Four Steps to Improve Customer Retention and Boost Profits
In today's challenging economy, retaining your customer base is critical to your company’s profits and long-term success. If you don't give your customers a compelling reason to stay, your competitors will give them a reason to leave. Despite this reality, few companies employ a retention mindset to keep customers happy and competitors at bay. It is widely believed that keeping one existing customer can be five times more profitable than attracting one new one. So what can you do to make customer retention a key focus area in your company? We believe there are four important steps required in any effective retention program.
Determine your baseline retention rate and develop a target.
You’ll need to understand what your retention rate is to start. A quick way to calculate this is to determine a timeframe over which you’d like to calculate retention, quarterly or annually most likely. Subtract the number of new contracts/customers from the current period, and divide the result by the number of contracts/customers you had at the end of the previous period. Now that you have your baseline, you can start to think about retention targets. The remainder of this article will discuss how to conduct research and build a strategy to improve retention rates.
Conduct research with defectors, at-risk and loyal customers
In order to maximize the effectiveness of your research, you’ll need to speak with defectors as well as loyal and at-risk customers. While defectors and at-risk customers reveal your vulnerabilities, loyal customers can offer insights on what you do well, for example, which product lines are successful and which customer service interactions are positive. Loyal customer data can be used to prioritize what needs to be fixed in your company and to customize future interactions and products.
Any customer research you undertake should preferably be in the form of a dialogue, not a survey. Unlike a survey which is limited to a series of questions and answers, a dialogue creates an atmosphere where customers can freely share their perspectives, and the interviewer can probe to gain deeper insights. Either a third party or an individual in a non-customer facing role will be in the best position to extract candid customer feedback.
For customers who have left, ask questions such as: What were the reasons for leaving? Where did they go (or did they choose to buy nothing)? How do your products stack up against the competition along the dimensions of price, features, and service? What do customers think of your company overall? What would it take to get lost customers back?
For existing customers, probe on the following: How satisfied are they with your products? What do they think of your company? How do your products compare with the competition? What can you do to win more business? Would they recommend you to a colleague or friend?
It is interesting to note that loyalty can be measured very effectively by asking customers if they would recommend you. If the answer is less than a strong yes, you’ll need to uncover and address customer dissatisfiers before defection becomes a reality.
Define triggers that raise early warning signals that customers may defect.
Once you’ve spoken with customers and defectors, you will likely understand where you need to make major changes or fine-tune your current strategy. Equally as important, you can apply behavioral insights from defectors to your current customers who may be at risk. Did customers call more frequently or less? Did they reduce purchase size or frequency? Has customer satisfaction declined?
Once you can recognize these signals, you are in a powerful position to intervene with some quick actions before it’s too late.
Build a retention strategy that leverages customer insights.
Now that you’ve established your retention rate and gained some compelling insights from customers on why they left, what they think of you, and whether they would recommend you, it’s time to build a short-term and long-term strategy that leverages these findings. To illustrate how you can start developing actionable strategies of your own, we include a few strategies below that our clients have implemented based on feedback from at-risk customers and defectors.
