Customer Retention

1. What is Customer Retention?

In marketing, the concept of customer retention is the process of engaging current customers to continue purchasing goods or services from your organization. Since you have already converted the customer at least once, it is different from customer acquisition or lead generation.

The best strategies for customer retention help you build lifelong relationships with customers who are loyal to your brand. They could also spread the word within their community circles, which can turn them into brand ambassadors.

2. When to focus on Customer Retention?

Whether you concentrate more on the acquisition or retention of customers is strongly influenced by where your business currently is in its lifecycle. A business that has commenced its operations yesterday is very different from the one that has been in the market for many years.

Take a look at the timeline below for general guidance on your business’s potential investment levels.

Customer retention vs customer acquisition

A. Just starting:

There is one thing you should be focused on when you've just started your business: Attracting customers. Your acquisition efforts should trump retention at this stage. Focus on approaches and techniques that will help you expand your customer base.

B. Gaining traction:

You have customers now and you get occasional sales. At this point, to enable each customer to purchase more, you may begin to incorporate retention elements. A recommendation would be to start with email retention campaigns that concentrate on encouraging a past customer to buy from you again.

C. Consistent:

Your brand is not yet a juggernaut for e-commerce at this stage, but revenues are rising. This is the stage where the acquisition activities can start to think about throwing in further retention in the mix. While getting more serious about marketing automation, you might look at starting a referral and/or a loyalty program.

D. Established:

Now you're an established e-commerce business. For retailers of this size, a common challenge is finding ways to continue to expand. An acquisition can lead to many one-time transactions, but a retention strategy can enable consumers to buy more often, increasing their value for life. You should be serious and deliberate about your retention efforts at this point.

E. Well-established:

Your business has made it past the initial maze at this point. You've made many early milestones and you have a lot of processes and automation in place. The time to concentrate heavily on customer retention is now.

3. What is the Importance of Customer Retention for an Online Business?

You may have heard that retaining customers is faster and less costly than acquiring new ones. The most recent findings show it to be true.

You'll spend five times less money on customer retention.

Also, you are at least 40 percent more likely to sell to a current customer than to convert someone who has never ordered from you before.


Established customers also spend 31 percent more than new leads, and your loyal customers are 50 percent more likely to give it a shot when you release a new product.

These statistics should prove sufficient to push you to build and test a plan for customer retention.

4. How to Calculate Your Customer Retention Rate?

Businesses can measure their customer retention rates in various ways. It all depends on what time period are you analyzing.

Let's assume that, for two months, you have 2,000 current customers. 900 of them go back to buy something else from you during the same time frame. Those are the two numbers that will help you to measure your retention rate for customers.

Although you have to discount any new customers you bring in during those two months. They don't shape part of the equation. Until the two-month start date, you can only count the individuals who ordered something from you that belong to your current customers.

If you calculate the retention rate for customers from January 1 to February 28, you can take into account the customers who purchased from you before January 1. If on January 15, a new customer buys from you, he or she doesn't count.

5. What is the Customer Retention formula?

The formula for customer retention isn't really difficult, but it's powerful. It's an example of how well you are building relationships for subsequent sales and attracting back current customers.

You'll need to do a little math, but it won't be a fight if you have a calculator.

The customer retention formula looks like this:


Start by subtracting the number of customers that have been acquired during the period under consideration by the number of customers at the end of the said period. Divide the derived figure by the number of customers you had at the beginning of that period and multiply it by 100.

Let's look at an example of customer retention.

At the start of a two-month measurement cycle, you have 50,000 customers. You get 1,000 customers during those two months, and you have 40,000 customers at the end of the time period.

To get rid of customers acquired during the testing phase, we'll deduct 1,000 from 50,000. That leaves us with 49,000 customers. Now, we're going to divide 49,000 by 40,000 which would leave us with 0.81. We get a customer retention rate of 81 percent if we multiply the answer by 100.

6. What are some Strategies to boost Customer Retention?

1. Use customer accounts.

2. Improve your customer service.

3. Start a customer loyalty program.

4. Send engaging emails to customers.

5. Offer a discount or credit to return.

7. What is Customer Retention Management?

Customer retention management is the method of managing the organization's customer experience and customer loyalty activities, with the overall aim of retaining the customers you acquire for as long as possible.

8. What are the 4 key Elements of Customer Retention Management?

A. Customer acquisition:

Although it may seem strange at first to have customer acquisition (winning new customers) as part of the process of customer retention management, it is important at the beginning for it to be included here. The customer retention efforts of every company must begin by trying to win the ideal customer in the first place. A frighteningly easy mistake to make is targeting and onboarding the wrong customers.

B. Customer retention

Although customer acquisition is significant, there are so many companies that stop there and fail to aggressively strive and keep their winning customers. Customer retention is the attempt that the company makes to keep the customers that you attract profitably. Not all customers would necessarily be successful for a company, and it is vital to look at customers who can (and should) be grown and customers who should be let go off! It is also the case that satisfied buyers are usually happier to bring in referrals and actively recommend you to their friends who end up purchasing from you in the long run.

C. Customer lifecycle management

CLM wants you to look at the multiple touchpoints you have with your consumers (even those touchpoints that occur before acquiring a prospective customer) and find out how to lift those interactions far above the industry norm. This is an important aspect in the management of customer retention, as you extend the program beyond only preventing customers from leaving, and instead, you build a full community that then actively wants to join and remain a part of your business.

D. Customer development and growth

Customer growth focuses on how you can increase the amount that your current customers invest with you. Marketing main account, cross-selling, and up-selling marketing practices all fall under this category.

In growing your company, read further on and learn about customer retention rates, and how to use this data.

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