Attracting new customers is a high priority for any business. And keeping your customers happy is equally important. After all, a satisfied customer is one who will come back, time and time again, and tell others about your business.
Various studies have shown that acquiring a new customer is 5-25 times more expensive than retaining an existing one, depending on your industry. Clearly, it’s to your advantage to avoid spending more time and resources on finding new clients, and retain the ones you have.
To know how best to do that, you have to gain an understanding of what customer retention means, how it connects to customer loyalty and what you can do to improve both. In doing so, you can drive greater sales and revenue to your business.
What are customer retention and customer loyalty?
To understand these concepts, it’s best to make clear what the difference between customer retention and customer loyalty is.
Customer loyalty definition
Customer loyalty is how satisfied customers are with your company and whether they’ll return for future purchases. This loyalty is built up by having multiple positive interactions that develop a level of trust the customer has in your business. Often, companies use loyalty cards, discounts, and rewards to encourage repeat purchases by customers.
Customer retention definition
Customer retention is a metric that measures a customer’s loyalty. Businesses should try to retain customers instead of having to continually generate new customers, which is more costly than keeping the ones you already have. Customer retention involves building great relationships with customers so they stay engaged and motivated to return to your business.
What is the difference between customer retention and customer loyalty?
While loyalty is all about whether a customer wants to continue doing business with you, retention measures whether existing customers return. Loyalty is a behavioral trait individual to each customer. Retention is a metric that shows a specific rate, which can be measured over time to understand customer behavior.
Why is customer retention important for businesses?
Customer retention is important due to its high value for a business over time. It’s a cost-effective way to boost revenue when compared with the cost of gaining new customers. For example, it’s been found that a 5% increase in customer retention may produce more than a 25% increase in profit.
That’s all thanks to a few different factors:
- Return customers buying more from your company over time
- Operating costs to serve existing customers declining over time
- Return customers referring other people to your company
- Return customers may pay more to do business with you, rather than go to a competitor who offers cost savings
How to measure customer retention and loyalty
There are several different metrics you can use to measure your customer retention rate. One of the most straightforward to use is called customer churn.
Also referred to as attrition rate, this number shows the rate at which customers stop doing business with your company over a certain period of time. The lower your churn rate, the better your business is at keeping customers.
How can this be measured? The formula is shown here:
This rate should be monitored continuously so you can identify trends over time and determine what the most effective ways to retain your customers are.
What are the best customer retention strategies?
Since you now know all the benefits of customer retention and how it can be measured, the next step is to consider how to improve this rate. Some possible strategies are detailed below.
1. Offering personalized experiences
When you personalize experiences to each customer, it will improve their experience and lead to repeat purchases. Customers appreciate special treatment and are more likely to buy from you when they receive it. This deeper form of engagement is developed through gathering data to understand customer preferences, offering loyalty programs, and giving incentives.
Research shows that if your company excels at personalization, you can generate 40% more revenue!
2. Providing excellent customer service
Customers appreciate businesses who communicate clearly, honestly, and consistently. You should strive for authenticity in all interactions you have with them. You should focus on measures such as tracking all communications you send to customers to look at interactions, respond to customer queries quickly, and encourage further engagement such as creating an account.
3. Implementing loyalty programs
Customers love being recognized for their loyalty. A loyalty program gives customers who purchase regularly certain perks, which can increase their engagement and retention. By expressing your appreciation to loyal customers, you increase their lifetime value. Loyalty programs can take different forms, such as collecting points that can be used for discounts or giving a rebate on bigger purchases.
4. Offering rewards and incentives
If you don’t have a loyalty program, you could still give other incentives like free shipping as a way to thank long standing customers. Anything that builds up that emotional connection will encourage your customers to stick around.
5. Improving your payments process
Think outside of the box in keeping customers happy by considering your payment process. When making account-to-account (A2A) payments, your customers won’t need to enter their card details each time, or worry about updating payment details unless they change banks.
Keep in mind that how to choose the right payment gateway or infrastructure will differ by in-country preferences. Knowing which payment gateway is most popular in each country you operate in is essential to improving the payments process.
When you optimize your payments, your customers can feel secure and enjoy a hassle-free checkout process.
How can the right payment solution improve customer retention and loyalty?
With the right payment solution, you can see your metrics of customer retention and loyalty improve. How?
Collecting payments in a secure and seamless manner ensures the process is user-friendly. A simple, streamlined purchase means greater convenience for the customer, which will help boost retention.
2. Payment options
Choices are important to consumers, so you may want to consider a variety of payment options. That way, customers have the flexibility to choose which best suits their wants.
You should take pains to emphasize that the customer’s information is kept private, particularly when it comes to payments. Your payment infrastructure partner must have robust security measures in place to protect the customer, as kevin. does.
Customers should never experience static in the payment process. The speed of payments has an effect on customer satisfaction, so the user must have confidence that their transaction will go through smoothly. This includes ensuring any payment failures are minimized by having a reliable payment infrastructure partner that can go beyond open banking to make your life easier.
Choosing the right partner
According to Forbes, a major driver of customer loyalty is all about exceeding their expectations. By having multiple payment options, your customer can choose their preferred method of completing a purchase. But any business must also carefully consider how to go about choosing the right payments partner. Why?
Having too many payment methods can create operational complexity in your payment environment–something that isn’t good for you as a business, or for those looking to make a purchase from you. Choosing to work with a robust, holistic payment solution like kevin., where you don’t have to worry about the ease of integration and your customers can check out quickly, will ensure fewer headaches for you and your customers alike.