Customer experience

How to Improve Customer Retention

AskNicely Team

Sometimes, customers leave, and you don’t know why. They’ve unsubscribed from newsletters, withdrawn from loyalty programs, packed their bags and left without a note. In today’s highly saturated market, just one bad experience can cause a customer to look for alternatives. So how can we prevent this from happening? How can we improve our customer retention rates and build a customer base that is genuinely loyal? Read on to find out. 

What is customer retention?

A common mantra in business is that it’s easier to retain existing customers than to gain new ones. And it’s true! Customer acquisition costs approximately five times more than retention. But what exactly is customer retention? And what does it mean to have high customer retention rates? Customer retention is about turning customers into repeat buyers. This is different from customer acquisition, which is about gaining new clients and precedes customer retention. After all, you can’t retain customers if you don’t have any in the first place. Customer retention aims to help build a loyal client base and create repeat sources of revenue. 

What is a customer retention rate?

Whether you’re a fan of math or not, numbers can tell a story. The customer retention rate is a simple equation that tells you the percentage of customers retained over a certain period. 

Customer Retention Rate Equation: 

(Number of customers at the end of a time-frame - new customers)

_____________________________________________________   x 100 

Number of customers at the start of a time-frame  

Say you have 5000 customers at the start of the quarter. Then you gain 500 new ones, but in the end, you have 4000 clients. This means you retain 80% of your customers. 

(4500 - 500)
____________  x 100 = 80%
5000 

While number crunching is not the most exciting part of running a business (unless you’re a passionate accountant of course), it can help you understand if you’re captaining a sinking ship. 

To improve a customer retention rate, you need to measure your starting point. A starting point gives a comparison by which you can measure your progress and growth. Even a 5% improvement in customer retention can improve revenue, anywhere from 25% to 95%

Why some companies struggle to retain customers

If customer retention rate measures if the glass is half full, then customer churn measures if the glass is half empty. Customer churn, also known as customer attrition, measures how many customers no longer utilize a business’s service or product. There are many programs, indicators and strategies to reduce customer churn. However, if you don’t identify the source of customer loss, your business could soon run itself aground. 

Here are just some of the reasons companies struggle to retain customers:
Bad customer service: Once consumer trust is lost, it’s hard to earn it back. Research from NewVoiceMedia found that bad customer service causes 39% of customers to never purchase from the company again and 37% to switch to a competitor. Yikes. 

Lack of perceived value: If a customer doesn’t believe a product/service can meet their needs or expectations, a business loses its value, along with its customers. Customers need to feel like they’re getting the best value for their money in order to make a repeat purchase. 

Difficult user experience: Long waiting times and slow websites can cause serious customer frustration. In fact,  88% of online shoppers say they wouldn't return to a website after having a bad user experience. 

Lack of engagement: 68% of consumers expect companies to show empathy, yet only 38% of companies do. Customers are less likely to engage with businesses if they feel unvalued and uncared for. What do undervalued uncared for customers do? Leave to find an alternative. 

At the end of the day, people don’t want to go through a bad experience twice, so customers will switch to competitors if they experience any of the above. 

So now we know what decreases customer retention, how do we increase it? 

Tips and strategies for improving customer retention

Customer retention can seem like a puzzle with too many pieces. But one concept can turn something complicated into something simple: customer experience (CX). CX is the journey of the customer, from the moment they discover a business to how they traverse its products and services. This is different from customer service, which is more focused on single customer interactions with staff and is one part of CX. Below are some ways to improve customer retention and create a long-lasting client base. 

Understand customer needs

Businesses operate on the idea that they fulfill a customer’s needs. But first, a customer’s needs must be deeply understood. Here are a few strategies for gaining a better understanding of your customers: 

  1. Gather insights from data

    You can use surveys, feedback tools and focus groups to gain a clear understanding of customer needs at scale. What do they like about your offering? What do they dislike? What would they like to see done differently? How likely are they to refer your service to a friend or colleague? Collating data sets from all parts of the customer journey helps you understand your customers needs, expectations and behaviors that can be leveraged to improve your customer experience.

  2. Work from customer personas

    A customer persona is an archetype that represents a segment of your target market. It is used to better understand your customers and their needs. For example, a bank may have one customer persona called Chloe. Chloe is a 30 year old single professional looking to buy a home within the next two years. A customer persona of Chloe would contain in depth demographic and psychographic information that would help the bank tailor it’s experience to meet Chloe’s expectations, e.g providing her with information on first time home buying.

  3. Ask directly for customer feedback

    Your customer feedback systems should be set up so that they directly ask customers for feedback, rather than something customer’s have to go looking for. Feedback systems should be quick, easy, accessible and enjoyable for customers to take part in. 

Focus on customer experience

When you create customer experiences that resonate, more customers stick around. An awesome customer experience is one that is: 

Frictionless: A frictionless experience is smooth, easy, and enjoyable for a customer. If roadbumps occur, they’re solved in a timely, polite and professional manner. 

Consistent: If you go to the gym once and eat a green goddess salad, you’re not going to see any health results. Just like if you deliver one great service experience to a customer, you won’t all of a sudden be at the top of your game. Like going to the gym, eating healthy or any other habit - consistency is the key to great results. 

Personalized: One size fits all no longer cuts the mustard. 80% of customers are more likely to purchase a product or service from a brand who provides a personalized experience. Customers favor service experiences that are tailored to their unique needs. 

Engaging: Great experiences are engaging experiences. When a customer is engaged, you have their full attention, which decreases the chance of them searching for alternatives. 

Rewarding: Finally, customer experience needs to be rewarding. Otherwise, a customer is less likely to repeat the same journey. Why go down the path of most resistance when there are easier ones to be found? Certain programs can incentivize customers to continue purchasing from a business. 

Reward loyalty

Rewarding customers on their loyalty is one of the easiest ways to increase customer retention. How many times have you gone to a cafe just for the loyalty card? Just for the promise of a free coffee that you can almost taste with every purchase? Loyalty programs, or rewards programs, incentivize customer loyalty and improve customer retention rates. They motivate customers to stick with a brand due to valuable rewards. From discounts to free items to points, loyalty programs can be rewarding for businesses and the customer. 


The benefits of loyalty programs include increasing the number of leads, promoting word of mouth marketing, increasing repeat business and improving marketing ROI. One example of an awesome loyalty program is Sephora’s Beauty Insider rewards program, which boasts more than 25 million loyal members, making up as much as 80% of Sephora’s annual sales. Customers earn rewards for each purchase based on a traditional point system, but the fun part is that members can choose how to use their reward points. Giving loyalty members the flexibility to choose enables Sephora to put more choice and personalization in the hands of their customers. 

Invest in training the frontline

It is important to remember that employees are the face of a business. Their treatment is reflected in how they treat customers. A bad working experience for employees can mean a bad customer experience overall. In this way, customer retention and employee experience are closely linked. 

Many businesses make the mistake of trying to improve customer retention, without first addressing frontline employee experience. There are 3 main red flags to this approach:

  1. You end up making guesses and assumptions about your customers from the boardroom, without talking to the very people that deal with and know your customers better than anyone else.

  2. We know that employees deliver better experiences if they feel good in the work they’re doing. If you don’t make an active effort to improve employee experience, the frontline won’t make an active effort to improve customer experience, leading to customer churn.

  3. When you don’t provide the frontline with the coaching, recognition, feedback and supporting workflows, you provide no roadmap to improving experiences and driving retention. 

It’s no coincidence that Southwest Air, a company with such a high Customer Experience Index Ranking, was also named as one of the Forbes’ 2021 America’s Best Employers. 

Close the customer feedback loop

You can use surveys and focus groups to gain detailed data on what your customers care about. While these two feedback methods have their purpose, they can be expensive and reactive. By the time you get the results, they might even be obsolete. That’s why using a real-time customer feedback tool can be so useful. Customer feedback software can consistently collect feedback to give the big picture on satisfaction and retention over time. 

Social media “listening” is also a great place to get feedback from customers. This involves keeping track of tags and comments on relevant posts. Customers can turn into fans of a product or service, where they talk about what they love, what they don’t and what they want to see in the future. It is worth keeping an ear out on social media because sometimes it isn’t fancy specialists that come up with the best improvements but the customers themselves. 

You can collect all the customer feedback in the world, but if it’s not connected to the right people, it’s not much use. Each team in your business (eg. marketing, sales, frontline) needs visible and structured feedback on what your customers care about. This way, you’re able to optimize every touchpoint in the customer journey. 

One of the most important teams to get customer experience feedback is your frontline team. After all, they’re the very people responsible for delivering the experience to your customers. Getting feedback to the frontline is so important, that it is in fact one of the Seven Habits of Empowered Frontline Teams.  When frontline teams have access to customer feedback, they can make daily behavioral changes that work towards creating a better experience for their customers, and keep them coming back for more.  

Leverage customer feedback tools to improve retention

Quality NPS software is designed to give you robust capabilities to make the most of your feedback and improve retention rates. 

The AskNicely feedback tool measures every customer experience based on customers’ Net Promoter Score (NPS). NPS  measures customer loyalty by asking what Bain refers to as the ultimate question (“How likely are you to recommend us/our product to a friend or colleague?”). Your customers will fall into one of three categories:

  • Promoters respond with a nine or ten: they are your brand champions, usually making repeat purchases, spending more money, and talking up their great experience with your company.
  • Passives respond with a seven or eight: they’re satisfied but unenthusiastic, and are vulnerable to being wooed away by your competitors.
  • Detractors respond with a six or below: these unhappy campers are likely to churn and even bad-mouth your brand.

Once you’ve gathered this customer data, you can calculate your company’s overall score. It’s simple math: take the percentage of your customers that are promoters and subtract the percentage of detractors, giving you a score somewhere between -100 (yikes) to 100 (absolute perfection). Your score is one of the most powerful indicators of customer retention and satisfaction. 

Conclusion 

While retaining customers can be challenging, there are proven strategies that can help you improve your customer retention rates. To recap, these include: 

  • Understanding customer needs
  • Focusing on customer experience
  • Rewarding loyalty
  • Investing in the frontline
  • Closing the feedback loop and; 
  • Leveraging customer feedback tools 

Want to learn more about building a loyal customer base? Check out our guide to winning on customer experience here. 

AskNicely Team
About the author

AskNicely Team

AskNicely Team
About the author

AskNicely Team

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