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Table of Contents
Introduction
Customer retention is a major concern in the customer service world. While a lot of focus is put on the acquisition of new customers, retention can provide greater results in the long run by extending the lifetime value of each customer and strengthening loyalty, a prospect far less costly than acquiring a new customer.
Let’s take a look at some of the most effective customer retention strategies that your company can use to boost your results and gain greater lifetime value (LTV) from every existing customer.
Key takeaways
- Customer retention creates more profits than acquisition: Though both are important to a healthy business, when it comes to customer retention vs. customer acquisition, retention has a greater long-term value, and businesses should strive to retain their existing customers and foster loyalty.
- Retention is cultivated through consistently high-quality, proactive, and personalized service: Customers respond well to support and service that is customized to their individual needs and shows initiative by proactively preventing problems instead of just fixing them after the fact.
- Retention success should be measured through KPIs: Informative metrics like NPS, CSAT, churn rate, and CLV are able to shine a light on current performance, the overall impact on the customer experience, and the monetary outcomes for the business.
Why customer retention matters more than acquisition
It’s all too easy for businesses to focus their time and resources on chasing and acquiring new leads. However, when this is done at the expense of retaining one’s existing customers, it can make doing business more expensive than necessary.
According to research by Frederick Reichheld of Bain & Company, as little as a 5% increase in customer retention can result in over 25% increase in profits, for the simple reasons that loyal, long-term customers tend to spend more over time and refer new clients along the way.
6 Core customer service retention strategies
To strengthen your customer retention through customer service, it’s important to be strategic. Some of the most effective strategies to improve customer loyalty include:
1. Personalization in customer service
You can give customers more of what they want by personalizing customer service interactions. Through analytics, purchase histories, and known customer preferences, your company can provide a more relevant and helpful experience for customers, treating each customer as an individual with unique experiences and needs to develop trust. A good CRM platform is an excellent tool for making customization a reality.
2. Omnichannel support for consistency
It’s important to meet customers precisely where they are by accommodating the communication channels that they use the most, from phone, chat, and email, to social media integrations and self-service options. By offering omnichannel support, you not only create a more consistent customer experience, but you also allow customers to feel heard no matter which channel they are using, never having to repeat themselves.
3. Proactive customer communication
If all you do is wait for customers to come to you with a problem, you might be able to help some customers, but you’ll also run the risk of frustrating the customers who had problems that were allowed to snowball. By anticipating customer needs and reaching out proactively, you can build goodwill among customers, develop long-term working relationships, and prevent churn.
4. Building customer loyalty through rewards programs
Loyalty programs work in both B2B and B2C contexts, providing your clients or customers with valuable perks, discounts, or exclusive access to unique features, rewarding their brand loyalty and long-standing relationship with your company. The best loyalty programs will reward and reinforce the positive customer behavior you hope to see more of, offering relevant rewards that make customers feel valued for interacting with your brand.
5. Leveraging AI and automation for retention
While efficiency is the major draw of AI-based tools, they can also be useful for predicting and preventing customer churn, giving you the chance to proactively address the problems that might cause friction for customers. Tools like chatbots are adept at resolving simple and common complaints quickly, while tools like predictive analytics are able to draw attention to customers who are showing retention warning signs.
6. Training and empowering customer support teams
Advanced tools are a major help when it comes to retention, but if your team is not given the proper training and hasn’t developed the right customer support skills, it’s a moot point. To be truly empowered to strengthen customer retention, agents need to be thoroughly onboarded and provided with regular training, feedback, and coaching to encourage and develop problem-solving and empathy skills.
Measuring customer retention success
Retention strategies, like most goals, are essentially just wishes if they aren’t measurable and actionable. Some of the most common KPIs used to guide customer retention strategies include:
NPS (Net Promoter Score)
Net Promoter Scores are a measure of how likely your customer base is to recommend your brand to other people. This is calculated by surveying customers on their likelihood to recommend working with you, on a scale of 0 to 10 (10 being the highest).
Then, the percentage of those surveyed who are considered “detractors” (those who rated with a score from 0 to 6) is subtracted from the percentage of customers who are considered “promoters” (scores from 9 to 10). The result, expressed as a number from -100 to 100, is the NPS.
Note that customers who rate your business either a 7 or 8 are considered “passives”. Passives are part of the total survey sample size that helps determine the percentages of promoters and detractors, but are not directly counted to calculate the final NPS.
This focus enables dynamic customer engagement, elevating service in key ways.
- Real-time responses meet customers where they’re at for more convenient, faster care.
- Historical data highlights areas to personalize service, providing solutions proven to increase satisfaction.
- Example: Automatically matching customers with ideal agents based on language, location, history, skillset, or preference.
- Unified experiences foster strong relationships with customers, boosting loyalty.
- Real-time feedback provides tips for keeping up with evolving customer expectations.
So, assuming after your survey that your results were:
- Promoters: 75%
- Passives: 10%
- Detractors: 15%
Then, you can discount the 10% of Passives, and your calculation will become the following:
CSAT (Customer Satisfaction Score)
CSAT measures the percentage of your customers who are very satisfied with their experience with your brand. To calculate CSAT, a large sample of customers will be surveyed, asking how satisfied they are with their experience, on a scale of 1 to 5 (5 being the best). The CSAT is the percentage of responses that score their experience at 4 or higher, expressed as a percentage from 0% to 100%.
The resulting figure will be expressed as a percentage.
As an example, assume you received 150 responses to your survey, and 94 of them scored their satisfaction at a 4 or 5. From there, your calculation becomes:
Churn rate
Churn rate is the percentage of customers lost (going inactive, cancelling, or generally ceasing interaction) within a given period of time. Churn rate is calculated by dividing the number of customers lost within the defined period (month, year, etc.) by the total number of customers at the beginning of the period.
The resulting figure will be expressed as a percentage.
Let’s assume that you are calculating churn rate for the year. Say that you started the year with 5000 customers, and lost 750 customers by the end of the year, then your calculation will look like this:
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CLV (Customer Lifetime Value)
CLV measures how much revenue the average customer generates for your brand during their entire relationship with the brand. The formula used to calculate CLV is:
Average Purchase Value is the average amount that customers tend to spend in a single transaction, which is calculated by dividing the company’s total revenue by the total number of purchases that created that revenue.
Assuming your total revenue is $20,000, which was earned from 450 total purchases, then your calculation becomes:
Purchase Frequency is the number of purchases that the average customer makes within a given period of time, with the period usually being a year. To calculate purchase frequency, divide the total number of purchases made in the time period by the total number of customers who made those purchases.
If you had 500 purchases in one year, and those purchases were made by 80 customers, then your calculation for purchase frequency for the year will be:
Finally, Customer Lifespan describes the average length of time that customers tend to do business with you. This is usually estimated by dividing 1 by the annual churn rate. Mathematically, this gives you the inverse. This calculation is commonly used to give a rough estimate of the average customer lifespan.
The resulting figure is expressed in years.
So if we use the same example as we used earlier for Churn Rate (5000 customers, 750 customers lost by the end of a year), then we get the following calculation:
Let’s bring it all together for an example CLV.
To calculate your Customer Lifetime Value, you’ll need 3 figures:
- Average Purchase Value, calculated from
- Revenue
- Number of Purchases
- Purchase Frequency, calculated from
- Number of Purchases
- Number of Customers
- Customer Lifespan, calculated from
- Number of customers at the beginning of the period
- Number of customers lost by the end of the period
For all figures with undefined time periods, let’s assume 1 year.
So, let’s suppose your company had a total revenue last year of $500,000, which was earned through 40,000 total purchases, which were bought by 25,000 customers. At the beginning of last year, you had 25,000 active customers, but 5,000 of them had gone inactive by the year’s end.
With that, you have all of the information you need to calculate your current CLV.
Conclusion
The quality of your customer service and your customer experience strategy are vital components of customer retention and loyalty. Businesses can strengthen their customer retention by leaning into powerful differentiators like proactive outreach, personalized service, consistency through omnichannel solutions, and paying close attention to data and analytics. By pairing these strategies and solutions with the right tools, you can empower your agents to reduce churn and foster loyalty to your brand.
If you’re ready to change up your CX strategy to retain more customers and reduce the cost of your services, get in touch with us today to see how Global Response’s contact center outsourcing solutions can strengthen your retention efforts!
Customer service retention strategies FAQs
How do you measure customer retention in customer service?
The most informative customer retention KPIs to track are Net Promoter Score (NPS), Customer Satisfaction Score (CSAT), Customer Lifetime Value (CLV), and churn rate. Together, these stats can give your company a useful and actionable bird’s eye view of your performance, as well as where you can improve.
Why is customer service important for customer retention?
Your customers’ perception of your brand is shaped by the customer service interactions you have with them. Not only do positive customer interactions foster good word-of-mouth, but they also make customers more likely to come back.
What role does technology play in customer retention strategies?
Technology should ideally augment each agent’s skills and efforts to assist and retain customers. For more proactive support that is personalized to the individual customer, technology such as automation, AI-enabled tools, and better omnichannel solutions can each play a part in curating a more effective customer experience that helps customers to feel heard.
What are common mistakes businesses make with retention strategies?
When businesses ignore feedback from existing customers and focus purely on acquisition, it’s all too easy to become shortsighted and fail to earn loyalty from customers in the long run, which is far more valuable than new customers alone. Additionally, when businesses fail to empower their support teams with proper tools, training, and procedures, it’s a recipe for disappointing or frustrating customer experiences.
How can small businesses improve customer service retention?
Small businesses can improve their customer retention efforts through simple and affordable CRM tools that allow for more seamless customer support. It can also be cost-effective for small businesses to outsource their call center services, allowing for strong relationships with customers through proactive support that is personalized to the individual, all while saving money and allowing the business to focus on other tasks.
