What is customer retention?
Explore the benefits of customer retention and the best strategies for ensuring customers remain loyal
Customer service consulting
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What is customer retention?

Customer retention is a company’s ability to turn first-time customers into repeat buyers and prevent them from switching to a competitor. It indicates the quality of a product or service and the degree of customer loyalty. Retention is best achieved by overcoming barriers to switching, maximizing the value of products and services, meeting customer expectations, and enriching the customer experience.

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Customer retention benefits

Customer retention helps facilitate the growth and stabilization of your customer base and company revenue. By increasing their customer retention rate (CRR), companies can increase profits by over 90%. [1] By consistently delivering value, companies fulfill their brand promises which elevate credibility, trust and brand sentiment.

Here are the four major benefits of customer retention:

  1. Customer loyalty: Current customers already trust your brand, so it is easier to make them repeat customers.
  2. Brand ambassadorship: Loyal customers act as vehicles of brand sentiment and customer acquisition via word-of-mouth marketing (e.g. testimonials and referrals).
  3. Cost savings: Repeat customers trust the brand, so there is no need for an extensive  retention marketing strategy or advertising spend (versus new customers that require extensive spend to create brand sentiment and trust).
  4. Improved profitability: Satisfying new and repeat customers sustains loyalty and increases the bottom line. In fact, happy customers are prone to make repeat purchases over a longer period of time.
What is a customer retention strategy?

The best customer retention strategy includes initiatives and processes designed to build lifetime value (LTV) of products and services to secure customer loyalty. It helps structure the fulfillment of brand promises through the consistent delivery of value.

An effective retention strategy can include the following seven features:

  1. Churn tracking and analysis: Log the number of customers who churn and their reasons for doing so. Store and assess this data to decrease your customer churn rate (CCR) and increase CRR.
  2. Customer feedback loops: Collect, analyze and distribute customer reviews and surveys. Detect customer behaviors and trends that enhance the user experience (UX) and leverage them toward retention development. [2]
  3. Communications refreshment: Identify absentee customers and follow up with them. Use a communications calendar to chronicle interaction and enrichment (i.e. upsells and cross-sells). Schedule special promotions and announcements.
  4. Automated newsletters: As part of your email marketing strategy, use email automation to announce special promotions and updates to keep your brand fresh in the minds of customers.
  5. Customer education program: Invest in customer success with self-service tools (e.g. knowledge bases and community forums) that educate users and provide solutions without customer support. [2]
  6. Unique products or services: As part of your ecommerce strategy, offer a new product or service that solves customer dilemmas and is superior to that of your competitors. This adds incentive for customers to commit themselves to your brand.
  7. Customer retention programs: Design initiatives that are either company-led (e.g. onboarding and customer loyalty programs) or customer-led (e.g. app download and beta testing) to encourage brand loyalty.
Customer retention metrics

A sound customer retention strategy is bolstered by metrics that reflect the percentage of retained customers as well as current and future revenue. Here are the 3 most important and widely utilized metrics:

  1. Customer retention rate (CRR): The percentage of customers retained over a period of time. Though a 100% customer retention rate is ideal, it varies across industries. Regardless of the industry, modify your strategy if your CRR hovers around 15%. [3]
  2. Customer churn rate (CCR): This is the percentage of customers lost over a period of time. Companies with a low customer churn rate tend to have a higher CRR, so the closer the CCR is to 0%, the better.
  3. Customer lifetime value (LTV): This is the projected revenue from a customer throughout the purchasing lifecycle. It helps businesses measure customer loyalty. LTV also identifies ways to maximize the return on investment (ROI) for product marketing and support team development.
Customer retention, CX, and CRM

Customer experience (CX) and customer relationship management (CRM) systems are significant components of the customer retention process.

A CRM system unites multiple functions (e.g. project management, contact management, digital marketing) into a single data-driven platform. A “unified” CRM system automates communications and streamlines internal processes to enhance the overall CX. It may include “hyperpersonalization” features (e.g. targeted content, offers, alerts) that silo customer engagement within a specific context.

Overall, a unified CRM provides procedural consistency and reliable data that help increase customer retention and company revenue. [4]

Customer retention and chatbots

A chatbot is an artificial intelligence-powered computer program that uses natural language processing (NLP) to decipher customer inquiries and provide automated responses. This stimulates informational exchange, which hyperpersonalizes the online CX while collecting user data. AI chatbots also suggest or prompt customer actions that lead them to their desired resources. These processes help customers achieve their site visitation and purchasing goals, and build brand reliability, trust and loyalty, which increases CRR.

The need for a personalized CX experience is growing exponentially in 2021, which has significantly increased the demand for AI-powered chatbot services. As a result, the retention-driven global chatbot market is expected to surge from USD 461 millions to USD 1.4 billion by 2026. [5]

Customer retention best practices

Net Dollar Retention (NDR) is a churn metric that calculates the percentage of recurring revenue retained from existing customers over a period of time. Since NDR considers multiple factors (e.g. downgrades, cancellations, pause requests) that impact recurring revenue, it is the best indicator of customer retention success (versus Monthly Recurring Revenue (MRR) and Annual Run Rate (ARR)).

These five best practices are designed to drive NDR rates toward customer retention success. [6]

  1. Value-based selling: This is a consultative approach that prioritizes customer value during the purchasing process. It prioritizes needs and enables customers to make well-informed purchasing decisions. This increases brand sentiment, which establishes brand loyalty.
  2. Drive product adoption & expansion: A positive product experience (PX) helps drive a successful CX. Adoption and expansion are the fruit of resolving customer needs, challenges or pain points. This increases brand trust and sentiment as well as customer  loyalty.
  3. Accelerate time to value: Assess customers’ needs throughout the onboarding process to sharpen resolutions. Synchronize their requirements with product and service features so customers can make swift purchasing decisions and quickly allocate resources.
  4. Align with customer needs: Use a roadmap to synchronize products and services with customer needs. Include customer research to gain insights and guide efforts toward providing customer satisfaction, which builds brand trust.
  5. Manage customer engagement: Use a high-touch engagement model to optimize live interactions and build customer rapport. This creates high-level engagement that drives customer success, which builds brand sentiment and trust.
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[1] Forrester. Customer Recommendations Have Only A Small Business Impact For Big Brands (link resides outside ibm.com) November 18th, 2020

[2] IBM. What is Customer Care? June 10, 2021

[3] The Balance. What Is Customer Retention? (link resides outside ibm.com) April 6, 2021

[4] Forrester. The Five CRM Trends In 2021 That Will Shape Engagement, Relationships, And Revenue (link resides outside ibm.com) January 22, 2021

[5] MarketsAndMarkets. Chatbot Market. Global Forecast to 2026. February 2021.

[6] Technology and Services Industry Association (TSIA). Best Practices for Driving Net Dollar Retention (NDR) through Customer Success (link resides outside ibm.com) May 27, 2021