Blogs Effective strategies to Increase Customer Retention

Repeat customers are a good indicator for any company, as keeping existing customers is much easier than finding new ones. But how do you create retention strategies that engage and satisfy your current users?

We’ve put together some of the best ways to inspire customers' loyalty. From product improvement to after-sales service leverage, we’ll cover all must-haves that any customer success or marketing team can test out.

What is customer retention?

First of all, you should understand the definition of customer retention - It is a business’s ability to keep customers staying with its products over time. To measure this ability, we use a metric called retention rate, a percentage-based number showing how many users are retained by the end of a period.

For example, if your business starts the year with 10 customers and loses two of them at the end of the period, you have an 80% retention rate.

How to calculate customer retention rate

The formula to compute customer retention rate is relatively straightforward. There are three steps to help you get there:

  • Define the time range that you want to study
  • Next, collect the number of customers at the period's beginning (B) and the end (E)
  • Then, find the total number of new customers added within the period (N)
  • Finally, apply for those numbers above by the following formula:
Retention rate = (E - N) / B * 100

For instance, your product is a habit tracking app, and you want to know its customer retention rate in May 2022 with the given data:

  • 250 users subscribed on 1 May 2022
  • 240 users subscribed on 31 May 2022
  • In May 2022, there were 50 new users

Then, the retention rate = (240 - 50) / 250 * 100 = 76%.

However, the formula above applies especially to SaaS companies or other kinds that operate via contracts or subscriptions. For businesses that work without a fixed contract, such as eCommerce platforms or retailers, the repeat customer rate metric (the proportion of customers who made more than one purchase within a period) will be more helpful.

Practical ways to increase customer retention

1. Make a good product

Product quality plays the most crucial role in building your customers’ loyalty. If you're actually improving your customers' lives and helping them address their problems, they'll keep using your products.

But along with that, ensure you’ll constantly improve customer experience across every touchpoint of their journey, from awareness to post-sale.

2. Build your community

A Twitter group of Paddle sellers
A Twitter group of Paddle sellers

Leveraging Twitter's Communities, Facebook groups, or any social media platform that allows you to create a space for your customers. For example, if you’re making a product that helps SMEs work better with Paddle, create a group for Paddle users.

It will actively remind customers of your brand and create opportunities to upsell and cross-sell.

3. Send newsletters

Considering a business newsletter sent to customers quarterly or monthly. Come up with educational tips that help smooth customer experience with your product—or try out interesting, light-touch content to attract more eyeballs.

An example of Udacity's newsletter
Udacity's newsletter

Even though it's simple, newsletters can remind users of your brand every time they open their inboxes.

4. Offer additional services

When users pay for your core products, encourage them to buy a unique complementary service so they have more of a reason to return to your business.

For example, if you’re running an online retail store, implement a free fast-delivery package with a special price. People will happily return to buy items while enjoying the free shipping fee with that little amount of money.

5. Upselling

Encourage customers to purchase a comparable higher-end or longer-subscription period product than the one they chose. You will get more sales with the same cost of traffic.

However, for SaaS businesses, you should not hurry in upselling users to annual subscriptions because not everyone is willing to give you a ton of money immediately. With those who subscribed to a shorter plan (monthly or quarterly), you can use cohort analysis to determine when they are most likely to leave your business and then offer them an upgrade at the time.

Ready to Increase Customer Retention?

Follow the customer retention strategies we covered and consistently keep track of your business's retention rates to keep an eye on how you're doing.

Thanks for reading!

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