The success of your business comes from your customers – in fact your entire business existence depends upon them. Your business has come into being to solve some needs of your customers in a way that is unique; in a way that your customers get value from the consumption of your products or services. How effectively you are able to do this and how consistently you are able to do this determines the success of your business in the long-run.

The ability to attract customers can get business for you in the initial years of operation; however, your long-term viability is determined by how well you can keep your customers coming back to you and doing business with you.

How to Manage & Increase Customer Retention

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In this article, we will touch upon 1) what is customer retention, 2) why do we need to retain customers, 3) customer retention strategies & management, and 4) conclusion.


A business starts operating by attracting and acquiring customers and then expands efforts to keep them coming back for future purchases. Keeping current customers in customer database and turning them into repeat customers is called customer retention.

Just as a business makes strategies to attract customers, it also makes strategies to retain customers. Customer retention is all about creating and maintaining long-term relationships with your customers. The customer retention rate is inversely proportional to your defection rate – the rate at which people leave you. The lower your defection rate is, the greater will be your customer retention rate because your customers will be highly satisfied with your offering and thus doing business with you.

However, calculation of customer retention rate is a bit more complicated than it appears to be on the surface. This is because not all customers do an equal amount of business with you. Some customers account for the greater number of sales than others. Therefore, if you are losing five of your customers but these five were the ones bringing in 25 percent of sales for you then in fact by losing these five customers you are losing much more in terms of sale. On the other hand, if these five customers cost you more than the sales they were bringing – then good riddance!

In order to cater for this complexity, customer retention rate can be calculated using three measures:

  • Retention Rate (Raw Customer): Calculation of the number of customers carrying out business operations with you at the end of the year as a percentage of number of customers doing transactions with you at the beginning of the year;
  • Retention Rate (Sales-Adjusted): The worth of sales generated by retained customers that is a percentage of the total value of sales generated by all customers doing transaction with you at the beginning of the year;
  • Retention Rate (Profit-Adjusted): The amount of profit earned from retained customers that is a percentage of the total profit generated by all customers doing transactions with you at the start of the year.


Did you know that acquiring new customers is 7 times more costly than retaining customers? The best way to retain customers is through superior customer service because as stats suggest, 71 percent of customers end the relationship with an organization when they receive poor customer service.

On a global basis, a lost customer is worth about $243. And what do 61 percent of customers who leave you do? They go to your competitors – as the famous saying goes that if you do not take care of your customers, someone else will!

The above stats clearly suggest that it is important for businesses to understand and implement techniques that help in creating loyal customers who can be retained. There are various other benefits that are offshoots of customer retention, including:

  • Positive Word-of-Mouth Generation – retained customers who have had positive experiences with you, become your brand ambassadors and will not shy away from giving your business, a positive feedback, and reviews. They will talk positively about you amongst family and friends and post positive online comments regarding you. The customers you retain generate positive word of mouth concerning your business.
  • Lower Customer Acquisition Costs – Since you develop a positive reputation in the market – courtesy positive word of mouth generated by retained customers – it does not cost you too much to convince new customers to do business with you since they are already aware of your business and your quality through word-of-mouth. So you need not spend too much on convincing new customers to do business transactions with you.
  • Increased Sales & Revenue – The cumulative effect of customer retention leads to an increase in sales and overall revenue you generate because not only would retain customers do business with you through repurchases, they will also bring in new customers for you. Also, your loyal customers will be more willing to buy other products and services from you.
  • Increase Referrals – Retained customers would not hesitate in referring their friends and family to you. Whichever industry you are operating in, your retained customers would believe that you are the expert in that particular industry and would refer their friends and family to you in a heartbeat! Studies show that the more business a customer does with you, the more referrals they make as well.
  • A Measure of Customer Satisfaction – The more retained customers you have, the safer it is to say that your customers are satisfied because obviously unsatisfied customers will not be retained. Satisfied customers get comfortable making their purchases from you.
  • Customer Loyalty – Retained customers become your loyal customers, and loyal customers are more trustworthy of your products/services and are thus willing to pay higher prices for the same quality if need be. They are also less likely to take their business elsewhere in case you increase your prices.


Customer retention strategies are aimed at helping you retain customers. Here are a few things you can do:

a.   Build Brand Recognition

Make your brand known to customers so that whenever they require any product or service, they immediately remember you as the provider of that particular product or service. The way to do this is to become an expert in your field, regardless of what it is that you sell to your customers.

Customers get retained with market leaders and market experts. This is because when you gain the repute of being the expert in your industry, customers start trusting your quality and, therefore, prefer to do business with you in the long term.

Another way of making your brand known in the market to an extent where customers start recognizing is to stand for something. This can be a charitable cause, a social purpose, or projection of any value or positive trait of your business, so people start associating that value to your business. By standing for something meaningful, you will yourself stand out amongst your competitors and have more customers do repeat business with you.

b.   Know What Your Customers Like

It is all about meeting and exceeding expectations. However, how will you do that if you do not know what your customers’ expectations are? Ask specific questions from customers regarding their purchase experience with you and ask for suggestions that can help improve their experience of doing business with you.

Take a deep note of the feedback you receive – read between the lines and gain a deeper understanding of what customers are expecting. Take note of things that are not up to their expectations and work towards improving them, so you are able to retain customers by winning their satisfaction. Also, if there are misleading expectations in their mind, which you will never fulfill, it is best to clarify the customers regarding these misconceptions so they can correct their expectations from you rather than get disappointed.

Your customers’ experience with you should be as painless and as free from friction as possible – make an effort to do so. Conservative spenders find it difficult to part with their money – they feel guilty when they spend. In order to convince them to spend and to reduce these feelings of guilt, you must reduce the pain and friction associated with making a business transaction.

You can do this for your customers by giving them bundle offers or by using reassuring words such as ‘costs $400 only’ and ‘negligible service charges of $25’. Such words make customers feel they are not overspending, help in justifying their purchase and also make them feel that they are getting a good deal.

A personalized purchase experience delights customers. Personalize the experiences of regular customers at your company, so the customers feel important and valued, and feel like their interests are being given weightage.

c.   Monitor/Track Metrics for Customer Retention

You must have heard the famous saying ‘you cannot improve what you cannot measure.’ By this definition, unless you measure customer retention, you will not be able to improve it.

You can measure customer retention by predetermining and predefining Key Performance Indicators (KPI) regarding your customer service. By measuring execution of customer service against these KPIs can help you track or monitor your performance as a business and give you an insight as to what the chances are that your customer will get retained with you, based on how well you achieved your KPIs.

The more KPIs you achieved, the better customer service you delivered during the period thus, the more chances you have of retaining customers during the period.

Also, you must remember that an improvement in customer service can help enhance customer retention rates. Therefore, whichever KPIs of customer service you lack behind, improve upon them and see a surge in your customer retention.

Even though there may be different formulas for calculating customer retention rate, the most widely used formula requires you to know:

  • CE – Number of customers at the year’s end
  • CN – Number of new customers acquired during the year
  • CS – Number of customers with whom you started the year with

CR = {(CE – CN) ÷ CS } X 100

This means that your customer retention rate can be calculated by dividing the difference between the number customers at the end of the year (60) and the number of new customers of the period (20) with number of customers at the beginning of the year (50). Turning this amount (0.8) into the percentage by multiplying with 100 will give you your retention rate (80%).

d.   Offer Loyalty Programs

Your customers are looking to get value for their money by doing business with you. The more value they feel, the easier it will be for you to retain them and make them come back to you for repeat purchases. Ideally, every business looks out for ways to add value for customers without having to add to their cost. A way of doing this is by offering loyalty programs as a reward for their loyalty.

Loyalty rewards are directly proportional to the amount of spending – so the more your customer spends, the higher the reward. The frequent flyer programs are designed based on this philosophy. Offering gift vouchers to customers is another example of loyalty awards. When customers are rewarded for the loyalty they show towards a business, they get further motivated to become even stronger loyal customers.

There are five types of values you need to understand so you can create them for your customers:

  1. Cash Value – How much cash would your customers be offering to pay in exchange for the reward they will receive for it. Is that worth it?
  2. Redemption Value – what is the depth of the rewards they will be getting? What variety of rewards are you offering?
  3. Aspirational Value – What is the desire of your customer for wanting the reward you have set for them?
  4. Relevance Value – How relevant are the rewards for your customers? Are they achievable and realistic?
  5. Convenience Value – How easy is it for participants to get their rewards.

e.   Foster Positive Relationships with the Customers

How well you bond with your customers is a highly important factor that can help you with retaining them. The more familiar your customers become with you, the greater the bond they form with you – a positive relationship with your customers is going to help you retain them.

Healthy and positive interpersonal relationships generate trust and win the commitment of the customers towards your business. They also help in reducing uncertainty in the minds of customers regarding your products/services. By consciously trying to create a bond with customers by fostering positive relationships, you can improve your customer retention rates.

f.   Quality Matters More Than Speed

It does not matter how fast you are going if you are going in the wrong direction because regardless of your speedy travel, you will not have reached your desired destination. Therefore, the quality of your customer service is more important the speed of your customer service, per say.

A Gallup survey reveals that customers are nine times more likely engaged in businesses whose customer service they perceive to be courteous, helpful, reasonable, and willing. So speed is a secondary factor whereas giving quality service is the primary factor that helps in customer retention and improves customer retention rate.

g.   Embrace Low-Cost Method

Ideally, customer retention can help you save costs by making you spend lesser on your advertising efforts and on other efforts required to attract new customers. Out of the various customer retention strategies and ideas available with you, invest on those which you can easily afford. By embracing a low-cost method, you will ensure getting good value for your money by investing as little as possible for benefits that you enjoy in the shape of increased customer retention rates.


Customer retention strengthens your business in the marketplace by providing you a following of loyal customers that stick with you. Change how you approach customers because studies say that you can avoid customers leaving you just by listening to what they have to say regarding the product/service, you are offering. Listening to their feedback makes them feel valued, and you never know you might come across a productive change as a result of listening to your customers’ feedback! Improvements as a result of listening to customers’ feedback can delight your customers, enable you to meet their expectations in a better way and at the end of the day, retain customers for your business!

All businesses these days work hard towards increasing their customer retention rates by coming up with new and improved retention strategies. This effort is worth it and repays the business because the longer you retain a customer, the greater profitability they generate for your business because the value of your customers increases with time. This is a huge incentive for businesses to invest in their customer retention strategies because they know they will be getting a return on their investment soon.

Starting with design and implementation of customer retention strategies in earlier years of business operation will help you reap the benefits quicker. The longer you take to focus on customer retention, the longer it will take to win customer loyalty and the more time it will take you to reap the benefits of customer retention. So start early and manage customer retention effectively!

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