Customer loyalty and retention are key to increasing business revenue and meeting KPIs – that’s no secret. However, with customers and businesses tightening their belts by being more careful with how they spend their money due to the current cost-of-living crisis, their value has never been more important.
To help you improve your loyalty and retention rates, we’ve put together this comprehensive guide. Read on to discover the value they can bring to your business, how to work out where your loyalty and retention rates currently sit and finally, how to achieve growth in these areas.
What is customer loyalty?
A loyal customer will repeatedly buy from your brand and go beyond the financial transactions by becoming a brand advocate.
If a customer has multiple positive interactions with a business, this will build up trust and create an ongoing positive relationship. For example, customers are more likely to associate positivity with a brand if they’re receiving consistently high-quality customer service or high product quality.
A loyal customer will usually return to the brand over choosing a competitor, which leads nicely to customer retention.
What is customer retention?
Retaining customers is usually linked with maintaining a loyal customer base for your brand.
Customer retention essentially refers to a brand’s ability to gain customers’ repeat business. High customer retention means customers will continue to purchase and be satisfied with a brand’s products or services over that of a competitor.
Why is customer loyalty and retention important?
Retention is vital because you want newly acquired customers to stay with you for future purchases.
Loyalty and retention have several benefits, including…
How to build customer loyalty and retain customers
Now that you’re clued up on how loyal and retained customers can benefit your business, it can be helpful to know how to achieve this customer base.
Here are five of the best ways to build yours…
Measuring Customer Loyalty
There are many different metrics you must consider when measuring customer loyalty.
Here are our top four…
- Repeat purchase rate – Divide the number of repeat customers by your total number of customers and multiply by 100 to find the percentage for your repeat purchase rate.
- Net Promotor Score (NPS) – NPS is the grade point average determined by your customer’s perception of loyalty to your brand. Calculate yours by surveying customers and finding out which are brand advocates, and which are detractors. Subtract the percentage of detractors from the percentage of brand promoters to find the Net Promotor Score.
- Customer lifetime value (LTV) – Each customer should have a lifetime value that grows through a business nurturing it over time. The more they want to buy and the longer they stay interested in browsing your products, the higher their lifetime value will become.
- Loyalty programme redemption rate – Divide the total number of customers by the number of customers enrolled and actively participating in your loyalty programme to determine how successful it is.
What is a customer loyalty scheme?
Loyalty schemes are created by businesses to inspire customer loyalty. Whether you use points, a tiered system or something else entirely, these schemes are proven to be effective for bringing customers back time and time again.
For example, Costa Coffee runs a points system where you buy eight drinks and can redeem a free drink of any size. Their loyalty scheme is successful because it considers the wants of its customers and brings them back multiple times before offering them a gift. Therefore, they will make a profit alongside keeping their customers satisfied.
A good loyalty scheme will get your customers talking to friends and family about it and will hopefully bring in their business, too.
What is a customer retention programme?
Meanwhile, a customer retention programme is specifically aimed at bringing your customers back. Gaining repeat business can be tricky with so much competition out there, and programmes like these can easily set you apart.
Creating a subscription model offering exclusivity in price, products or service will go a long way to ensure your customer retention rate soars.
Customer retention rate formula
Calculating the retention rate – or CRR – is relatively straightforward. Follow the steps below to work out how many customers your business has managed to retain over time.
Firstly, you must subtract the number of newly acquired customers from the number of remaining customers at the end of the period you’re looking at. To calculate the percentage, you’ll need to divide that number by the total number of customers at the start and multiply the answer by 100.
The formula would look like this, for reference…
For example, if you had 100 customers at the start of the year and earned 20 new customers but lost ten by the end of the year, your customer retention rate would be 90%.
Once you’ve worked out the customer retention rate, you should consider conducting an audit of your lost customers to determine similarities in reasons for leaving or types of customers that churn.
Consider aspects that you could add to the sales process, such as qualifying questions or revising the buyer persona to better reflect the attributes of your loyal and returning customers.
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