Managing your customer retention rate is an incredibly important part of growing a sustainable business.
Before we look at strategies for improving customer retention, let’s raise a few questions and put a critical data point front and center.
According to research from Harvard Business School, increasing customer retention rates by 5 percent increases profits by 25 percent to 95 percent. Good to know, but exactly does retention mean?
What is customer retention?
Customer retention rate is how well a company keeps its paying customers over a period of time. Peter Drucker once said the purpose of a business is to make and keep a customer. Retention deals with the latter.
A low retention rate is similar to filling a bucket with holes in the bottom — sure, you could keep piling on to make up for it, or you could figure out what caused the holes and how you can patch them up. Retaining customers costs less than acquiring them, and both add to your company’s bottom line; revenue doesn’t care where it comes from, earned or saved.
How to improve your customer retention rate
At Help Scout, we’re all about building relationships with new customers, but we also believe that great customer service, engagement, and education are more than just the right thing to do — they’re also good for business.
To help you increase your own retention rates, we’ve compiled a list of our 20 favorite techniques, many backed by academic research and case studies on consumer behavior, on increasing customer loyalty.
1. Stand for something
Customers are more likely to ignore you if your company doesn’t stand for anything. Research from the Corporate Executive Board that included 7,000 consumers from across the U.S. found that of those consumers who said they had a strong relationship with a brand, 64 percent cited shared values as the primary reason. If you want loyal customers, you need create real connections with them. What do you stand for?
2. Use positive social proof
While negative social proof (“Nearly 90 percent of websites don’t use heat mapping software!”) has been proven to dissuade customers rather than encourage them, numerous studies on customer acquisition have shown that positive social proof (like testimonials) are commonly the most effective strategy for getting people to listen and trust your brand.
3. Invoke the inner ego
Most people prefer products and companies that “resemble” them in some way. This cognitive bias is called implicit egotism, and is an important thing to keep in mind when talking to customers. To attract the customers you want, you need to identify your target customers down to the last detail, then craft a message that matches their pains, goals and aspirations. It’s easier to fill this existing demand than to create one.
4. Position around the before and after
“This is your world before our product, and this is your world after.” Providing a contrast for customers can make for powerful marketing, but first you have to understand where they are (how they describe their pain) and where they want to be (how they frame their solution). Speak to that, and show how your product can bridge the gap, and you’ll catch their interest.
Tactics for customer marketing and education
If customers don’t enjoy your education, marketing, and sales process, they’ll likely never do business with you again. Selling to customers the right way is an integral part of creating customer loyalty. Below are a few studies to help you improve the process.
5. Use the words they love to hear
Not all words are created equal. Certain words encourage customers to buy more than others. In particular: free, new and instantly. When customers hear these words, and the promises they imply are backed up, they’ll enjoy their purchases more than they would have otherwise.
6. Reduce pain points and friction
All businesses, no matter the industry, are going to have to sell to the three types of buyers that are out there. According to research from Wharton Business School, nearly a quarter of these buyers will be conservative spenders, or “tightwad” customers. George Loewenstein of Carnegie Mellon University recommends using bundles, reassuring words (e.g., change “a $5 fee” to “a small $5 fee”) and reframing as a better way to sell to conservative buyers.
7. Capture your product’s momentum
When exciting improvements are being made to your product, everyone in the company feels the momentum. But do your customers feel the same way? They won’t unless you take the time to share your work. Today this often falls under the growing list of product marketing responsibilities, but either way it’s the execution that counts.
Create excitement with current customers by showing them what your latest features let them accomplish. As we prepare to introduce major improvements to our Beacon product, for example (such as the addition of live chat), we’ve been running a series of preview posts (like this, and this) to generate excitement about everything customers will be able to accomplish with these new tools.
8. Don’t just sell — educate
According to serial entrepreneur David Skok, sales is often more effective when you have an existing relationship with a customer, and when you’ve already provided value. This matches up with research from TARP Worldwide, which shows customers do enjoy receiving helpful recommendations on new information and products that will help them achieve better results.
The last thing you want to do is leave customers to fend for themselves after they’ve signed up. That’s why we offer ongoing classes and a customer support blog for the customer service community. Anyone using our product can get free ongoing training and be as successful as possible.