Observing the business environment, one thing that jumps out at you is that businesses devise elaborate plans to gain new customers. While it is commendable for a business to expand, it's also crucial to remember that keeping a customer is 5 to 20 times cheaper than getting a new one. Therefore, you should also try to keep your customers through robust customer retention management and minimizing churn.

This article will examine customer retention management, its best strategies, the role AI can play, and more. Read on.

What is Customer Retention Management, and Who is Responsible for it?

When discussing customer retention, the most crucial metric is customer retention rate (CRR) - it shows the number of customers a company can retain over a certain period.

The formula to calculate it is:

CRR = [(E-N)/S] x 100

• S means starting customers
• E is the number of customers at the end of a period
• N is the number of new customers gained during that period

Let's look at an example to understand this formula.

Suppose your company began the new season with 100 customers, added 20 more through various kinds of marketing, and ended the year with 90 customers. Here is how this situation will fit into the formula.

CRR = [(90-20)/100] × 100

CRR = 70%

Smaller businesses usually target the 20% CRR mark, while larger companies, such as those in the insurance and media industry, aim for 79%.

Who Manages it All?

Usually, it's the customer success team that manages customer retention. This team ensures that your customers spend an excellent and delightful time with you, no matter how short or long. They work directly with customers to improve relationships and collaborate with other teams within the organization to ensure that customers actually get what they want.

For instance, customer success should work with sales and customer care to manage and improve customer experiences. This way, the whole machinery works in tandem to improve customer retention rates.

Customer Retention vs Customer Acquisition

Customer retention refers to nurturing the existing customers, while customer acquisition means trying to gain new ones. Let's understand their similarities and differences below.

Alt Text: Existing customers are more likely to convert than new ones.

Similarities

• The goal of both strategies is to drive business growth.
• Both work with consistent branding across all platforms.
• Both require strong planning and a thorough understanding of the target audience.

Differences

• Customer acquisition is much more expensive as it targets a completely new customer that you must convert.
• Customer retention shows better ROI since loyal customers are already linked to you.
• Marketing for retention differs from marketing for acquisition.
• Retention focuses more on improving customer experiences than marketing.

As we go further, we'll discover more differences between the two.

The Importance and Benefits of Customer Retention Management

Companies release many successful products and provide reliable services, but for whom? Businesses at the forefront of the economy don't just rely on one-time purchases of new customers. Sure, they try to cast their net as wide as possible, but they don't let their core customer base disintegrate at any cost. After all, returning customers spend 67% more than new ones, so retaining them makes perfect sense.

Retaining customers means maintaining high customer service quality and consistently meeting their expectations. Customer retention is the foundation of your market reputation and enhances your brand recognition. The surprising benefit is that when older customers stay with you, there is a higher chance of earning new customers.

Let's explore customer retention management further with robust evidence.

Retention Enhances Revenues

Retaining customers for a long time definitely has a positive impact on your top line. You might not see the benefits of this strategy immediately, which is also because your new customer count will take a slight dip. However, sticking with the retention plan is crucial, and you'll see the results in 12-24 months. This looks like a long time, but considering the average lifespan of a company, it really isn't.

There is enough evidence to support this customer retention management idea. Forbes studied 300 global CEOs, media, and retail executives. One of their findings is worth considering: companies that spent money on increasing retention experienced a 200% higher chance of expanding their market footprint than those that spent money on gaining new customers.

Here's why investing in customer retention enhances long-term revenue prospects:

• Decreased churn results in you needing fewer new customers.
• Loyal customers are likely to order more from you.
• The customer lifetime value of loyal customers is much higher.

Let's discuss these three in detail.

1. Decreases Churn

The most obvious way in which customer retention revenue is decreasing churn, defined as the loss of customers. Controlling churn is critical and easier since you're more likely to keep the older customers than acquire new ones. That is possible only when you offer quality services and products to customers because it is the main driver of positive customer experience. According to a study by Harvard, boosting customer retention rates (which is, decreasing churn rates) by 5% increases profits by 25-95% overall.

Increasing retention translates to more profits.

The problem is that many startups ignore this hard truth and cannot decrease churn rates as they grow. One major reason is that new businesses are obsessed with rapid growth rather than the company's health.

2. More Spending by Loyal Customers

Another reason to focus on customer retention management is that loyal customers are more likely to spend on your products and services than newer ones. Achieving that level of trust requires excellent customer service.

• Around 88% of customers say that quality customer service makes them more likely to spend on a company again.
• According to 80% of customers, the experience of dealing with a company is as crucial as their products and services.
• 75% of customers say they have recommended a company to others based on quality customer care.

These statistics show that once customers gain trust, they are more likely to recommend you to others, increasing the number of new customers.

3. More Lifetime Value

Loyal customers have more lifetime value, so customer retention management is key. Customer lifetime value measures the money customers spend on your products and services as long as they stay with you. Since lower churn means a customer spends more time with you, it automatically leads to more spending, even if the customer doesn't spend heavily.

According to a study by RJMetrics, the top 1% of customers are worth 18x more, and the top 10% are worth 6x of the average. Here is a caveat: customers deliver their 69% value in the first 30 days, which sounds a bit pessimistic, but it actually isn't. If you push a customer to a second purchase within the first 30 days, they are much more likely to increase their purchase frequency.

Once a customer purchases something, their chances of buying the second time are originally 27%. If you push them to purchase once again in the first 30 days, the chance of a third purchase increases by 45%. This shows that you shouldn't sit idly once customers make a purchase: chase them to spend again in the first 30 days, and you'll likely get more money from them.

Repeat customers can build a consistent revenue stream for your business.

Retention Boosts Profitability

Retention can increase revenues, but increased revenues alone don't necessarily translate to more profits. Revenues are what you earn, while profits are the money you keep after covering your operational expenses, debts, wages, and the like.

Here's how customer retention management boosts profits:

• Helps keep fixed costs under control.
• Word of mouth from loyal customers decreases customer acquisition costs.
• Loyal customers are easier to upsell to.

Let's explore them in detail below.

1. Controls Fixed Costs

Retention improves profitability through a positive effect on the fixed cost base. Many companies focus on gaining new customers, which leads to expansion in the sales and customer care departments.

New labor doesn't come cheap and often becomes the most significant expenditure for startups. Instead, companies should try to minimize churn and focus on customer retention. It helps them avoid hiring more people and saves money.

Here are more things you need to keep in mind:

• You might not have reached product-market fit before excessive scaling, so it doesn't make much sense to hire new sales team members for products that customers aren't even sticking with. You might employ the best talent, and they might bring you new customers, but the high churn rate would still bleed you out.
• Focus on the company's overall health, products, and similar aspects to build a trustworthy, long-lasting company.
• Sync your hiring with the company's retention rates. Hire more people only if the retention rates trend positively over the last few months.
• Allocate your time thoughtfully. In a 10-person startup, the leader should contact clients to increase retention. In a 50-100-person startup, the sales team should do that.

2. Lowers Customer Acquisition Costs

Customer acquisition costs (CAC) are the costs you bear to convince a customer to buy from you. These include research, marketing, sales costs, and much more. Although CAC varies by sector, one clear takeaway is that acquiring new customers is expensive. Instead of acquiring new customers, you should retain existing ones.

One way it reduces CAC is by reducing the amount you spend to hire new sales staff, as discussed above. Another way it does that is by relying on word of mouth, one of the most powerful and free ways of marketing to new customers. According to Forbes, word of mouth is twice more effective in terms of sales than paid advertising and results in 37% higher customer retention rates.

Another study revealed that loyal customers have spread the positive word about your company, telling nine other people about their experience. On the contrary, dissatisfied customers tell twenty-two others about their unpleasant experiences.

3. Upselling to Loyal Customers Much Easier

Selling new or additional products to existing customers is much more convenient than selling new ones. One way for businesses to boost profits is by adding new products to their portfolio. However, this doesn't mean you need new customers to buy them. There is a 60-70% probability of upselling to existing customers, while just 5-20% for new customers.

How to Retain Customers? The Best Strategies to Implement

Improving customer retention management requires a multifaceted approach, which varies according to industry, audience, and other factors. Regardless, here are some proven strategies for managing customers that work for all brands and industries.

1. Use Omnichannel Marketing

More and more people have access to smartphones, tablets, laptops, and PCs. For instance, in the United States, around 97% of teenagers have smartphones. Omnichannel marketing means using multiple communication channels to reach out to your customers. Google reports that omnichannel marketing translates into an 80% rise in incremental store visits.

One of the biggest draws of omnichannel marketing is that it puts customers at the center of the action. It is significantly different from multichannel marketing since it combines various channels in a complementary manner. For instance, in omnichannel marketing, you’d send a time-sensitive SMS to push the recipient to open an email.

2. Improve Customer Response Times

Customers love live chat for an obvious reason: it is usually the fastest. Quick responses are the heart of quality customer care, whether live chat, email, phone calls, or more. In fact, it is so crucial that 73% of customers would switch to a different brand because of bad customer service.

Today, companies can add live chat functionality to their website and social media handles powered by AI. These chatbots are active 24/7 and can answer almost all customer queries. Adopting this system also means less customer care hiring and increased profits.

3. Give Customers Pleasant Surprises

Customer experience is a critical factor in customer retention.

Emotions are a big part of brand loyalty: 60% of customers use emotional language when describing their loyalty to a brand. To enhance customer experience, consider the following ideas:

• Deliver handwritten notes because it doesn't get any more personal and special than that.
• Appreciate your customers by sending them special birthday gifts.
• Provide special features and bonuses to loyal customers that others have to pay for.
• Share the pictures and stories of your loyal customers on your social media handles.
• Invite loyal customers to special gatherings, parties, and limited-access sales.

4. Launch a Loyalty Program

Rewarding customers for their purchases is a crucial client retention strategy. In fact, 81% of customers say they spend more on brands that offer loyalty programs. When you launch a loyalty program, make it easy for customers to join it and offer rewards in ascending order: the more they spend, the more rewards they earn.

Offering rewards makes customers spend more.

However, don't think that a loyalty program alone can guarantee customer loyalty. It is most effective when it is part of a holistic retention plan.

5. Share Authentic Customer Reviews

Trustworthiness is a major factor in customer loyalty, and reviews are the most powerful signals. You can send automated email requests to customers for reviews every time they purchase from your store. It gives you a consistent supply of genuine reviews and is an excellent retention strategy.

You can share these reviews on your website, making your loyal customers happy and prospective customers more confident purchasing from you.

6. Send Retention Emails

Email marketing is an integral part of customer retention management because it saves costs without compromising results. Here is how you can craft an email campaign focused on retention.

• Always add a thank you note - it goes a long way in making customers feel appreciated.
• Deliver relevant recommendations using shopping and browsing history. It encourages customers to spend more when new products arrive.
• Offer incentives for customers to spend more.
• Send re-engagement emails as nudges to make customers browse again.

7. Personalize Customer Care Interactions

Being recognized during customer support interactions makes customers feel special and valued. Customers want you to know about their shopping history, product interests, and other details. To achieve this, your support teams should be provided with all the relevant customer data to deliver personalized information.

It's critical that this user information is only accessed by authorized individuals belonging to the customer care team. If that's the case, customers are open to businesses monitoring and tracking their data to enhance shopping and support experience.

8. Send Out Survey Emails

While review emails are great for telling others what your customers think, survey emails paint an accurate picture of how customers feel about your products and services. To make this process more efficient, set up an automated emailing system asking new and old customers about their interactions with you. Your surveys should be short and substantive, asking the most important questions that help you determine how satisfied your customers are.

Sending out these emails shouldn't be ceremonial only. When you receive survey responses, make them count by doubling down on what customers like and improving things they don't approve of.

9. Social Media Engagement

80% of customers expect brands to engage with them meaningfully on social media. More and more people use various social media platforms today. Businesses ignore these spaces in their customer retention management plans at their own peril.

The best strategy for creating social media engagement is to run campaigns that make your customers and followers feel they're part of a community. This involves sharing customer-generated content, commenting on their content, responding to their comments, and the like. Make sure your replies to comments are personalized and not generic.

Following these customer retention tips will help you increase sales, boost profits, and turn your customers into loyal ones.

How Will AI Impact Customer Retention Management?

Customer service is a decisive factor in retention.

Any discussion on customer retention is incomplete without considering the changes occurring, especially because of AI. Let's understand how AI will transform customer retention and help companies perform better in this area.

1. Chatbots and Virtual Assistants

AI-powered chatbots and virtual assistants are the future of customer support. In recent years, brands have used AI chatbots 92% more, which shows their increasing appeal. Brands implement these bots on their websites or messaging platforms to handle queries 24/7 without needing a human agent.

Here are some of the best AI chatbot practices to get the best performance out of them:

• Determine the tasks and scenarios that AI chatbots can handle seamlessly, such as dealing with product inquiries, order details, and the like.
• Identify pain points that AI can address and improve the customer experience.
• Map out various conversational flows to make chatbots handle all kinds of queries using natural language processing (NLP) techniques.
• Design chatbots so that human agents can take control of the conversation wherever the need arises. Predefine the escalation criteria, after which the chatbot simply hands the conversation to the human agent by notifying them.

2. Automated Emails

AI can really level up your email marketing and customer retention management game. It can help you handle a barrage of customer support emails and learn from them gradually. A capable AI system gets smarter by handling more emails and suggests solutions from users who face the same problems.

It can optimize every element of your email marketing campaign, such as timing, personalization, and frequency. For instance, when AI notices that a particular customer is interested in shoes, it can craft emails highlighting exclusive deals in this category.

The Bottom Line

Customer retention management is the key to making your business profitable and ensuring new customers keep coming. From omnichannel marketing to reducing response times to better social media engagement, there is a lot that you can do to enhance customer retention. One key piece of the puzzle is AI, which can really take your retention game to the next level.

Without a robust AI system, customer retention plans will always fall short. That's where Aidbase comes in. It is a comprehensive AI-powered system with an automated chatbot, knowledge-based ticketing, and email support. Whether you want to assist your customers 24/7 on live chat, handle support emails, or generate custom ticket forms, our system is ready to help you.

So, eliminate customer retention management worries and start using Aidbase for free without any credit card details.

FAQs: Customer Retention Management

What are the Five Factors of Customer Retention?

The five factors of customer retention management include the following:

• Trust and transparency
• A sense of community
• Fast deliveries and responses
• Attractive deals
• Loyalty perks

Offering these and some other incentives creates loyal customers that stay with you for a long period.

What are the 8 C's of customer retention?

The 8 C's of customer retention management are:

• Competence
• Courtesy
• Communication
• Consistency
• Credibility
• Caring
• Commitment
• Control

How do you solve low customer retention?

Resolving low customer retention requires a robust customer retention model. Instead of focusing on customer acquisition, you should work on keeping existing customers by building more robust relationships and offering various incentives.

What are retention skills?

The retention skills that customer care teams should learn include the following:

• Authenticity
• Professionalism
• Self-control
• Empathy
• Problem-solving
• Time management
• Listening carefully

What are the 4 pillars of retention?

The four pillars of customer retention management are:

• Engaging conversations
• Delivering personalized experiences
• Analytics
• User segmentation