transparency
When a hiccup occurs with a product or communication, treat your customers as the VIPs they are. Have a response protocol in place to:
- Be honest and timely in addressing concerns
- Acknowledge and take responsibility for the issue
- Provide personalized handling by an individual with a name
- Note what glitch or error occurred and what has been done to rectify it
- Provide compensation in some form
While excellent products, customer service, and brand promotion attract customer loyalty, often, it’s how a business handles a problem that can solidify the customer relationship most strongly.
Nextdoor for customer growth and retention
Retaining customers is as essential to your local business’s success as attracting them in the first place—in the long run, perhaps even more essential. By understanding the importance of customer retention strategies and how to adapt them to your business, you can build a base of loyal, long-term happy customers who come back to your brand again and again.
Being accessible and responsive is foundational to customer retention, and the best way to connect with clients in your community is through Nextdoor. Once you claim your business page, you can schedule posts and digital ads with curated messages and special offers, and partner with your satisfied customers to build trust through their recommendations of your company.
The comprehensive Nextdoor Ads Manager dashboard also helps you track and analyze engagement and campaigns against KPIs as you boost your community presence, nurture your reputation, and generate new business leads.
Just take a look at these real-world examples made possible by Nextdoor’s local business tools:
- Skincare studio Skin by Lexie grew its clientele by 900 through Nextdoor neighbor recommendations
- Sustainable remodeling business All Eco Design Center continues to grow a loyal customer base through trusted referrals
- Real estate agent Kim Renshaw builds solid relationships through Nextdoor sponsorships that sustain her business
Looking for more insights and guidance on customer retention strategies? Browse our blogs for other success stories and innovative campaign ideas.
Sources:
- Forbes. Customer Retention Versus Customer Acquisition. https://www.forbes.com/sites/forbesbusinesscouncil/2022/12/12/customer-retention-versus-customer-acquisition/
- Forbes Advisor. What Is Churn Rate & How Do You Calculate It? https://www.forbes.com/advisor/business/churn-rate/
- CustomerGauge. What’s the Average Churn Rate by Industry? https://customergauge.com/blog/average-churn-rate-by-industry
