Customer Retention: The Ultimate Guide

Businesses of all sizes — from mom-and-pop shops to multinational corporations — have trouble ensuring their customers stay with them for the long term.

Most industries are fiercely competitive, and customers typically have many options for finding the products and services that are right for them. Having a steady base of loyal customers is an essential part of achieving success and surviving in a competitive environment.

What is customer retention, and why is it important for your business?

In simple terms, customer retention is all about keeping customers for the longest amount of time possible, ensuring they spend more money over their lifetime with your business.

Customer acquisition — the process of finding new customers — is time-consuming and expensive, while customer retention — keeping existing customers for a long time — is often a more profitable and efficient option for businesses.

Customer retention strategies encourage customers to do repeat business with a company, providing ongoing opportunities to purchase products and services. This means the company gives the customer good reasons to keep returning and spending money.

Retained customers are also more likely than newly acquired customers to refer others to the business, which means the organization can further reduce its customer acquisition costs.

The differences between customer loyalty and retention

While customer loyalty and retention are similar, there are some critical differences between them. Retained customers may be loyal customers, but they don’t have to be. For example, a retained customer may come to your business multiple times to make repeat purchases, but they may also purchase from your competitors.

A loyal customer, however, is more committed to your business than they are to your competitors. Not only are loyal customers interested in supporting your business, but they also advocate for your business with others.

For example, they may leave positive reviews online, talk about your products and services with their friends, and bring up your business whenever they notice an opportunity for a referral.

Loyal customers are also more likely to remain committed to your business even if they have one or two bad experiences. By contrast, a retained customer may leave and never return after a negative interaction with you.

“Organizations with a loyal customer base have this aura around them,” says Drew Stevens, CEO of Stevens Performance Group. “They have an incredible customer experience, and their customers are genuinely excited about sharing the business with others.”

Why do customers leave in the first place?

“Customers can churn for many reasons. Half of the job of developing a customer retention plan is to understand the existing issues before new solutions are developed,” notes Ian Edwards, cofounder of BeeLiked, a provider of gamified incentive solutions.

Here are some common reasons for customer churn:

• Lack of quality or results: If your product or service doesn’t provide the results or quality you promise in your marketing materials and sales pitch, customers may be disappointed and refuse to purchase from you again.
• Poor customer service and support: According to Stevens, this is the main reason why customers leave. If employees aren’t cordial, knowledgeable, or helpful, customers quickly lose interest in the business. “You need to mean what you say and say what you mean,” Stevens notes.
• The wrong target audience: In some cases, the customers aren’t the right fit for the business. They may not like the price point or might actually be looking for a completely different product or service than what you offer.
• No unique value proposition: If the product or service offering isn’t compelling or unique, customers may venture to a competitor. When customers think a competitor can do a better job, they will likely head there, notes Jonathan Zacharias, the founder of GR0, a digital marketing agency.
• No reason for loyalty: If customers don’t feel emotionally invested in your brand and think of it as interchangeable with competitors they likely won’t stay. They also won’t refer you to others or share your business within their network.

Now that you have a basic understanding of customer retention, how it differs from customer loyalty, and common reasons why customers tend to leave in the first place, it’s time to look at customer retention rate and how you can calculate it for your business.

By measuring your customer retention rate you can understand how successful your current retention efforts are and whether you need to adjust your strategies.

What is customer retention rate, and why does it matter?

Customer retention rate is a measurement of the number of customers a business retains over a specific period of time, expressed as a percentage.

It allows you to calculate and track whether your customer success efforts are working over the long term and how your customers feel about your business.

Your customer retention rate can help you understand your customer acquisition costs, overall profitability, brand loyalty, and customer satisfaction. Knowing your customer retention rate enables your organization to think about the customer experience more holistically.

“Every point of contact is an opportunity to mess up,” says Michael Kramer, author of the ManageHub Strategy. That’s why an organization needs to work on its operational processes to ensure the customer receives a consistently excellent experience every time — so they continue to come back.

How to calculate customer retention rate

Follow these steps to calculate the customer retention rate for your business:

1. Calculate the total number of customers you have at the beginning of a specific period — for example, 150 customers at the beginning of one year.
2. Calculate the total number of customers you have at the end of that same period — for example, 100 customers at the end of one year.
3. Subtract the total number of new customers your business has gained during the same period — for example, 100 total customers minus 25 new customers over one year.
4. Divide that number by the total number of customers from step 1 — for example, 75 divided by 150.
5. Multiply the answer from step 4 by 100 to express the result as a percentage. For example, 0.5 multiplied by 100.

Following this example, the customer retention rate for a business that started with 150 customers and ended the year with 100 customers (and gained 25 new customers during that same period) is 50 percent. That means half of its customers left while the other half stayed.

You can express customer retention rate as a simple formula as well, which makes it easy to calculate for any business over any given period:

[(E-N)/B] x 100 = CRR

E = total number of customers at the end of a specific period

N = number of new customers acquired within that same period

B = number of existing customers at the beginning of a specific period

CRR = customer retention rate

What is a good customer retention rate?

How do you determine if your customer retention rate is good or lower than where it should be?

Stevens recommends looking at where you stand against industry averages and your competitors. However, it’s also essential to have a solid understanding of the many factors that make up your customer retention rate — which is often unique to your business.

Edwards adds, “100 percent is always good, whereas 10 percent usually is pretty bad. But the devil is in the details. What’s good for one industry could be completely unacceptable to your niche business and vice versa. That’s why it’s key to only look at average retention rates by industry and not strive for an arbitrary number.”

Business model, price point, type of product or service, geographic location, and many other criteria all come into play when considering the strength of your customer retention rate.

It’s also important to figure out how your customer retention rate may have changed over time. Try to retroactively calculate your customer retention rate as far back as possible to establish a baseline for your business and work from it.

Now that you have a formula for calculating your customer retention rate, it’s time to dive into another essential metric related to retention — customer churn.

Knowing your customer churn rate can provide excellent insight into your success, profitability, and popularity with customers. When you know how to track and predict customer churn, you can make critical changes to improve customer retention rates.

What is customer churn, and why should you pay attention to it?

While customer retention measures how many customers continue to do business with you, customer churn measures how many customers stop doing business with you over a given time period. Even the most successful businesses have some churn.

To calculate customer churn, divide the number of customers you lost during a specific period by the number of customers you had at the beginning of the period. Then, to express it as a percentage, simply multiply the answer by 100.

Your churn rate can give you an idea of how many new customers you’ll need to add to make up for the customers you’ve lost. Remember, acquiring new customers can be costly and time-consuming, so it’s worthwhile for a business to keep as many of its existing customers as long as possible.

Customer churn can take many forms depending on the type of business — for example, a customer canceling or not renewing a subscription or purchasing from a competitor instead of revisiting your business. These types of churn are voluntary — customers are making a specific decision not to do business with you again.

Another kind of churn is involuntary or accidental. This happens when customers don’t purposely decide to stop doing business with you — for example, if the customer’s credit card expires and your business doesn’t contact them for a new credit card.

Stevens notes that many organizations collect churn data but don’t act on it. He says successful organizations are good listeners: They pay attention to what their customers tell them.

How to create a customer churn model

Customer churn is a notoriously difficult metric to predict because there are often emotional or illogical factors tied to customer decisions. That’s why it’s important to use a customer churn model, which is a mathematical way to predict future churn.

A customer churn formula can help you understand current customer churn, while a customer churn model can help you extrapolate what your churn will look like in the future.

The most effective way to create a customer churn model is to collect customer data so you can use it to predict future behavior. Using software like Jotform to collect information in a secure and automated way can ensure all data is appropriately categorized and ready to use. 

Although creating an accurate churn model requires a lot of data, a deep understanding of statistics and data science, and some sophisticated mathematical software, you can also use a simple churn formula to extrapolate future churn, as well as determine present churn.

The data you will need includes

• Customer profiles with demographic, geographic, psychographic, and behavioral information
• Customer purchase and billing history
• Customer lifetime value
• Preferred price points
• Customer satisfaction scores

How to conduct a customer churn analysis

When analyzing the data you use to build your customer churn model, it’s essential to consider how many customers will churn and the type of customers most likely to churn. This step is where you look for patterns in the data.

Questions to ponder include

• Which factors make a customer more likely to churn?
• At what point in the process are customers most likely to churn?
• Is the majority of churn voluntary or involuntary?
• What are the most common complaints that customers have before churning?

Zacharias recommends that businesses pay special attention to the number of customers who haven’t made a purchase in the last 60 days, as well as customers who have unsubscribed from their email lists.

Understanding customer churn can help organizations focus their attention in the right places to reduce it. “The best way for an organization to analyze customer churn data is to identify the root causes of the customer’s loss,” notes Kramer.

“This data should be organized into two buckets: ‘lost for the right reasons,’ which includes the customer growing beyond the service capabilities, and ‘lost for the wrong reasons,’ which includes inconsistent products and services. Then, the organization should tabulate how many customers were lost for each reason and develop corrective strategies.”

Now that you have a grasp of calculating your churn rate, let’s get into key customer retention strategies you can use to minimize it.

Why do you continue to choose your favorite businesses over their competitors? More likely than not, those businesses are using customer retention strategies to keep you interested and satisfied in the hopes you will want to purchase from them time and time again.

Along those same lines, your business needs to use several tactics so you can appeal to a wide range of customers and meet their specific needs to increase customer retention.

Customer surveys, feedback forms, and questionnaires

The best way to keep your customers happy is to learn about them. Find out what they like and don’t like about your business, what their expectations are, and what their needs are.

Customer surveys, feedback forms, and questionnaires are effective ways to understand your customers on a deeper level. By giving customers multiple opportunities to voice their opinions, you create a feedback loop that makes them feel invested and involved in your business.

For example, suppose customers see that you’re soliciting their feedback, learning from it, and implementing it to improve your operations, services, and products. They could be compelled to return because they feel a sense of ownership and involvement.

Kramer notes that organizations should remember that a single survey isn’t enough to get their customers’ honest feedback — they should use many avenues.

For example, he suggests organizations create a customer advocacy position as a single point of contact for customers to engage with, which can help the organization more accurately understand customer sentiments.

Personalization

Have you ever received a generic direct marketing email from a business and immediately deleted it because it didn’t stand out? You’re not alone. Personalization is a vital part of effective marketing and a customer retention strategy that works.

Customers like to feel important, and you can provide that feeling by personalizing their experiences online and in person. Create feedback forms to gather specific data on your customers and use their responses to personalize your interactions with them.

Zacharias recommends that businesses use email marketing to deliver personalized information. “To improve the customer retention rate, start by segmenting and bucketing your email subscriber list into three tiers: hot (repeat, active, and loyal customer), warm (customer who is looking to purchase again, but has not yet), and cold (customer who purchased over 60 days ago and has not added to cart a second time).”

Deliver personalized content to each tier based on their needs.

Responsive customer service

In many industries, it’s not the products that make the difference — it’s the people. The level of customer service your organization provides can make or break your customer retention metrics, notes Stevens.

He suggests that organizations can improve their customer retention by hiring the right people. “They need to have the innate skills to take care of your customers.” If your team has the training, processes, and systems to provide value to your customers, your customers will remember their positive experiences.

However, if customers have negative experiences with personnel, they’ll remember it the next time they decide where to purchase. Use software to collect customer complaints, track customer issues, and follow up with customers in an organized and automated way.

Customer loyalty programs

Building a loyal customer base ensures your customers return time and again, in addition to referring your business to their family and friends, following you on social media, writing online reviews, and becoming brand advocates.

Loyalty programs show customers you appreciate their business and value their presence. “By far, the best way to grow and nurture long-term customer relationships is to reward them for it,” notes Edwards.

Contests, rewards, discounts, and VIP-only perks are just a few examples of loyalty programs your organization can use to engage with customers. Be sure to use the proper registration forms to collect customer data securely.

Automated processes

Customer retention and automation go hand in hand. Manual customer-facing processes are prone to human error, confusion, miscommunication, and missed steps. From a customer perspective, this kind of engagement is frustrating at best and grounds for churn at worst.

Customers value efficiency and immediate results in most industries. They don’t want to wait days for an email response or weeks for their products to arrive.

Consider automation for internal processes. Automation software like Jotform can save your team time, reduce errors, and streamline your processes to meet the efficiency demands of your customers. 

Stevens notes that organizations should always be on the lookout for the processes that create obstacles for customers so they can improve them.

We’ve covered key customer retention strategies in this section. Next, let’s look at examples from the real world and how businesses use customer retention to gain a competitive edge.

When you’re planning your customer retention strategies, it’s helpful to look around to see what others in your industry are doing. Sometimes, the best ideas can come from studying the successes and pitfalls of competitors.

You can also find good customer retention examples outside of your industry by looking at organizations that invest a lot of money in the best customer retention tactics.

Here are some examples.

Expedia

Expedia, the online travel booking company, collects customer feedback in various ways to improve its customer service and increase customer retention. For example, after customers book a flight, they receive an email to rate their booking experience.

Expedia also uses customer surveys and feedback forms on its website. Customers can leave online reviews, provide feedback about the website experience, and find additional help in their support center.

You don’t have to be an online giant to set up your surveys. With Jotform, you can easily automate online surveys and customize various feedback forms for your business.

CVS Pharmacy

Stevens notes that personalization is the future of marketing. “Customers are going to be more involved in the marketing effort. They are going to tell their stories and guide their own experiences.”

Customers want to receive personalized messages from businesses instead of generic promotions that don’t appeal to them.

For example, CVS Pharmacy has an ExtraCare loyalty program for customers. It sends personalized texts and email marketing campaigns with coupons and promotional information based on the customers’ past purchases.

A strategy like this can prevent customers from being bombarded with marketing messages that contain irrelevant material. Instead, they only receive the promotions they can use based on their purchasing history with the company.

Nike

Poor customer service can leave a bad taste in your mouth. People tend to remember negative business experiences for a long time, so it’s essential to invest in customer service training and tools to ensure your team offers the best possible service.

“Having best-in-class customer service will ensure a continuous positive experience,” notes Edwards. “The best way of engaging and encouraging a customer to return is to embed a positive memory of your organization.”

One effective way to offer customer service is through social media. Many customers are already online, so why not help them where they already are instead of expecting them to call or email you?

For example, Nike has social media accounts specifically dedicated to customer service, and the company supports communication in multiple languages.

Another way to improve customer service is to use feedback forms to gather details about the changes your customers would like to see.

Starbucks

Customers want to feel appreciated for engaging with a business, and the best way to do that is by creating a dedicated loyalty program for repeat customers. A loyalty program helps to build customer retention and encourage customers to participate in word-of-mouth marketing.

Starbucks has a robust loyalty program in which customers can earn free drinks by making multiple purchases and participating in gamification.

Other ways to build customer loyalty include contests, special offers, and exclusive access. Creating loyalty programs doesn’t have to be complicated. You can use program registration forms that let customers sign up quickly on your website.

Ring

The customer journey doesn’t end after a purchase. When it comes to customer retention, you could say that’s where it all begins. If you want customers to make repeat purchases, it’s essential to follow up with them after buying from you.

While it can be challenging to keep up with those touchpoints, customer retention automation software can help businesses stay on top of things and follow up with customers to encourage additional purchases.

Ring, the smart home security system company, follows up with customers to share details about how they can more effectively use its products. This kind of onboarding helps customers reach their product goals faster — and hopefully encourages them to make additional purchases.

Now that you’ve seen how customer retention strategies have worked in the real world, it’s time to look at what kind of software can help you implement these strategies. We cover the top features to look for in the next section.

The right tools can make any task more efficient. When it comes to ensuring customers keep coming back to your business, customer retention software can help automate processes so nothing falls through the cracks. 

Stevens notes that regardless of the kind of tool you choose, it’s important to be as close to the numbers as possible. 

He suggests choosing software that enables organizations to interact with the numbers to learn trends and spot anomalies. Kramer adds, “The human touch is key, but you can automate the human touch in some ways with the right software.”

There are many different kinds of customer retention software available. Focus on the features that provide value to your organization.

Filtering customers

Not all customers need the same kind of attention, so it’s best to have the ability to filter and flag customers using customer retention software. For example, how you engage with a loyal customer will differ significantly from how you engage with a customer at risk of churning. 

Each group needs to receive different kinds of communication to help you reach your goals. Jotform Tables lets you use automatically generated databases to flag, filter, and tag information, like customer records, based on unique criteria, so it’s easy to follow up in the right way.

Communication and data sharing

Most organizations have multiple people on their teams working toward customer retention in different ways. For example, customer success, sales, marketing, and product development may all participate in customer retention efforts through their functional initiatives. 

Team access to customer retention software and sharing data with team members is key so there isn’t any overlap between initiatives. All team members need to know which customers the organization has already engaged so they don’t overwhelm them with repeat messages.

Reporting on customer retention efforts is also key to discussing progress with executives and building plans. Tools like Jotform Tables and Jotform Report Builder can help you easily gather the insights you need.

Workflow process automation

When it comes to customer retention, several different processes need to occur. From sending follow-up emails to offering rewards to ensuring content is always personalized, it can be a lot to handle manually. 

“While it’s good to be able to automate repeatable tasks, don’t forget that most customer touchpoints are more complex than just a rule-based step and are more likely to be a complex multibranch campaign. Make sure the software can handle that,” says Edwards. 

In addition, customer retention software needs to have workflow process automation so organizations can customize specific workflows to meet their needs. This way, organizations can automate repetitive tasks to free up their teams’ time and instead focus on high-touch customer service and the entire customer experience.

Conclusion

Customer retention is an essential initiative for any business, large or small. Whether you’re in the B2B space or deal directly with end-users, it’s vital to understand what your customers want from you so you can ensure they keep returning. 

Calculate your customer retention rate regularly to see which way it’s trending, and don’t forget to look at the customer churn rate to gain insight into how many customers leave and why.

Be sure to use customer retention strategies to appeal to your audience by personalizing their experiences and gathering feedback to improve your operations. 

Use the right kind of customer retention software so you can flag and filter different types of customers and reach out to them in ways that engage them based on their level of retention. And remember, customers want to feel appreciated for their efforts, so be sure to reward them when they return.

Meet your customer retention guides

Drew Stevens

Drew Stevens is the CEO of Stevens Performance Group. He works with founders and senior leaders of struggling middle-market organizations and transforms them into thriving businesses. Stevens is the author of 14 books and over 3,500 business articles.

Ian Edwards

Ian Edwards is the cofounder of BeeLiked, a groundbreaking technology company that gives clients the right tools to engage, incentivize, and reward audiences with interactive promotions. He has had a diverse career, from banking to real estate and now tech.

Jonathan Zacharias

Jonathan Zacharias is the founder of GR0, a focused, dedicated, and committed digital marketing agency that grows brands online. He has over a decade of experience working in organic SEO, and his agency was named “Fastest Growing Company of the Year” at the 2021 American Business Awards.

Michael Kramer

Michael Kramer is an award-winning leadership consultant, successful entrepreneur, and author of the ManageHub Strategy, a step-by-step roadmap and management toolset for implementing the leadership principles recommended by the United States Baldrige Performance Excellence Framework.

Photo by Gustavo Fring