Know What is Customer Retention and Strategies to Improve it
What is Customer Retention?
Customer retention is all about creating customer loyalty to encourage repeat purchases.
A business should maintain its existing customers over time. It is a crucial component of a company’s marketing and growth strategy. Customer retention efforts aim to sustain a positive and continuous relationship with customers following their initial purchase or interaction with the business.
Why Customer Retention is Important?
Customer retention is vital for businesses due to several key reasons. Firstly, it is less costly and time-consuming to retain existing customers than to acquire and convert new prospects.
Research from Harvard Business School indicates that increasing customer retention rates by just 5% can boost a company's profits by 25-95%.
It makes sense because companies are 40% more likely to convert customers who have already purchased from them than they are to convert new customers, and existing customers likely make up 65% of your business.
Secondly, upselling or cross-selling to returning customers is more straightforward than finding new leads, making it a more efficient strategy.
Additionally, customer retention helps reduce the churn rate, preventing avoidable revenue loss.
Finally, retained customers are more likely to become brand advocates, which can significantly increase your market share by promoting your brand to others.
What is the Retention Rate?
Retention rate is a metric that measures the percentage of customers who continue to do business with a company over a specific period. It indicates how well a company is maintaining its customer base by keeping existing customers engaged and satisfied.
How to Measure Retention Rate?
The retention rate is calculated by taking the number of customers at the end of a period, subtracting the number of new customers acquired during that period, and dividing by the number of customers at the start of the period.
Imagine you’ve been selling a product, billed monthly, for a few years. You want to determine your customer retention rate for the previous calendar year. After reviewing your customer data, you find:
You had 500 existing customers as of January 1.
You captured 40 new customers between January 1 and December 31.
As of December 31, you had 440 customers.
Plugging these numbers into the formula above, you derive the following number:
440 – 40 / 500 = 80%
A high retention rate suggests that a company is successful in maintaining customer loyalty and satisfaction.
1, 3, 7, 14, and 30-day retention rates are metrics used to measure how well a product or service retains its users over specific periods after their initial engagement. These metrics help businesses understand user engagement and identify patterns in user behavior.
Here's an example of 1-day, 7-day, and 30-day retention rates for various industries:
E-commerce
1-Day Retention: 25-30%
7-Day Retention: 10-15%
30-Day Retention: 5-10%
News Websites
1-Day Retention: 25-30%
7-Day Retention: 15-20%
30-Day Retention: 10-15%
Fitness Apps
1-Day Retention: 20-25%
7-Day Retention: 10-15%
30-Day Retention: 5-10%
Online Media and Streaming Services
1-Day Retention: 35-45%
7-Day Retention: 25-30%
30-Day Retention: 20-25%
Education (Online Courses and E-learning)
1-Day Retention: 50-60%
7-Day Retention: 30-40%
30-Day Retention: 20-30%
For a detailed report, you refer to the Apps Flyer App retention benchmark report
How to Improve Customer Retention?
Ensure a smooth, informative, and engaging initial experience with your product. A well-designed onboarding process helps users quickly understand its value.
Personalise interactions and offers to individual customer preferences and behavior.
Continuously improve your product based on user feedback and market trends.
Ensure responsive and empathetic customer support. Train staff to handle complaints effectively.
Implement reward programs that reward repeat purchases or engagement, such as points systems, discounts, or exclusive offers.