What is Customer Retention?
Customer retention can be a useful and cost-efficient marketing strategy when carried out effectively. Businesses can use their own data to form customer retention strategies and improve their customer retention rate.
Keep your customers coming back
Customer Retention measures how well a brand retains their customers’ business over time. Similar to measuring churn rate, a higher customer retention can signal a brand has a more loyal customer base.
Why is customer retention important?
Customer retention is an important KPI for most businesses. Not only can it give an indication of what consumers think about a brand, it can also contribute to profitability.
Save money
It’s much cheaper to retain existing customers than it is to acquire new ones. Customer acquisition strategies are important and effective for growing a brand’s customer base, however they can be up to 6 times more expensive than customer retention strategies.
Increase sales
Customers who are familiar with a brand and who’ve bought their products previously are more likely to make a purchase than new customers. As well as resulting in more sales, this can make it easier to target existing customers and improve the efficiency of marketing campaigns.
Build customer loyalty
High customer retention rates do give an indication of high customer loyalty. However, successful customer retention strategies can improve customer loyalty even further. Sending personalised offers, surveys and updates to existing customers can keep their attention and let them feel valued, which can increase customer satisfaction and loyalty.
Gain new customers
Improving the customer experience (CX) can lead to higher customer satisfaction. These customer are more likely to talk about brands in a positive way. Word-of-mouth is a powerful and convincing form of marketing. When a consumer is loyal to a brand and recommends them to friends and family, this can often lead to new purchases and customers as this communication is deemed as trustworthy.
What is customer retention rate (CRR)?
A company’s customer retention rate measures how many customers a company retains over a certain time period. As well as indicating how loyal a customer base is, it’s also a useful metric for understanding lifetime customer value.
How to work out customer retention rate
Your CRR is the opposite of your churn rate. Churn rate measures the rate at which customers stop doing business with a company, whereas customer retention rate measures the rate at which customers stay
To measure CRR, companies need to measure the number of customers at the start (S), end (E) and the number of new customers (N):
• CRR = ((E-N)/S) x 100
If there are 500 customers at the start of a month, then they lose 20 customers and gain 30 customers:
• Number of customers at end of period = 510
• Number of customers at start of period = 500
Their CRR is:
CRR = ((510-30)/500) x 100 = 96%
The higher the percentage value of the customer retention rate the better. Once companies know their CRR, they can use this to measure the effectiveness of their customer retention strategies.
Customer retention strategies
Customer retention strategies refer to anything a business does to improve their customer retention rate, like investing in customer experience or rewarding loyal customers.
Using customers’ data effectively can be fundamental to a successful customer retention strategy and increase the likelihood of customers returning. However, companies must adhere to rules and regulations of data use.
Customer segmentation and personalisation
Companies that understand their customers and send personalised and relevant content have a better chance of relatable and effective campaigns. To drive this insight, brands must effectively utilise their data.
Marketing teams can use a Customer Relationship Management (CRM) to deliver campaigns using various communication channels. This can help segment your customers for different targeting, like birthday messages, offers, or just to re-engage audiences.
Direct Mail can be an effective and personalised way to reach existing customers. It can also be integrated with other marketing channels as part of a customer retention strategy.
Using Recency, Frequency, Value (RFV) analysis for smarter sales
If your customer has enjoyed a positive experience after buying your product or service, there’s a clear opportunity to prompt them to buy again. This is where data comes into its own; specifically, RFV analysis.
An RFV model can capture:
The last time a customer purchased.
How frequently they purchased in a time-period.
How much they spent in this time-period.
This is useful for tailoring communications appropriately and segmenting your audience.
RFV analysis can also provide insights that help brands understand the future value and purchase behaviour of your customers. This can help with upselling new products, as well as cross-selling. This data can be used to identify the most profitable customers and deliver targeted marketing campaigns to this audience.
Customer retention case studies
You can see some examples of successful customer retention strategies below.
Virgin Media tackles high customer churn with data-driven direct mail
Virgin Media tackled high customer churn by redefining value through a tailored direct mail campaign. Research revealed that discounts alone wouldn't change perceptions, so they upgraded 91,000 high-risk customers’ packages with extra benefits. The campaign, featuring a distinctive red envelope and the message 'Just because,' effectively conveyed genuine value.
This strategy significantly reduced churn and achieved a remarkable return on marketing investment (ROMI) of 179:1, showcasing the effectiveness of targeted direct mail in enhancing customer retention.
See how Virgin Media improved customer retention with this direct mail campaign.
Waitrose revived customer loyalty with 'Just for You' campaign
Waitrose noticed a decline in its most valuable customers, leading to a 14-point drop in its Net Promoter Score (NPS). To address this, they launched the "Just for You" programme, a personalised direct mail campaign targeting 600k-800k loyal customers with tailored vouchers and imagery.
The results were outstanding: voucher redemption exceeded 50%, and NPS increased by 55 points. This campaign not only boosted customer loyalty but also reinforced the power of personalised direct mail.
