Customer retention: Metrics, strategies, and examples
Discover tried-and-true customer retention strategies to keep customers coming back.
By Sarah Olson, Staff Writer, @seolson5
Last updated August 16, 2023
Businesses work hard to attract customers through a mix of marketing, social media, and sales strategies. You’ve invested a lot of time and effort (and probably money) in gaining your customers’ trust. It only makes sense to also invest in customer retention.
To improve customer retention, look at your entire customer experience, or everything customers think and feel when they encounter your brand. Customer-facing interactions, such as support ticket resolution or how a brand communicates its values, are a few factors that affect a buyer’s relationship with a brand.
Keep more, hard-earned customers by creating a seamless experience that makes them happy every step of the way. If your business falls short of customer expectations, you risk losing those customers before you even have a chance to make things right. Luckily, with the metrics, tools, and strategies shared in this article, you’ll have everything you need to keep your customers coming back.
- What is customer retention?
- Why is customer retention important for businesses?
- Key customer retention metrics to measure (+ formulas)
- 8 strategies to retain customers
- 7 customer retention examples and why they work
- What is a customer retention program?
What is customer retention?
Customer retention definition: a company’s ability to turn customers into repeat buyers and prevent them from switching to a competitor.
Customer retention indicates whether your product and the quality of your service please your existing customers. It’s also the lifeblood of most subscription-based companies and service providers.
In an ideal world, a 100 percent retention rate is the goal. Realistically, though, a “good” percentage varies by industry. Generally, the benchmark for small businesses hovers around 20 percent. Meanwhile, the rate for ecommerce businesses should be more than 35 percent.
Here’s a breakdown of average retention rates for various industries according to the latest study:
|Retention rates (%)
|Automotive and transportation
Why is customer retention important for businesses?
It doesn’t always make sense to spend the big bucks on marketing, advertising, or sales outreach since long-term success usually occurs when businesses prioritize their relationships with existing customers.
It’s easier to turn past customers into repeat buyers and keep profits high since they already trust your brand and may have even formed relationships with your sales and support staff. Plus, a positive experience makes it more likely that customers will advocate for your brand (free buzz) in their community.
A few other reasons why customer service retention is so important for business success are:
- Cost savings
- Better bottom line
- More customer loyalty
Customer retention is more cost-effective than spending money to acquire first-time customers.
The primary goal of retaining customers is to increase the lifetime value of their accounts. When customers keep coming back, they ultimately spend more—reducing the need for the company to invest in costly customer acquisition initiatives.
Better bottom line
Pitching upgrades or cross-selling to existing customers is a great way to generate more revenue for your business. It’s also easier than converting new customers because past buyers already know your product works and they have faith in your business—assuming your team consistently nurtures accounts, offers a useful product, and creates personalized customer experiences.
81 percent of customers report that they are more likely to shop with a business again after having a positive experience. If you’re able to retain customers, you’ll generate more revenue.
More customer loyalty
As we already discussed, repeat customers are more likely to purchase from you again. Once a customer trusts your product, they will generally be less interested in your competitors.
However, there’s another benefit of customer loyalty that is often overlooked—satisfied customers often become the best brand advocates, drumming up interest for your business free of charge with their persuasive word-of-mouth testimonials. Prioritize customer satisfaction to ensure your buyers stick around for the long run and tell others about their experiences with your business.
Key customer retention metrics to measure (+ formulas)
When you’re ready to assess sales performance, use the following formulas to gain insights into:
- Customer retention rate
- Customer churn rate
- Customer lifetime value
- Repeat customer rate
- Purchase frequency
Customer retention rate
The customer retention rate is the percentage of customers who remain loyal to your business over a specific period of time.
To calculate it, select a period of time to measure and identify the following number of customers:
- At the start of the given time period (S)
- At the end of that period (E)
- Added during that period (N)
Customer churn rate
A less direct indicator of customer retention is your churn rate—the percentage of customers lost during a period of time. Companies that struggle with customer service retention usually have a high churn rate.
Low retention rates or high churn rates could be bad signs, indicating that something about your customer experience isn’t going well. But don’t panic—there are several changes you can make to turn the churn around.
Customer lifetime value
Customer lifetime value measures the total revenue you can expect from a customer during their lifetime and helps a business discover its most loyal customers. The longer a customer remains loyal to a company, the higher their lifetime value becomes.
For example, a customer that signs up with a 50 percent discount and then closes their account would have low lifetime value. Businesses will want to find what customer groups have the highest lifetime value to maximize profits and discern mutual opportunities.
Repeat customer rate
The repeat customer rate accounts for all customers who have made two or more purchases. This is a popular key performance indicator (KPI) among ecommerce businesses that can be applied to other business models.
Purchase frequency rate
This customer retention metric shows how much repeat business you get over a given amount of time.
The time period can range anywhere from a week to several years. However, it’s generally a best practice to calculate this annually to get a clear view of fluctuations and the role that certain factors (such as seasonality) play in this information.
8 strategies to retain customers
Improving customer service retention means improving the customer experience. In fact, 77 percent of customers surveyed in the latest Zendesk Customer Experience Trends Report say they’re more loyal to companies that offer a good customer experience when issues arise.
72 percent are willing to spend more for a company that offers good customer experiences. And 50 percent say that customer experience is more important to them now compared to a year ago.
Here are eight strategies you can use to create a winning customer experience and keep your customers coming back.
1. Offer omnichannel support to reach customers where they are
Omnichannel support is an excellent tool for customer retention. It allows agents to access contextual information about clients across various platforms to curate highly personalized experiences.
Aside from the ability to execute conversational sales and support strategies, it also creates a better CX for clientele. When businesses offer omnichannel support, customers can chat with a person on the platform of their choice and receive faster resolutions.
2. Respond to customer support queries quickly
Data shows that quick first replies result in higher customer satisfaction. 73 percent of customers surveyed in our 2021 CX Trends Report said that speedy support resolutions are key to a good customer experience.
Ideally, speedier replies will go hand in hand with faster resolutions. But even if you can’t solve a ticket immediately, it still pays to respond to the customer ASAP.
A quick reply can be a short message letting the customer know you received their question. Or, better yet, provide an estimate for how long it will take to solve their problem.
Customers are more willing to wait if they know you’re actively working towards a solution; setting time frame expectations upfront helps.
3. Personalize support interactions
Customers feel frustrated when they have to explain an issue over and over. And exhausting, repetitive interactions make customers more likely to leave.
Equip agents with the tools they need in a customer service solution to easily pull customer information, view the conversation history, and streamline conversations. The Zendesk Agent Workspace, for example, offers agents customer context in order for them to deliver a personalized experience.
4. Incentivize loyalty
Increase customer retention by rewarding customers who are loyal to your company. By showing customers you appreciate their business, you provide them with yet another reason (besides your great product) to stick around.
To buy your business some customer goodwill, consider offering:
- Loyalty programs
- Discount codes
- Special offers
- VIP events
- Early-access benefits
There are several types of loyalty programs, from points-based systems to tiered rewards. These incentives help collect detailed customer data which allows your business to offer more personalized experiences and messaging.
5. Offer a referral program
Referral programs serve the dual purpose of boosting customer retention and aiding acquisition efforts. This word-of-mouth marketing strategy is effective because it brings in new prospects who already have faith in your business based on the recommendations of someone they trust.
It also fosters goodwill with existing customers who receive additional benefits for shopping with you and advocating for your brand. Some popular incentives include:
- Free merch or products
- Store credit
Offering these incentives will benefit your company because it encourages customers to keep coming back, and the social proof loyal customers provide will also give your business a competitive edge.
6. Create a positive experience for employees
Happy employees are generally more inclined to provide top-of-the-line support and form long-lasting relationships with clientele that improve customer retention. Incentivizing staff to create connections can go a long way in building trust, making it easier to keep customers loyal to you, even if issues arise.
Creating a positive work environment also helps reduce turnover rates. This is great for business because the longer your staff sticks around, the more knowledgeable and tuned in to customer issues they’ll be.
7. Gather customer feedback often
Customer feedback is one of the most valuable tools to increase customer retention and reduce churn rates. If you want to know what is and isn’t working for your customers, it helps to hear it straight from the horse’s mouth.
Give customers a voice by conducting surveys. Customer satisfaction surveys can be as simple as asking for a “thumbs up or thumbs down” after resolving a ticket; but it’s especially useful to ask more specific questions, such as:
- How would you describe your experience with our product?
- What isn’t working for you and why?
- Which of the following channels do you prefer using for customer support?
Additionally, supplement your surveys with feedback from customer service team members. They’re closest to customers and can identify common complaints and general preferences.
8. Build a strong customer community
Create an online community for loyal customers to interact with each other and share their experiences. This can serve as an educational forum for customers to learn more about your products and gives you a direct line to their thoughts and problems.
Interacting with customers in online spaces like these allows you to address concerns early and keep buyers engaged long-term.
7 customer retention examples and why they work
Customer retention is the key to success. But don’t just take our word for it. Here are a few real-life ways well-known businesses are making retention a priority.
- Offer a seamless online experience
- Make every customer feel like a VIP
- Build empathetic customer relationships
- Be proactive
- Support causes your customers care about
- Create a unified customer view
- Provide multilingual support
1. Offer a seamless online experience (Amazon)
One of the most basic customer retention strategy examples is meeting customer expectations.
Customers today expect online experiences that are on par with, or better than, in-person experiences. In fact, 65 percent of customers want to buy from companies that offer quick and easy online transactions, according to our 2021 Trends Report. And 49 percent gave Amazon the highest marks for service for that reason.
2. Make every customer feel like a VIP (Four Seasons)
Luxury hotels are renowned for high-quality, exclusive customer service. The Four Seasons expands that feeling of luxury to every customer through a combination of technology and white-glove service.
Guests can use Four Seasons Chat to message staff through channels such as WhatsApp for any inquiry or service request, including restaurant recommendations and reservations, room service orders, arrival or early checkout, and even a private jet reservation.
3. Build empathetic customer relationships (Zappos)
If there’s one thing you should know about customer service, it’s that empathy is key to building lasting customer relationships. In fact, 49 percent of customers want agents to be empathetic, according to our 2021 CX Trends Report. During the pandemic, Zappos started a hotline where customers could call or chat with a support team member about anything—even the hottest Netflix shows.
4. Be proactive (Dollar Shave Club)
Customers expect brands to anticipate their needs and get in front of issues before they even happen. That’s why proactive service is so important in retaining customers. Dollar Shave Club welcomes website visitors with a chatbot to answer common questions before a customer has to reach out to customer support or abandons their cart.
5. Support causes your customers care about (Bombas)
54 percent of customers want to buy from companies that prioritize diversity, equity, and inclusion in their communities and workplaces, and 63 percent want to buy from companies that are socially responsible, according to our 2021 CX Trends Report. Knowing this, Bombas donates a clothing item to a homeless shelter or homelessness-related charity with every purchase.
6. Create a unified customer view (Polaris)
According to our 2022 CX Trends Report, 73 percent of business leaders say there’s a direct link between business performance and customer service.
Enable agents to create richer, more personalized experiences for your customers by creating a single customer view. Polaris aims to retain valued customers by utilizing powerful support software to achieve best-in-class support across several channels, increasing agent productivity by 30 to 40 percent.
7. Provide multilingual support (Miinto)
Ensure your offerings are accessible to all potential customers. Miinto, a fashion marketplace serving Northern Europe, uses chat capabilities to support clients in four languages.
As a bustling online retailer, chat has played an essential role in deflecting call volume by 40 percent and allowing agents to carry out multiple conversations at once.
Reducing call center volume is generally considered to be a reliable way of boosting customer satisfaction and reducing the likelihood that a customer will turn to a competitor for services.
At Miinto, retaining customers is a top priority. The company considers customer service to be a key competitive differentiator.
What is a customer retention program?
The purpose of customer retention tactics and programs is to keep customers engaged with your company and encourage them to make more purchases.
Some types of popular customer retention initiatives include:
- VIP programs
- Loyalty programs
- Reward programs
Impress customers with an end-to-end CX
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