The Art of Customer Retention: Maximizing Profitability and Sustainability

Customer acquisition costs have skyrocketed by 222%. Brands are bleeding nearly $30 for every new customer. Trust in businesses is dwindling at an alarming rate.

81% of customers rely on the word of friends and family, while 65% have grown weary of ads. Not to mention, since 72% of customers expect immediate support, if a company keeps them waiting‌, loyalty will wane in the blink of an eye.

The key to successfully navigating challenging business waters lies in customer retention. Not only is it a more cost-effective and sustainable approach, but it also proves to be significantly more profitable than acquisition.

Astoundingly, a mere 5% increase in retention can cause profits to soar by 25% or more. Focusing on customer retention is a golden opportunity for those ready to seize it.

But to truly harness the power of customer retention, one must first examine the costs of customer acquisition and the time it takes to recoup those investments, eventually reaching the promised land of positive Customer Lifetime Value (CLV).

Only then can businesses devise strategies to fortify their customer base and maximize profitability.

In this article, we’ll delve into the intricacies of customer retention, unravel the formula to calculate your retention rate, explore its impact on your key performance indicators (KPIs), and unveil strategies to bolster this critical metric.

How Your Customer Retention Rate Relates to ROI

A customer retention rate measures how many customers a business maintains over time. It’s influenced by how many new customers are acquired versus the number lost (which you may recognize as churn rate.)

For example, an 80% customer retention rate means that 20% of your customers haven’t returned to buy from you again — in other words, “customer churn.” 

CRR directly impacts ROI and can drive growth when used strategically. 

Of course, that’s not true. But there are many impressive benefits to championing your CRR:

• Repeat customers will spend 67% more than new customers. 
• They’re 5x more likely to forgive your mistakes (unlike 33% of new customers that’ll switch to your competitors). 
• They’re 7x easier to upsell your new product or service.
• 31% of customers will pay more to stay with a brand they are loyal to.
• It boosts customer lifetime value (CLV), a metric every CFO should track.
• It can increase word-of-mouth recommendations from your customer base and produce brand advocates who sing your praises to friends and family.
• A company’s top 10% of buyers spend 2x more per purchase than the other 90% of its customers. Customers in the top 1% spend as much as 2.5 than those in the 99 percentile.

Aside from all the promising numbers, a good CRR means you’re targeting the right customers in the right way and that your customer service ecosystem is functioning well.

Calculate Customer Retention Rate: Examples and Guide

Calculating your customer retention rate gives you a good baseline for comparing your business’s performance over time and how it fares against competitors. 

Here’s the formula for calculating your CRR within a given period, along with some examples. You can choose the period that you want to measure. 

Your customer retention rate is calculated using the following formula:

Number of Customers at the End of a Given Period – Number of New Customers / Total Number of Customers * 100

Here’s an example:

• You start the year with 50 customers.
• You gain 10 more.
• You lose (churn) 3. 
• Your CRR is 94%. 

Here’s another example:

• You start the year with 1000 customers.
• You gain 475 more.
• You churn 364. 
• Your CRR is 16%. 

Interested to know how all this relates to your ROI?

Try our customer retention ROI calculator and input your monthly cancellations, average customer value, and percentage of customers saved for an instant revenue estimate. 

Once you know your customer retention rate, auditing your churned customers is a great way to diagnose common issues that might have caused the churn. Maybe you targeted the wrong kind of customer, or they may have shifted to a competitor following a disappointing customer service experience.

Comparing Industry Retention Rates: How Do You Measure Up?

Churn, to some degree, is an inescapable reality for every business. Nevertheless, you can effectively mitigate its impact by honing in on your retention strategies.

The trick is to set realistic expectations and KPIs for your CRR, and it helps to know how others in your industry are faring. The average for the top five companies in most industries is 94%. 

While these stats are useful, they should be used as rough benchmarks.SaaS companies have different goals, pricing structures, target markets, and processes.

Consider what’s achievable for your business and your team, then set short- and long-term retention goals. 

How To Improve Customer Retention Rates

Customer retention is far from a one-step process. 

You might save one customer from churning in one instance, but that doesn’t guarantee long-term loyalty. 

It’s often a journey, particularly for subscription eCommerce businesses that need to consider both save rates (potential customers who leave the cancellation page and don’t return to it) and deflect rates (number of customers who leave a cancellation page but come back and follow through later). 

Your customer retention strategy should align with your business’s and its customers’ needs, so it’ll be unique from one case to the next.

However, there are some common things that customers look for when deciding which businesses to buy from and stay loyal to. 

1. Set Up Your Team to Deliver Excellent Customer Service

According to a survey by Salesforce, 91% of customers said they’re more likely to buy from a business again after a positive experience, and 71% said they took their experience into account when purchasing. 

Customers have more choice and access than ever, so getting to the top of the pile and staying there is tough. This is particularly true for subscription business models that must continually demonstrate a return on investment and maintain customer satisfaction beyond the first sign-up. 

Tips to ace customer service:

• Have a leader or a team responsible for managing customer relationships. Focus on fast, high-quality, and personal interactions with customers.
• Ask for feedback from customers. 
• Optimize the entire customer lifecycle, not just the conversion path. 
• Establish company-wide churn KPIs while clarifying each department’s unique role and metrics in addressing the challenge.

2. Provide A Great User Experience At Every Touchpoint 

Around 52% of customers polled in the Salesforce survey said they expect personalized messaging from brands today. 66% say they want their unique needs met, but a further 66% feel they’re treated more like numbers than as individuals.

Every touchpoint that a customer interacts with your business should delight them and make them feel important.

Tips to improve UX at every touchpoint:

• Offer real-time support via live or video chat, the preferred channel over phone and email for most customers. 
• Provide personalized customer experiences by consolidating data from various sources into a centralized CRM platform. Analyze patterns, streamline teamwork towards shared goals, and align engagement tools with customer success criteria.
• Encourage and action customer feedback after they interact with you, and give your employees the same opportunity. Empowering your customer service team to support and elevate customer experience will optimize your resources and return. 
• Consider headless commerce to create and maintain a strong omnichannel strategy. Ensure that wherever your customers find you, their experience remains seamless, consistent, and engaging.
• Offer customers options and easy customization. Presenting subscription pauses instead of canceling can boost customer retention by 10-30%. Enhance UX and reduce churn with discounts, plan changes, and tailored pause or delay periods for special circumstances.

3. Pay Extra Attention to Churn Risks and Learn From Those Canceling

The signs of imminent churn include less time spent using a product, missed payments, and downgrading plans.  

Tips for identifying and reducing churn:

• Use subscription analysis software. Chargebee’s Revenuestory provides a dashboard with all the data and metrics you need at one glance to analyze your subscribers. Read how ScreenCloud was able to correct its churn rate with this software.
• Inquire why customers want to cancel, as their feedback is vital for understanding shortcomings and improving the customer journey. A timely and thorough survey of all customers, including those churning, is essential for making informed business decisions.
• It’s also possible to send surveys to current customers that appear to be at risk of churn before they cancel and make them offers that might enhance (and secure) their journey. 
• Implement smart dunning. This automated system collects data about rebill success rates to help inform strategies for reducing churn. Online payments depend on multiple links in a chain, so any one or combination of chinks can cause billing failure. Chargebee Receivables helps you to collect this information and rectify issues promptly. 

Around 20–40% of churn is involuntary, meaning that it happens automatically or without a customer intending to stop using the product. They might have missed a subscription invoice or renewal notice. 

And this directly impacts revenue generation. In fact, Whiteboard increased its monthly recurring revenue by 35% using Chargebee to help reduce churn. 

4. Reward Loyal Customers

Rewarding customer loyalty can increase their trust in you, word-of-mouth referrals, spending, and lifetime value, and, as a result, your bottom line.

Tips for rewarding loyal customers:

• Set up a loyalty program that will elevate the customer experience and offer them the added benefits that they really want. 68% of loyal customers will join a loyalty program if invited. 
• For subscription-based businesses, acknowledge long-standing customers, high spenders, active users, or multi-channel reviewers. Consider creating a community of brand advocates with direct input on product updates and launches.
• Establish a referral program that incentivizes your happiest customers to bring others on board. You might offer gift cards, longer trial periods, or discounted plans. When Natural Dog Company started its program, it saw a 20% increase in the average order value and a 5% uptick in email subscribers. 

Few businesses leverage the potential of loyalty programs, and fewer still measure their performance. And that’s despite 64% of loyalty program customers will tailor their spending to maximize its benefit. 

Optimize Customer Retention with Chargebee

Customer retention is a core element in any business’s growth and sustainable success of any business. Reducing churn is the path to achieving this goal, as every customer lost translates into lost revenue and diminished profitability.

Fortunately, ‌tools exist to make this easier than ever. 

With Chargebee Retention, you can save 20–40% of churn by analyzing why your customers leave and testing targeted, personalized content to reduce cancellations.

Benefits of using Chargebee Retention:

• Grow your customer lifetime value by targeting existing customers with personalized offers.
• Build an experimental retention system that allows you to test multiple variants and find the best solutions fast.
• Get a 360-degree view of your retention performance with a deflection funnel that reports on your metrics and delivers insights.
• Capture and combine data from multiple sources to further enhance personalization.

Start your free trial today!