Strategies for Improving Your Customer Retention

Have you ever heard that it costs a lot less to get a customer to come back than it does to acquire them in the first place? It’s true! One of the biggest reasons you should focus on your customer retention strategy is because it has really high ROI. Secondly, it can make a big difference in revenue.  Every point of improvement can add a lot of revenue. 

Before you can work on your customer retention strategy, you need to know what your current retention rate is and how to compute a point of improvement for retention. In order to determine what a point is worth, you can take the amount spent by your returning customers and divide that by the percentage of those that are returning. For instance, if your returning customers spent 40 million dollars this year and you had a 40% retention rate that means point of retention is worth a million dollars. 

Another key metric is lifetime customer value. This is the average amount a customer is going to spend from the time they start doing business with you until the time they stop.  Once they become a customer, it costs less to get them to buy again or repurchase.  So, when you look at the initial acquisition cost sometimes the only way it makes sense from a business case standpoint is if you can count on recurring sales.  The formula for lifetime customer value is:

 Average purchase value X average purchase frequency (how many times does a customer buy, on average per year) X average customer lifespan (in years).

Once you have these numbers, you can utilize data science and analytics to make a huge difference. Initially, companies should start with some basic segmentation of their data on a product level. For example, if you are a pet retailer, you will send cat food offers to cat owners.

Once you have done that, you can take it one step further, you can look at customers based on their value, which is a function of margin and frequency.  You want to market differently to the people that are low value, low frequency. To target people that are high margin, low frequency, you want instill some offers and touch points to move them into the high frequency category. 

If you have started implementing the first two phases into your customer retention strategy, you can then start to focus on personas. This is where you can utilize AI to identify segments in your data. The value of data science is the ability to mine the data so the right offer is sent to the right person at the right time using the right channels.  If you don’t have a data science function in your company, data scientist are expensive, that is an area where we can help and our affiliate Sale Point Analytics.


If you have questions about these strategies or want us to help you implement customer retention campaigns, give us a call.

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