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Increase customer retention to grow your business faster

Increase customer retention for faster business growth - Guide My Growth

Many businesses experience an annual customer turover rate of 10-25%. This means that they lose 10-25% of their customers each year. It also means that they retain 75-90% of their customers. It is hard to say – generally – whether this is good or bad, because the turnover rate varies per industry.

However, a lower turnover rate is always a good sign because you can grow your busness faster if you increase customer retention.

Customer turnover – also called churn rate – is the rate at which customers leave your business.

Depending on the kind of business you have, your customer turnover rate may be anywhere from 10% to almost 50% per year.

Customer turnover per industry

According to research by Statista from 2020 in the USA, these are the average customer turnover rates per industry:

  • Hospitality, travel, and restaurant industry: 45%
  • Retail: 37%
  • Banking: 25%
  • Telecom: 22%
  • IT: 19%
  • Insurance: 17%
  • Professional services: 16%
  • Media: 16%

Note that the above may not apply to your country or business. But it gives you a starting point to determine how your business should be doing.

The above tells us that Hospitality, travel & restaurants and Retail have the highest customer turnover rates. Meaning that they are the least successful in retaining customers.

Can you imagine how many of these businesses could grow faster by increasing their customer retention?

First things first: determine your churn rate

To determine your customer turnover rates, follow these steps.

A Choose your time frame

Customer retention and customer turnover should always be measured over a specific time period.

You can calculate your customer retention rates per month, quarter or year.

B collect your data

  • The number of customers you had at the beginning of the chosen time period
  • The number of customers you acquired during that time period
  • The number of customers who left during that time period

C calculate your customer retention rate and determine your churn rate

Use this formula:

  • Your actual number of customers at the end of the time frame
  • Minus the customers you acquired during that time frame
  • Divided by the number of customers at the start of the chosen time frame

For example, you are a business that calculates their retention rate every year. At the beginning of the year you had 90 customers. During the year, you got 5 new customers and 15 customers left. Meaning that at the end of the year your actual number of customers was 80.

Your customer retention rate is (80 – 5)/100 x 100% = 75%.
This means that your customer turnover rate is 25%.

It also means that – unless you attract enough new customers – you will soon be out of business!

What does the customer retention rate tell you?

First of all, the customer retention rate tells you how successful you are in satisfying your existing customers.

A high customer retention rate is good. Because it tells you that your customers are satisfied and do not have a reason to leave.

(However, a high customer retention rate can also mean that your customer do not have an alternative for your business. If that is the case, you should still focus on improving customer satisfaction. Why? Because one day, that will change and you do not want to lose most of your customers on that day.)

Did you know that 72% of customers will leave after one single bad experience with your business?

This means that if you are struggling to retain customers, the first place you should look is at the customer service you are providing.

Another thing you should look at is your Unique Selling Proposition. What makes you different from your competitors in the market? And, are you communicating this to your customers?

Particularly in retail, it can be very hard to set yourself apart from your many competitors. Competition is high and there are few reasons for customers to stay. In addition, it is easy for them to leave.

Your #1 focus should be to increase customer retention

Many businesses focus their attention on attracting new customers.

Many businesses prioritise attracting new customers.

But it makes more sense to retain the customers that you already have. Because customer retention has a very high return on investment.

Suppose you were able to retain more customers?

Here are some of the benefits you would get:

One of the best ways to reduce customer turnover is to provide excellent customer service that delights your customer.

However, even if you provide the best customer service in the world, customers will still leave you.

There are many reasons why customers leave, including:

  • The no longer need your product or service
  • Their financial situation has changed
  • They relocated
  • They died

What makes customers stay?

I came across some research about customer retention that was done across many countries worldwide. It stated that there are seven key things that build customer loyalty:

  1. Quality of the product: 74% of customers say this is very important if you want to retain them
  2. Value for money: 66% of customers say this is very important
  3. Product consistency: 65% of customers say this is very important
  4. Customer service: 56% of customers say this is very important
  5. Smooth and easy shopping experience: 55% of customers
  6. Product choice: 55% of customers
  7. Price: 54% of customers

As you can see, customer service is not #1 on this list. That does not mean that it is not important to customers. What this list tells us is:

  • If the quality of your product is bad, nothing you do will make customers stay
  • The same if your price is too high as compared to the value customers get from your product or service
  • And if one day your product is great but the next day it is bad, you will also not be able to retain customers.

That makes sense to me. What you are selling needs to be of consistent quality and offer good value for money.

But after that, customer service is right there.

So, tell me, how are you going to increase customer retention in your business?

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