Customer Retention: Strategy, How to Calculate it and How it's Different from Customer Loyalty

Every business person wants to retain and expand their customers. Some even think that trying to get customers to make repeat purchases is more profitable than finding new customers.

However, business people need to build a cohesive strategy to make this happen, one of which can be started by getting to know more about customer retention. The following is an explanation related to customer retention, ranging from understanding, strategy, how to calculate and the difference between customer loyalty.

What is Customer Retention?

Customer retention or customer retention is the process of retaining and attracting existing customers to continue buying products or using services offered by a business.

This customer retention effort focuses on increasing the number of repeat customers and increasing the profitability of each existing customer. The goal is to keep customers afloat and not switch to brand competitors.

The task of business people in this effort is to ensure that customers who have worked hard to stay together, provide the best experience to customers, and continue to improve value products and services provided to customers.

Strategy Customer Retention

In order to increase customer retention, there are several ideas regarding efforts that can be made and provided by business people. Here are some of them:

Use Customer Account

Businesses can offer to create an account when a customer wants to make a purchase transaction for the first time, or can provide the option to create an account after the first order is placed.

The purpose of using a customer account is to make repurchase easier by giving customers quick access to previous orders, as well as pre-filled shipping information.

Upgrade Customer Support

Support services such as Customer Support can strengthen effective communication between business people and their customers. Effective communication, whether with on-site service, or via email or social media, can turn customer inquiries into sales and customer complaints into resolutions.

Create a Customer Loyalty Program

Loyalty program be an effective way to increase purchase frequency. The way this program works can be by rewarding customers who make a second purchase, or have achieved a certain number of purchases. The aim of this program is to motivate customers to buy more often, in order to get valuable rewards.

Send Interesting Emails to Customers

Email is one of the best marketing tools to convert messages into orders. Businesses can send thank-you emails to customers after making their first purchase. This type of acknowledgment makes customers feel good about their purchase decisions, and feels closer to them brand You.

Offer Discount Promo

Giving discounts on subsequent purchases after the first order is a great way to encourage customers to repurchase. In addition, discounts can also be an effective way to attract customers who haven't bought in a long time.

How to Calculate Customer Retention

Customer retention rate is the percentage of customers a business retains over a certain period of time. In simple terms, retention rate represents the percentage of a business's loyal customers or customers who have made a purchase more than once.

These loyal customers can be customers who renew their subscriptions within a certain period of time or customers who repeat their purchases within a certain period of time.

There is also a way to calculate the customer retention rate, it can be done with the following simple calculation formula:

Customer Retention Formula

This customer retention rate formula considers three variables, including:

• Time period, i.e. the period of time during which the retention rate is calculated. It could be days, weeks, months, or years.
• Customers who continue to do business, i.e. repeat customers who continue to do business with your company.
• Customers at the beginning of the period, i.e. the total number of existing customers at the beginning of the period.

Example of Calculating Customer Retention

For example, suppose a company ABC had 2000 customers on January 1, 2021. During the year, 200 of these 2000 customers left the company. So, the calculation is as follows:

Thus, ABC company's customer retention rate is 90%.

Customer Retention Vs Customer Loyalty

Customer retention and customer loyalty is an important part of business strategy. Both are able to measure and influence business success in the market. It is important for business people to recognize and understand the difference between the two.

Difference between Customer Retention and Customer Loyalty

• Customer retention measures the state of the customer in a business. Meanwhile, customer loyalty looks more closely at the actions of individuals and their relationship to a business.
• Customer retention measures how much desire existing customers have to continue using a business product or service. Meanwhile, customer loyalty measures the tendency of customers to engage with a business product or service.
• The criteria for loyal customers in customer retention are customers who make repeat purchases. Meanwhile, the criteria for loyal customers are in the customer's willingness to refuse competitors' products or services and the willingness to recommend a business product or service to others.
• On customer retention, business people focus on providing the best business products and services for repurchase. Meanwhile, in customer loyalty, business people also provide satisfaction beyond the use of business products and services, for example in transaction experiences and interaction services.

This is an explanation related to customer retention, starting from the understanding, strategy, calculation method and the difference between customer loyalty. May be useful.