How to increase customer retention? Strategy, formula, and tips

customer experience roi
customer experience
customer retention program
increase customer retention rate
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Divya Kandwal
December 19, 2022
mins read

How to increase customer retention?

You’ve done the hard part. You’ve convinced people to buy your product or subscribe to your service. These are your newly acquired customers. Now how do you ensure that they buy from you again and again? In the past few years, customer acquisition cost (or CAC) has been rising steadily. Acquiring new customers is expensive. And if they only buy from you once, it’s a massive waste of resources. This is where customer retention comes in. having a strong customer retention strategy is critical for business success. 

To grow your business you need new customers. To continue growing your business, you need to retain existing customers. 

What is customer retention rate?

Customer retention rate is the percentage of users who continue using your product or service over a given time period. It measures your company’s ability to turn new customers into repeat buyers. It is an apt indicator of the quality of your product and service. 

Customer retention rate directly correlates to the health of your business. In most cases, 

High retention rate = sustainable growth

It is calculated by-


Ending customers- the number of customers at the end of the period you want to calculate the retention rate for

New customers- the customer acquired during the selected time period, and 

Beginning customers- the number of customers at the beginning of the selected time period. 

Every business grapples with customer attrition. Due to factors beyond your control, some customers will always churn. But calculating your customer retention rate is the first step of retaining saveable customers. The second step is developing and deploying strategies to improve overall customer experience.

Why is customer retention important for ROI?

Retaining old customers is crucial for ROI. According to Harvard Business Review

  • Acquiring a new customer can cost five times more than retaining an existing customer. 
  • Increasing customer retention by 5% can increase profits from 25-95%. 
  • The success rate of selling to a customer you already have is 60-70%, while the success rate of selling to a new customer is 5-20%.

Consider the leaky bucket theory, 

If you are continuously losing customers like water dripping from a leaky bucket, the new customers you acquire will not improve your ROI. They’ll simply make up for the loss (but only if you’re gaining customers at the same speed that you’re losing them)

Usually, acquiring customers is way more expensive than retaining them. So if you’re unable to keep old customers, chances are you’re going to incur losses. 

This is what makes customer retention so incredibly important for ROI, loyalty, and growth.

6 customer retention strategies you can implement

Like most things, there is no one-size-fits all when it comes to customer retention strategy. Your perfect retention strategy depends on your industry, customer base, product or service, and goals. 

However, here are some simple yet effective strategies you can implement-

  1. Create a smooth onboarding experience
  2. Close the feedback loop
  3. Provide a personalized customer experience
  4. Incentivize loyalty
  5. Improve product features with customer feedback
  6. Communicate to be on top of your customer's mind

Create a smooth onboarding experience  

First impressions last. If you give your customers an outstanding onboarding experience, they are more likely to stick around. First interactions are critical because your customers don’t know what to expect. Mishandling information or vanishing after they’ve made a payment will decrease their trust in you. 

To ensure they have a memorable onboarding experience, 

  • Create workflows with welcome email sequences
  • Follow up via messages or phone calls
  • Share frequently asked questions, 
  • And explain the next steps

Giving them a dedicated customer support and experience manager will go a long way in easing anxiety and boosting loyalty.

Close the feedback loop to improve retention

Collecting, analyzing, and acting on customer feedback is the cornerstone of a healthy business. As per a Salesforce Report

If the company’s customer service is excellent, 78% of consumers will do business with them again after a mistake. 

Responding to bad feedback, solving customer issues, and assuring them that you’ve taken their feedback makes customers feel heard. It increases trust, loyalty, and retention. 

You can learn how to create an excellent closed-loop feedback system in our previous blog

Provide a personalized customer experience

Customers don’t want just personalization, they expect it as a norm. Everyone expects solutions to be tailed to their specific requirements.  

To make your customers more inclined to buy from you repeatedly, keep your offerings personalized and relevant to their needs. As a McKinsey report points out, 

Personalization at scale can drive between 5 and 15% revenue growth for companies in the retail, travel, entertainment, telecom, and financial-services sectors.

Incentivize loyalty to improve customer retention

Don’t take your happy and loyal customers for granted. They might switch to your competitor if they feel ignored by them. Make them feel valued by sending them thank you messages, giving them discounts, engaging them in a referral loop, etc. 

To ensure they stick around, you can run a Promoters program with benefits such as exclusive sneak-peak of new features, early entry to festive sales, and more.

Improve product/service features with customer feedback

In all our years as a CXM solution, the most common mistake we’ve seen companies make is this- not using customer feedback to improve features or operations. 

Instead of going by industry reports or what you THINK your customers want, just ask them. We get that it’s not as simple as it sounds. But here’s the thing-

your existing customers are the BEST source of possible improvements that can take your product/ service to the next level. 

So the next time to make improvements to your product or build an entirely new feature, take customer feedback into account for maximum success. 

Be on top of your customer's minds

Because of how crowded the current market is, customers have a notoriously short memory. The truth is, 

Your customers may not able to ready to buy. But when they’re ready, make sure you’re on top of their mind.

You can do this by keeping in touch with them through monthly newsletters, promotional messages, new product updates, etc. 

There are many more strategies you can implement to increase your retention rate. A good customer retention program such as ours will help your build a customer retention strategy that is tailed to your business goals.

To sum up

Customer retention is the most effective way to grow your business. Think about it. If you increase your retention rate, you don’t have to spend as many resources on marketing, sales, customer onboarding, and all other acquisition costs. And if you do continue to spend the same on customer acquisition while retaining your existing customer- your business will grow massively. 

At the end of the day, happy customers make your business cost-effective sustainable, and long-lasting. 

Do you want to achieve a record-breaking retention rate? Contact us and we’ll help you get there. 

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