Customer retention: A guide to building long-lasting relationships
When customers stick around for a long time or keep coming back to your business, you know you’re doing something right. With more consumer options than ever, it’s crucial for companies to find new ways to stand out from the competition. And while it’s always important to acquire new customers, businesses shouldn’t overlook the significant value and potential of retaining their existing customers.
In this article, we’ll explore what customer retention is, why your business needs to prioritize it, and strategies for retaining customers.
What is customer retention?
Simply put, customer retention is a company’s ability to maintain its existing customers over time. This is the product of high customer engagement that results in repeat purchases, recurring payments, or other forms of ongoing business.
A customer retention strategy prioritizes sustaining long-term customer relationships by providing differentiated value, consistent service, and personalized experiences. While acquiring new customers is important for business growth, retention focuses on maintaining and maximizing the lifetime value of your current customers.
A high customer retention rate usually means a company has achieved strong customer loyalty, which can be a major driver of profitability, since loyal customers are more likely to make repeat purchases, refer other people, and become brand advocates.
Why customer retention is more valuable than customer acquisition
Customer retention and customer acquisition are both vital to business growth and success, but retention is particularly important for keeping a business afloat. Let’s break down why retaining current customers matters.
Cost comparison between retention and acquisition
Acquiring new customers — which involves marketing, sales, onboarding, and more — costs more than the investment needed to keep current customers happy. While the oft-cited rule of thumb that it costs five times more to acquire a new customer than to retain an existing one may not be accurate for all businesses, proven statistics are just as compelling.
Research shows an increase in customer retention by 5% can lead to growth in company profits by 25% to as much as 95%. Furthermore, current customers are 50% more likely to try new products or services and they spend at least 30% more than new customers. By focusing on retention, your business can spend less and still generate more revenue in the long run.
Long-term benefits of loyal customers
Loyal customers are champions of your brand. By providing an exceptional experience, you’ll benefit from their recommendations to family, friends, and colleagues — word-of-mouth advertising that’s authentic and valuable. Also, if your business consistently provides high-quality products and services, loyal customers will likely forgive occasional mistakes.
Key tools and metrics for measuring customer retention
Customer retention is a crucial aspect of any successful business strategy. By focusing on retaining existing customers, companies can reduce churn, increase lifetime value, and drive revenue growth. Leveraging various tools and technologies while monitoring key metrics is essential for effective retention management.
Several tools are available for retention. Customer relationship management (CRM) platforms, such as Zuora’s CRM solution, provide a centralized system to track interactions, manage accounts, and identify engagement opportunities. These platforms build stronger relationships, leading to improved retention rates.
Customer feedback and survey platforms are also essential. These tools gather valuable insights directly from customers, helping understand needs, preferences, and pain points. Acting on this feedback proactively addresses concerns, enhances products or services, and fosters long-term loyalty.
Numbers don’t lie, and measuring performance is integral to determining what is and isn’t working for your customer retention strategy. But first you need to know what to measure, and what different metrics mean. The following metrics will help you to understand if you’re providing the best experience for your customers and what to change to achieve success.
Customer retention rate (CRR)
Customer retention rate measures the percentage of customers that a company maintains over a period of time. A high CRR indicates that your business is successfully keeping a loyal customer base.
Customer lifetime value (CLV)
Customer lifetime value measures the total revenue an individual customer is worth over the period of their relationship with a business. A higher CLV means greater profitability for your business.
Churn rate
Churn rate refers to the percentage of customers who end their relationship with a business. A low churn rate indicates you are successfully retaining customers.
Top customer retention strategies
Now that we know what customer retention is and why it’s important, we’ll dive into some ways to improve customer retention by simplifying your business process and building customer trust.
Make the onboarding process smooth and set clear expectations
The onboarding process is likely the first impression customers have of your business and its operations. Proactively asking customers if they have any questions and quickly responding to them will set your business up for success and allow customers to trust you to provide quality products and services.
It’s important to be realistic with expectations upfront. Setting the bar too high could result in customer disappointment and, ultimately, churn down the road. Communicate expectations from the start and create a sustainable path for your team to continue to meet expectations.
Provide a personalized customer experience and exceptional service
Customers will remember an above-and-beyond experience with a company — and also a poor one. A customer is more likely to be a loyal fan of your business if they feel supported and valued. Relying on chatbots to handle inquiries can lead to frustration and customers moving on to your competition. Listen to and understand customers to create an experience that is personalized to them and unique to their needs.
Loyalty programs and rewards are a great way to provide an elevated customer experience. Your business wouldn’t exist without its loyal customers. You can thank them — and keep them coming back — by offering item discounts, birthday gifts, a points system for rewards, and other perks.
Develop customer connection through emotion and consistency
Research found that true customer loyalty, which is formed through emotional connections rather than incentives, increased by 26% between 2021 to 2024, finishing at 34% in 2024. Building emotional connections and creating memorable experiences go a long way to developing strong, loyal customer relationships.
Setting expectations from the beginning and remaining consistent with the product, service, or even marketing content you promised to deliver allows your customers to trust and feel comfortable with your company.
Build community and engagement online
Humans need social connections to feel a sense of belonging. Creating a communal space, even in a digital space, will keep people feeling connected, engaged, and valued.
Social media, in particular, is a great way to listen to feedback and engage with your audience. Using digital and social channels to reach out to customers, respond to feedback, or offer support will help your business look like a trusted, transparent company and improve loyalty and retention.
Invite and address customer feedback effectively
Customer feedback is one of the best ways to find out what your customers want. Inviting feedback through surveys, polls, and more can help your team provide the best possible service. Customers want to know their voice is being heard and appreciate when effort is made to improve their experience.
Of course, even the best businesses encounter customer complaints. Respond to the customer and continue to follow up until the issue is resolved. By handling complaints gracefully, you can turn a negative interaction into a positive one.
Use upselling, cross-selling, and bundling strategies
Current customers are more likely to buy new products or services and spend more than new customers. Upselling is a valuable strategy to convince existing customers to purchase a more expensive version of an item, buy an upgrade, or add more on to their current service.
Cross-selling, or selling related products that complement an original purchase, is also a way to increase loyalty and retention.
For customers who want to feel that they’re getting more for less, bundling is a great strategy. This involves selling multiple products or services as one bundled purchase for a lower price than if they were sold separately. It encourages customers to buy more and gives them a price break for doing so.
Ensure consistency across all channels
Consistency is key, and that goes for all of your channels. It can be tempting to follow different trends, but before jumping on a bandwagon, assess whether or not it fits your brand. A funny tweet may work for a fast food chain, but might not be appropriate for a more serious brand.
Good retention requires consistency in messaging, service, and customer experience. Make sure that customers have the same dependably excellent and personalized experience no matter where, when, and how they interact with your brand.
There are numerous successful examples of customer retention across industries. Let’s explore three notable ones:
Amazon Prime: This membership program provides a range of benefits including free shipping, exclusive deals, and access to streaming services. By offering these perks, Amazon Prime encourages repeat purchases and fosters a sense of exclusivity and value, resulting in higher retention rates.
Starbucks Rewards: Starbucks offers a loyalty program that rewards customers with free drinks, personalized offers, and early access to new products. This incentivizes customers to continue choosing Starbucks for their coffee needs, leading to increased customer retention.
NikePlus: Nike’s loyalty program offers exclusive access to limited edition products, personalized training plans, and early access to sales. By providing these unique benefits to members, Nike successfully retains customers and cultivates a sense of brand loyalty.
How to leverage data for better customer retention
Modern businesses have no shortage of customer data. You can use this data to make better decisions, enhance digital experiences, and improve your customer retention.
Understanding customer behavior through analytics
Analyze customer behavior data to see what products or services they’re most interested in, where they encounter friction in their buyer journey, and how you can make changes to improve personalization and retention.
Predicting customer needs
With predictive analytics tools, businesses can see patterns in the data, anticipate what customers will need in advance, and offer solutions proactively, making them feel understood and supported in a way that builds loyalty.
Common mistakes companies make with customer retention
Customer retention is critical for businesses, but it’s also important to avoid these common mistakes that can hinder your strategy.
Focusing solely on acquisition
While it’s important to grow your customer base, neglecting the current, loyal, and already paying customers is a recipe for revenue loss.
Ignoring customer feedback
It’s great to gather feedback, but if you don’t listen and take action on it, your business could be facing dissatisfied customers, higher churn rates, and missed opportunities for growth.
How to retain your customers — and acquire new ones
Happy customers means more loyal customers, and customer retention should be a top priority for any company. By adopting strategies focused on personalized experiences, superb customer service, and data-informed decision-making, businesses can improve relationships and maintain loyal customer bases that drive growth and success. Customer retention is well worth the investment, planning, and effort.
The modern business approach is about understanding your customers in nuanced detail, catering to their evolving needs, and creating flexible pricing options that adapt to their journeys. It’s about both customer retention and customer acquisition.
Check out Zuora’s solutions to acquire and retain subscribers.
Customer retention FAQs
1. What is customer retention, and why is it important?
Customer retention is a company’s ability to maintain its existing customers due to high engagement through regular or repeat purchases. It prioritizes sustaining long-term customer relationships by providing differentiated value, consistent service, and personalized experiences. Customer retention is important because it’s highly cost-effective and enables growth through brand loyalty and advocacy.
2. How can a small business improve customer retention?
Just like large enterprises, small businesses can improve customer retention by offering personalized experiences, addressing customer feedback, offering loyalty programs, and using other strategies.
3. What role does technology play in customer retention?
Businesses can use technology to collect and understand customer data through analytics, assess customer behavior to personalize their experiences, and make other data-informed decisions to improve retention.
4. What is a good customer retention rate?
Customer retention rates vary based on business size, industry, and more, but a good customer retention rate is generally considered to be between 70% and 80%. While you should strive for 100%, just focusing on improvement will help your business grow.
5. How can customer retention impact profitability?
Current customers are not only more likely to buy more products and spend more money than new customers, but they also require less marketing spend and are more likely to refer others, further increasing profitability.