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You must have heard it time and again, “customer retention is one of the key pillars to growing a business”. It’s true for many businesses. Your best customers or “power users” don’t just buy from you once or use your service once. They repeatedly come back to you, hence, attaining the status of a “power user”. 

All businesses thrive on sales. You generate leads, convert them into a customer and make a sale! What happens after the sale? You acquire a new customer for another sale? Sure! But what is better than acquiring one new customer? No, it’s not acquiring two new customers but retaining an existing customer. And that’s what your customer success team is for!

When a customer comes back to buy from you or renews their subscription, it improves your customer lifetime value. You also begin to establish trust and develop a stronger relationship with your customers. You aren’t just another website or product. Customers trust you with their money now.

Customer retention

So, what actually, is customer retention?

What is customer retention?

Customer retention is the ability of a company to retain its customers over time. It is the series of activities a business conducts in order to increase the number of repeat purchases of the customer and thereby, increase the profitability per customer.

The impact customer retention has on your business increases with time. Naturally, if your business started just yesterday, you’d have few to zero customers. At this time, you’d mainly focus on educating potential customers, marketing activities and acquiring new customers.

As your customer base begins to grow, you’d want to retain existing customers along with acquiring new customers.

Customer retention formula

While different businesses use different variables to calculate customer retention, here’s a generic formula you can use:

Customer Retention Rate = (((# of Customers at the end of the period) – (# of Customers Acquired during the period)) / (# of Customers at the start of the period)) * 100

Imagine at the beginning of the period (let’s assume 1st Jan), you have 20 customers. From Jan to Mar, you gain 5 more customers and by the end of the quarter, you lose 1 customer. Hence, using the above formula, 

((24 – 5) / 20) * 100 = 95% customer retention

Naturally, you’d want to know your number of customers with more than 1 purchase and the number of customers who churned. Once you’re familiar with your numbers, you should consider looking at your churn and try to find a pattern among the customers who do not return.

Whether you want to focus on one metric or multiple metrics simultaneously, the ultimate goal is to increase customer value. Customer value helps you understand how much each customer is worth. In order to calculate customer value, you need to take into account the average order value and purchase frequency.


Customer Value = Purchase Frequency * Average Order Value

Why is customer retention important?

Reduce marketing cost

According to the Harvard Business Review, it is 5 – 25 X more expensive to acquire a new customer than retain an existing customer. You reduce your marketing costs by keeping customers who already know you and your products or services. They not only understand the value you provide but also understand how your product or service works, thereby, reducing support efforts as well.


Existing customers are more likely to make a repeat purchase. They trust your brand and already like the shopping experience you provide. Increasing customer retention just by 5% can increase your profits from 25% – 95%. Again, acquiring a new customer can be 5 times as expensive as retaining an existing customer.

Existing customers are also more likely to spend 31% more than other customers. In fact, when you release a new product or service, your existing customers are 50% more likely to test it out!

Do you want to take a moment to calculate your ROI now? 


Trust builds loyalty. Once customers begin to trust you with their needs, they will keep coming back till the time you offer them value. If you choose to develop loyalty or exclusive member programs, these customers are the ones who’ll be most likely to join.

In fact, these customers also begin to develop an emotional connection with your brand, which will have an impact in their future buying decisions.


Loyal and happy customers are more likely to become your brand advocates. They are the ones who will talk about your product with their friends and family. Of course, if you are considering product A and product B, you’re more likely to buy A if your friend just told you about it.

As a result, you’ll benefit the most from these customers by word of mouth advertising. Referral programs would also work for these customers, thus, getting you free customers!

How to improve customer retention

1. Use customer accounts

Most online retailers or e-commerce businesses you know do this. They ask you to create an account to make repurchasing easier and you also have instant access to all your orders. New customers, however, can see it as a huge commitment.

As a result, many companies allow guests to check out. But then how would you go about it? You don’t want to hinder first-time customers from making a purchase but also want them to come back to you. The trick is in the timing. Many retailers also ask you to create an account only after you make your first purchase while most of them nudge you to create an account only when you click on “check-out”.

Since you spent enough time browsing, shortlisting and selecting products (put in enough effort), there is a higher probability of you creating the account and checking out. 

Create an account or checkout as a guest on Lacoste customer retention
Create an account or checkout as a guest on Lacoste online store

Look at how Lacoste handles this situation. Once you browse through products, shortlist them, add the ones you want to your bag and click on “check-out”, they ask you whether you are an existing customer or a new customer. At this point, you can still choose to check-out as a guest. You’re just given the option of creating an account. The thought behind it, you ask? Since you spend so much time and effort in deciding what you want, it is unlikely that you will let all your effort go down the drain.

2. Onboarding

No matter how simple or intuitive a product is to use, there is always a learning curve. You always need to spend some time on the product and figure out stuff yourself before you can do what you wanted to. Well, yes, the time can be minuscule but it is there.

Now, wouldn’t you love if the product itself showed you the best way to use it? You might be wondering, “well, all products do”! To which, we’d say, “no, all products do not”! There have been so many times that we’ve downloaded an app only to realize there are no instructions or guides whatsoever!

Of course, there are companies out there that pay attention to every detail to provide you breathtaking user experience. And why wouldn’t they? The customer will be happier if you show her how to use your product rather than her trying to understand how to achieve her goals.

Take a look at how the online beauty store Nykaa seamlessly onboards a new customer. Along with their value proposition, they also give you an option to skip because let’s face it, we like it when companies give us the control of their products.

3. Improve customer support

Okay, this is a no brainer. Yes, the age-old saying “clear communication is the key to all relationships” also holds true here.

Customers want to be heard. They pay you to solve their problems and as a result, also expect support. And you should! The customer’s problem is your problem and you should drop everything till you solve their problem. 

Whether you provide live chat, e-mail, voice support or all of them, you can always tell how your customer support team treats the customers. And you, as the owner should be at the top of it. Nothing beats delivering great customer experience.

But wait, you just don’t want to aimlessly answer questions, do you? There is always something you’d like the customer to do once you answer their queries, right? So, measure them! Here are some KPIs you should keep a track of to measure the performance of your customer support activities. 

Look at some of the customer support statistics.

Customer Support Statistics Customer Retention
Customer Support Statistics

Response time: It indicates how quickly you respond to the customer. Time is critical. No one wants to wait for days to get a reply from you. Neither does the girl you met the other day at the party nor does your customer! Jokes apart, your ideal response time in case of live chat or voice support should fall between 20 – 30 mins.

Conversion rate: So, you just answered their query, now what? You expect them to do something, right? How many of them go ahead and perform the activity you intend them to? For example, if the customer had an issue with setting up their account and you helped them set it up, you’d expect her to go ahead and finish the setup! If you email the customer, what actions do they take? Do they even open the email or click on the call to action?

Freshness: When was the last time you spoke to this customer? What was the result? Did they make another purchase? If you solved all their issues, you’d expect them to convert. What is stopping them, anyway?

4. Personalization

We have already illustrated the importance of personalization. Customers are everywhere. They research online, talk to each other and check out your competitors. What can you do to stand out? Personalize! Anticipate what they might want and offer it to them before they even ask.

You can also upsell and cross-sell based on the customer’s buying pattern. The customer just bought a pair of jeans? Show complimentary shoes to go with it! Oh wait, the customer added a pair of brand XYZ jeans to the wishlist? Tell her why you think she should go for Levi’s!

Take a look at the customer intelligence engine. On the right-hand side, you’ll find all the channels customers engage with you on. It is your duty to go and personalize each of these channels!

Customer Intelligence Engine customer retention
Customer Intelligence Engine

Amazon’s recommendations take into account your recent purchases as well as browsing patterns.

Product Recommendations By Amazon Csutomer retention
Product Recommendations By Amazon

5. Communication and Email marketing

We’ve spoken about how emails in different stages of the customer’s journeys make an impact. According to Stitch Labs, repeat customers spend 120% more than new customers! Woot woot! Who’s ready for the #growth train, now? 😉

Well, if done right, e-mail marketing can be one of the highest ROI generating channels. Of course, emails here and there will not do the deed for you. You need to come up with a communication calendar. Just like your content calendar, a communication calendar is a set of events, phone calls, emails, handwritten letters, etc that you plan on sending to your customers using automation software.

customer retention

With communication tools, you can also develop efficient tools for customer feedback. Even if their feedback isn’t relevant, it will show you how they think and the kind of service they expect. Be honest with the feedback. When a customer complaints, accept the complain and apologize. It only makes them trust you more.

customer retention

6. Discounts

Ah! The love-hate dilemma of online shopping – discounts! A desperate attempt to attract customers or a customer retention magnet? It’s the timing, we’d say. Offering discounts every now and then will slow down revenue and also alter your customer’s expectations. Whereas offering discounts to first time purchases is a great way of nudging them to come back to you.

We re-iterate, one technique doesn’t work for all. One discount doesn’t work for all. Experiment with multiple discount options and see which ones get you the maximum benefits.

7. Corporate Social Responsibility Program

You are not your product or service. You are a company and it represents much more than your product or service. It stands for all the values you believe in and the reasons why you created the company. 

Your most loyal customers do not buy your “what” but your “why“. They want to believe in you and your values. Whether you know it or not, your customers look at everything you do. From advertisements to messaging, they will recognize if you’re not consistent and genuine.

Hence, it is important to get involved with your customers beyond the product and service. Think about a corporate social responsibility program.

Walt Disney is doing a brilliant job with this! Their social mission is to strengthen communities “by providing hope, comfort, and happiness to kids and families who need it the most”. They also encourage employees to donate time which resulted in a total of 2.9 million hours of service since 2012.

Disney's CSR Initiative
Disney’s CSR Initiative

8. Customer education

Sending email newsletters, conducting live webinars and updating educational content – you must invest in these!

Emails are still one of the most preferred form of communication and the #1 retention technique. Hence, educating customers about new features, updates, product changes, catalog changes, etc is a smart way. You are also giving them a reason to buy from you again.

You can also choose to educate your customers in a more interactive way, say a live webinar! Gone are the days when you had to host an offline event to get a handful of people. Anyone can host an online event now! 

And, webinars are engaging. You not only train your customers on the new features you’d like them to use but also begin to establish yourself as an expert in the domain.

Of course, there is always discovery and SEO by inbound marketing. Before a visitor becomes a customer, she needs to be persuaded and engaged with relevant content until she is ready to buy. You’re not only sharing information by frequently updating your content but your customers also begin to come to you for opinions. And who wouldn’t want that? 

Hubspot's inbound marketing buying phases
Hubspot’s inbound marketing buying phases

9. Go social

You’ve heard it a lot and there’s a reason for it! Social media in a way dictates how we communicate with each other today. 

Customer support statistics
Customer support statistics

Your customers are there, you should too! Find out the right platforms for you. But remember, only open the channels when you’re ready to provide full support on the channel! For instance, if you decide to open a Twitter account, you will have to be active all the time! There is no way out there. Customers on social media expect an immediate response (20 – 30 mins) and if you don’t have the resources to fulfill them, you’d be better off without the channel.

Use social media to build your community (Twitter fanbase, Facebook groups, Reddit groups, etc) and simply, initiate a conversation! Whether the customers want to discuss their issues or talk about their favorite features, a community is the best platform to do so. 


In the end, it is all simple math. You spend $1 to acquire a customer who spends $2 on your product. Your net profit is now $1. However, if you somehow, convince the same customer to spend $3, you double your profits!

However, there are no right answers. There are no strategies to bring overnight results. Every business is different and every business has different needs. If plan A doesn’t work for you, go for plan B, then C, just don’t give up! It is all about “experimentation” and figuring out what works for you and what does not. As they say, “the difference between good and amazing product always lie in customer experience”. Focus on what value you provide to your customers and how is their experience with your product to get your answers.

What are some customer retention strategies you’ve tried for your business? Comment below or write to us at [email protected].

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