The marketer’s playbook: Winning customer retention strategies to drive sustainable growth

A while ago, an article was published in the reputable Harvard Business Review that aggregated studies showing that acquiring a new customer was between 5 to 25x more expensive than retaining an existing one. This wide range depends on the study and industry involved.

The article also quoted a study according to which increasing customer retention rates by even 5% could increase profits between 25-95%.

No matter what end of the scale you agree with, the studies and article conclusively state – keeping customers happy pays off.

There are a couple of reasons for this.

First, it’s simple math. Returning customers buy more from a business over time, and as they do this, the operating costs to serve customers – declines.

Next, we consider the snowballing effect of positive customer experiences. Your loyal customers will tend to refer your business to their friends – which is free advertising.

Then, there’s the habit and familiarity factor. Your loyal customers will choose to continue to do business with you rather than with a competitor they’re unfamiliar with.

By retaining customers, you reduce operating costs respective to sales revenue, build a brand ambassador marketing network, and grow customer lifetime value. This way, your existing customers help make your business more profitable, which allows you to invest more in acquiring new ones.

But chasing new customer acquisitions, businesses sometimes forget that the best customers are the ones they already have. And retaining them requires a slightly different marketing approach.

Retention marketing refers to the implementation of marketing strategies and tactics that companies use to nurture and maintain customer relationships.

The focus of retention marketing activities is on increasing customer lifetime value. This can be achieved through means as varied as sending coupons, back in stock reminders, etc. or by creating  a culture around your brand with relevant newsletters and content.

Recent trends have seen businesses focus more on increasing customer lifetime value. This is just smart business, because of the ratio of cost for holding on to a customer is far lower than costs associated with converting a new one.

Existing customers are more likely to repeat a purchase with trusted brands owing to positive customer experiences. This can be down to familiarity with a practical, streamlined checkout process, positive customer service experience, or simply because your product or service satisfied their need.

And nurturing this blooming relationship is as easy as offering a customer a small discount as a token of appreciation for their continued loyalty.

But acquiring a new customer is a lengthy and costly process.

First, there’s advertising to consider. This step involves promotions on multiple platforms – depending on what your product or service is and where your target audience resides.

Next, once you’ve successfully engaged your target audience and had some interactions that meet your criteria for marketing qualified leads (MQLs), it’s time to move them through your funnel to the sales stage.

In the sales stage, your qualified leads either interact with sales staff or any other sales assets in your process – i.e. your online store with a virtual sales assistant or human-staffed agents.

And, finally, after completing this step – you have a brand new customer. Congratulations!

Now look at how much it cost you. Tally up all the costs associated with getting your new customer across the line and you have your cost per acquisition.

Consider that versus how much less it will cost to send your existing customer a discount code for their next purchase.

But we’re not done. In some industries, it’s possible that your cost per unique acquisition may not have been paid back with just one sale.

In SaaS, for example, customer acquisition costs are notoriously high. Because of the high cost of new customer acquisition, a new customer may have to remain with a company for between 1 to 5 years before they start generating a profit.

This should demonstrate how a 5% bump in customer retention can boost profits by upwards of a quarter.

Returning customers grow profits through repeat purchases, word-of-mount recommendations, and easy cross-sell and upselling.

And with fewer resources involved in customer acquisition, each sale to a returning customer helps boost profitability.

So, how can you boost customer retention? Here are some helpful strategies any business can employ.

Keeping customers happy pays off big. Here are some helpful customer retention strategies to keep loyal customers coming back.

An important step in nurturing customer relationships that lead to retention is making your customers feel valued as individuals.

This is where personalization comes in.

At the very least, you need to address your customer by name – this is something that they likely provided you at checkout. And at checkout, a best practice is to offer customers an opt-in to receive newsletters, promotions, special discounts etc. We’ll discuss that in more detail in the next step.

Use your customer data to populate a customer data platform. This will help you understand more about who they are and what they’re interested in.

Leverage customer data to promote relevant product recommendations that will keep your customers sticking around.

Keep customers engaged with relevant content and offers. Use their opt-in permission (remember the previous step?) to engage with them over their favorite channels.

Nurture a sense of community by engaging customers over social media where they can connect with other like-minded individuals.

And keep them engaged with gamified loyalty programs. The more they engage with your brand, the more points they collect towards their customer goals – think discount points for higher value purchases you know they’ve been eyeing.

But it’s not all about selling. Be proactive with customer service by leveraging data that can indicate why they’re engaging you. If there are service disruptions in their known area, preempt a customer service query and reach out to customers to assure them services will resume shortly; or notify customers of any delivery delays.

Keeping customers informed is a helpful engagement tactic that goes a long way towards building positive relationships.

Reward customers for their loyalty with exclusive deals, birthday discounts, free shipping for VIPs etc.

Nothing says “we value your business” like your business providing customers with actual value.

Something as simple as rewarding loyalty by paying for shipping can nudge an already loyal customer across the line and strengthen your bond.

These are some surefire customer retention strategies any business can employ. To make the most of them, we’ll take a look at some of the building blocks you need to succeed.

To make the most of your customer retention strategies, you need the following building blocks to guarantee success:

Personalized customer retention strategies work best when based on actual customer data. Developing customer personas help you personalize marketing efforts, inform your product development, help you optimize lead generation, and guide your product messaging to suit your intended audience.

Look at your customer information and identify who your customers are. Then use surveys to build out complete personas following these steps:

Understanding what problems your products and services solve for customers can help you identify cross and upsell opportunities – or simply opportunities to strengthen your relationship.

For example, customers who have bought certain products or browse a certain category of products can be proactively targeted with helpful content. These can be product reviews or helpful guides.

Not all businesses are alike. What works for a SaaS won’t necessarily work for an online retailer specialized in pet products.

Make sure the strategies you employ to extend customer loyalty are relevant to your customer and how they consume your products and services.

For example, an online pet store offering a loyalty program to its customers – makes sense. Frequent purchases, collecting points for discounts on commonly purchased products… it works. But a loyalty program for a SaaS that helps businesses optimize their payroll management may not have the same impact.

When it comes to retention strategies, a good starting point is to aim for a 5% retention rate. Depending on your industry, as we know from the introduction to this guide, this can result in a profit boost of anywhere from 25 to 95%.

Helpful customer retention KPIs to keep an eye on are:

Monitoring these KPIs over an extended period will show you how your customer retention strategies are performing – and where there’s room for improvement.

Increasing customer lifetime value by increasing customer retention benefits businesses through increased profits and lower costs associated with new customer acquisition.

See how our customers have used automation to increase customer retention.