10 Customer Retention Strategies That Work

Customer retention is more cost-efficient than customer acquisition. It’s considerably cheaper to keep the customers you already have vs. trying to find new ones.

Let’s play the easiest game ever of “Would You Rather?” All other things being equal, would you rather spend $1 of your marketing budget to make a sale, or $25?

The answer seems obvious. Yet marketers focused on new customer acquisition could spend up to 25x less by diverting those dollars to customer retention instead.

Introducing new folks to your brand is important: it builds your audience, expands your reach, and looks great on growth charts. But if you want to get more bang for your buck, nurture those existing relationships to see the biggest ROI.

Below, we’ll review 10 customer retention strategies that boost sales, foster loyalty, and create raving fans.

What is customer retention?

Customer retention refers to your brand’s ability to keep customers over a set period of time. It’s measured by taking the total number of customers at the start, subtracting the total number of customers you have at the end, and dividing that by the time period.

How do you measure customer retention rate?

The customer retention rate formula is as follows:

Customer Retention Rate (CRR) = ((E-N)/S) x 100

E = Number of customers you have at the end of your chosen period
N = Number of customers you gained during your chosen period
S = Number of customers you had at the start of your chosen period

Let’s say at the start of the year, you had 1,000 customers. During the year, you lost 40 customers and gained 240 new customers. At the end of the year, you have 1,200 customers and want to calculate your retention rate. Based on that formula, your CRR is 96%.

CRR = ((1200-240)/1000)x100

CRR = 96%

Why is customer retention important?

Customer retention is important for many reasons:

It’s how you build loyalty and advocacy (which expands your customer base). If your business is merely making money from one-off sales, you won’t be able to build a lasting brand. New customers will churn before they ever have a chance to become loyal fans who spread the word about your brand to their friends.
It saves money. Again, it’s cheaper to nurture existing relationships than trying to acquire new ones. As brand trust builds, the cost of acquiring a new sale decreases.
It helps you make more money. This is particularly true for subscription-based businesses and SaaS companies, which rely on recurring revenue. Low CRR can spell business death.
It’s how you know you’ve got a great product and brand. If customers keep buying from you once and never return, it’s a red flag that your product or overall customer experience is disappointing.

10 customer retention strategies that work

Personalize the customer experience

Not only do consumers now expect personalized experiences, but 56% also say they’ll buy again from brands that offer them.

But personalization goes beyond merely adding a customer’s first name to your marketing emails. More than half of shoppers want brands to personalize their experience based on their interests and past purchases.

Personalization:

Learns the preferences of each buyer. A good customer relationship management software (CRM) will help you track what each customer has added to their carts, purchased, and returned. Through this, you’ll learn each shopper’s preferences and be able to send targeted emails and offers.
Meets the individual where they are. For instance, spamming inboxes with new product announcements makes no sense for customers who have had a bad experience with your brand. For those, you’re better off with customer appeasem*nt campaigns, which we’ll cover below.
Creates customized paths to help customers reach their goals. Newer customers might need more communications about how to use your product, while power users might benefit from news about your community and the latest product releases.

Offering personalized shopping experiences can look like this:

Prioritize excellent customer service

To stand out from the crowd, turn your customer service into a customer retention strategy. More than half of customers will take their business to a competitor after just one bad customer service experience. After multiple bad experiences, that number skyrockets to 73%.

If you want to exceed expectations with your customer service:

Keep your response times low. Thanks to AI, you can send a relevant response instantly based on commonly asked questions. Even an automated response is better than none at all. Seventy-four percent of customers prefer chatbots for immediate answers (though be sure to follow up with a personalized, human response when necessary).
Use a CRM to give support agents insights. That way, every time a customer contacts your support team, agents will have all the relevant info they need to give personalized responses.

Add a human touch. While support reps have protocols to follow, there are reasons to break from the script. Ninety-six percent of shoppers say that empathy is “very important” during customer service interactions.

Online pet supply retailer Chewy is renowned for adding a human touch to pivotal milestones in customers’ lives. When shoppers cancel an order because their pet has passed away, the company sends flowers and a note expressing condolences.

“You just earned customers for life,” writes Jason Klapmeier, whose mother was one of the recipients of Chewy's kind gesture.

Reward your loyal customers

Tap into the human tendency to do more of the things we get rewarded for. A loyalty program incentivizes repeat purchases by giving members gifts, points, rebates, discounts, and special treatment for being loyal customers.

And it’s effective. Research published in the International Journal of Business and Social Science found that loyalty programs, especially ones with different tiers, successfully built and maintained customer retention.

To craft a rewards program that benefits your business and your customers:

Make it free to join. Rewards programs are almost always free to join (it’s how they draw in so many customers). Some offer a paid upgrade in addition to the free membership.
Opt for monetary rewards, such as cashback or discounts. While no one’s going to turn down a free meal or a swag bag, our research finds that people favor money over non-monetary gifts.
It’s better to underpromise and overdeliver. Protecting profit margins when you’re running a loyalty program is a fine balancing act. As Dunkin’ Donuts and Delta found out, scaling back after the program is in full swing can result in backlash. For that reason, start small and run tests before committing to larger (and more expensive) rewards.

Invest in continuous innovation

Iconic brands, the ones that have become household names, know this play well: eEstablish a flagship product, and as the years pass, make small improvements to it to breathe new life into an old favorite.

Continuous innovations are small, incremental changes that do not fundamentally change the way customers use a product.; Iinstead, they enhance it.

The iPhone is a perfectrime example. Apple takes one of its staple product offerings and releases improved versions year after year, building the hype through its launch events and making customers feel like they’re getting the latest and greatest.

There’s a fine line between refreshing a product and disrupting it completely, so be sure to:

Gather critical feedback from customers. By now, your customers have likely shared many opinions about your product in online reviews, customer support emails, and social media comments. You can gather even more feedback through formal surveys. Analyze this data to see where to improve your product for its next release.
Run focus groups before committing to a change. Focus groups help you validate that your improvements are actually desirable to your target audience before you invest more resources into developing the updated product. This can prevent a major product flop.

Create a community around your product

Creating spaces where customers can bond over shared identities, values, goals, and of course, their love for your product can boost retention and loyalty. These spaces can be online (think forums and Facebook groups) or in-person.

Communities-of-product benefit customers by giving them a place to make friends and discuss how they’re using your product. And it's beneficial for your business because you get a direct line to your power users. They’ll share feedback for product improvements you might not have thought of on your own.

Just one glance at software company Notion’s community page shows how vibrant and dynamic these groups can be. Its members mingle at IRL events like an electric bike enthusiasts meetup in India, spread the word by becoming ambassadors, host webinars sharing best practices, and can even get certified to prove their Notion skills.

Request and integrate customer feedback regularly

Create customer feedback loops. These are mechanisms designed to collect, analyze, and act upon information your buyers provide at every stage of their journey.

In one survey, 77% of respondents said they view brands more favorably when they solicit feedback, but only 52% believed most brands actually take action on that feedback.

That means the simple act of asking customers what they think can boost brand sentiment. And if you show them how you’ve applied that feedback, you’ll gain a competitive advantage.

We’ve already talked about how communities-of-product can give you insights into what your customers think. Here are some more ideas to include in your customer feedback loop:

NPS surveys. A Net Promoter Score (NPS) survey is a quick way to measure customer satisfaction, as it’s only one or two questions. It also gives you a sense of how your customers feel about your brand over time.
Post-purchase emails. In your email marketing platform, set up an automated email that’s triggered by a purchase and ask buyers what they think of your product.
Capture customer service interactions. Yet another reason to invest in a CRM: It can log customer service interactions, and some can even create transcripts of conversations.

Become a values-driven brand

Consumers are voting with their dollars more than ever before. According to recent Google Cloud research, 82% of buyers want consumer brands' values to align with their own, and 75% said they have stopped buying from brands that conflict with their values.

That means it’s no longer enough to be a company that makes good products—you need to be a company that does good, too.

Here are a few ways to show you’re a brand with heart:

Use sustainable packaging. A 2020 McKinsey survey found that consumers were willing to pay 60-70% more for sustainable packaging. That’s how much it matters to buyers.
Involve your customers in philanthropy. Consumers appreciate being able to choose where their dollars go. In one study, 40% of loyalty program members said they were interested in the option of donating their rewards to a charity or cause.
Tremendous has this built into our platform: When a recipient redeems a reward, they have the option to donate it to dozens of different charities.
Make it clear what you stand for. Since 82% of consumers want to do business with brands whose values align with their own, it’s important to clarify what your brand values are. While a company values page is a great start, you need to then communicate those values consistently in your marketing materials, from packaging to advertisem*nts to newsletters.

Experiment with experiential marketing

A 2021 study found that 91% of consumers would be more likely to purchase from a brand whose events and experiences they participated in.

So if you want a fresh take on traditional channels, experiment with experiential marketing, which seeks to immerse customers in a memorable event that’s not necessarily product- or sales-oriented.

Experiential marketing is why, since 1992, Red Bull has hosted Flugtag events worldwide where people attempt to fly their handcrafted, human-powered wacky inventions.

"Our event strategy is not designed to drive sales,” Red Bull's UK event manager Louise Taylor told Campaign in 2003. “Instead we have fun focusing our activity on getting the brand understood.”

And Red Bull must be doing something right: It has long held the largest market share of energy drinks in the U.S., boasting 39.5% in 2023 (nearly 10 percentage points above its second-place competitor).

So how can your company try experiential marketing? Since these events focus on the experience more than on the product itself, it’s worth asking: What is the essence of your brand? Revisit your mission statement to see how you can bring it to life in a creative way.

For instance, even though Red Bull’s product is an energy drink, the company’s mission statement is to "give wings to people and ideas,” and Flugtag does just that. The event is not about an energy drink; it’s about living out adventurous ideas.

Gamify the customer experience

While loyalty programs add an element of gamification (because they compel customers to spend more to unlock rewards), there are many other ways to make shopping with your brand feel like a fun game.

Some ideas:

Badges and awards that let customers show off their accomplishments. The language learning app Duolingo awards users with digital badges for achievements like a year-long streak or adding friends.
Leaderboards that pit power users against each other, as Fitbit does for daily steps.
Progress tracking during the shopping process, such as showing how close the customer is to meeting the minimum spend required for free shipping.
Competitions and contests like the popular McDonald’s Monopoly promotion where customers could win prizes by peeling stickers off their food purchases.
Mobile apps can build community and boost sales. Domino’s, after suffering declining sales, launched an iPad app called Pizza Hero. It featured a game that challenged players to make pizzas under time pressure. They could then place an order for their creations.

Own up to mistakes with an apology and incentive

Even marketing teams who do everything right will have something go wrong. Shipments get delayed due to supply chain issues, a product breaks in transit thanks to bumpy roads, or a server outage results in your website being down.

When things go south, you have a powerful tactic in your toolbelt to prevent a customer from churning: customer appeasem*nt.

The most effective customer appeasem*nt is a sincere apology coupled with monetary compensation. In one study examining the effects of different healthcare provider responses to a data breach, researchers found that while receiving an apology alone or compensation alone improved customer satisfaction post-breach—getting both resulted in the biggest boost in satisfaction.

Here’s how to make your apology sincere based on a University of Otago study that looked at how brands can restore damaged consumer trust:

Own up to your part in the failure or mistake (AKA, don’t make excuses). The researchers found that including “excusatory statements” renders your apology less sincere.
Make it right. The study findings also suggest that “corrective action” (i.e., fixing the mistake or showing how you’re committed to making it right) can make your apology seem more genuine. Consider providing a monetary gift, such as a refund, discount on future purchases, or gift card.

Customer retention strategies: Love the one(s) you’re with

Winning over a first-time customer is thrilling, no doubt. But the ones who stay with you are the real MVPs—treat them as such. They’ll reward you with loyalty, referrals, and a higher customer lifetime value.

If you’re still on the fence about whether you should allocate more resources to customer retention, remember:

Customer retention is the most effective way to stretch those marketing dollars. While acquiring new customers is important, when it comes to getting the most out of your budget, customer retention has proven to have a higher ROI.
Sending monetary rewards boosts retention. Much of the customer retention research shows how potent monetary incentives are, from consumers feeling more satisfied when apologetic brands offer monetary compensation, to loyalty program members showing interest in being able to donate their rewards.
To keep customers coming back, give them special treatment. There’s a variety of customer retention strategies, but whether it’s exceptional customer service, personalization, or loyalty programs, they share a commonality: making customers feel special.
Shoppers want to feel valued, and they’ll quickly leave for a competitor that creates that feeling.

Whether it’s to say thank you or sorry, show your customers you care by sending them rewards they can redeem however they want. Tremendous makes it easy to send digital gift cards and prepaid Visa cards almost anywhere in the world for free (we’ll even handle conversion rates and translation).

10 Customer Retention Strategies That Work | Tremendous (2024)