Your customers hang out online. Are your digital marketing efforts keeping them satisfied?
- Small increases in customer retention rates result in significant revenue increases
- The Golden Rule is alive and well—the biggest reason customers leave is because they were treated poorly
- Social media is low-hanging fruit for retention strategy starting points
- Measure and track your customer retention rate and set meaningful goals to improve it
One in the Hand
Someone a really long time ago said something about “one in the hand” being worth more than two in the bush. At the time, they were probably speaking about something other than marketing, but having one customer in hand is better than having two prospects.
It’s also cheaper to keep that one customer happy. What’s more, improving your customer retention rate can significantly increase your business’s bottom line. So if you haven’t revisited the idea of your customer retention marketing, today’s a good day to start, and this blog post is for you.
But First… A Stat
The impetus for this blog came as I was reading a recent article on Forbes about customer retention: “Customer Retention is King: The Future of Retention Marketing”. The article contained an interesting statistic:
- Increasing customer retention rates by just 5% increases revenue by 25% to 95%
Wow. That’s an incredible return.
The detective side of me tends to be wary of relying on statistical data, however and in any event, I was curious as to the stat’s source. Thankfully, the author of the article linked to the study where this stat originally appeared—it comes from a 1990s study by Bain & Co.
The age of the statistic begs the question about whether it still holds true today—but perform a search on the stat and you’ll see that it’s cited often, perhaps as recent as the Forbes article I stumbled upon.
I won’t take that as proof positive but regardless of whether the study still holds true, it’s fair enough to state that increases in customer retention do often yield positive returns. It also makes good fiscal sense, as it’s generally recognized that the cost to attract new customers is four- to six-times more expensive than it is to simply retain existing ones.
With that in mind—when was the last time you examined your customer retention strategy? Have you looked at the reasons why your customers left?
Social Media Marketing and Customer Service
Where is the easiest place to start reexamining your customer retention strategy? Start with your customer service policies and review them against your social media efforts.
The Golden Rule is alive and well in retention marketing. Customers across industries report that the biggest reason for leaving a company is the way they were treated. Big surprise, I know, but customers like being treated well and with respect. Plus, with so many options now available, most customers don’t need to tolerate poor customer service (except for cable television customers, but the writing is quickly being put on the wall for this industry with recent announcements like Sling TV and Nickelodeon’s direct-to-consumer streaming content—but I digress).
Your social media efforts work hand-in-hand with customer retention. If these departments exist in silos (with someone or some department handling customer service issues and another person or department handling social media), you’re working with inefficiencies. On the other hand, if customer service is a part of your social media efforts, it never hurts to review some best practices.
Here’s a quick set of questions:
- Do you use social media to monitor customer feedback?
- Do you respond appropriately to negative feedback (asking to take the matter up offline, for example, to better handle the complaint)?
- Do you respond quickly to customer interactions?
- Do you use your social channels as a way to foster customer engagement rather than using your social channels as a sound board?
If you answered “yes” to each of those questions, you’re well on your way to using social media to help foster relationships and retain customers. If you answered “no,” now is a good time to revisit why you answered in that way and what you can do to fix it.
Can a 5% Increase in Retention Really Up Revenue by 25% or More?
Calculating your customer retention rate is easy: subtract the number of customers acquired during a given time frame from the number of total customers you have at the end of a given time frame. Divide that number by the number of customers you started with at the start of the given time frame and multiply the result by 100.
Let’s use an example to better demonstrate that. Assume OsCorp measures retention on a monthly basis. OsCorp started last month with 100 customers. At the end of the month, OsCorp lost 10 customers but gained 20 new customers, for a final total of 110. OsCorp’s customer retention rate is calculated as follows: (110-20)/100 x 100. Doing the math, their retention rate is 90%.
This example merely demonstrates the basic math. A 90% retention rate might look good, but if OsCorp’s competitor’s typically enjoy 95% retention rate—then perhaps OsCorp isn’t doing all that it could for its own industry.
To help bring this all together, let’s go back to that statistic from the beginning of this post about increasing retention rates by 5%. Let’s assume OsCorp’s monthly revenue are $1M. If OsCorp can improve its retention rate by 5% (retaining just five more customers each month), the company could see that revenue number nearly double. What could OsCorp do to keep more customers around?
It could be as simple as a better social media strategy centered around retention. It could be as complex segmenting the audience and tailoring better content and offers to them via an automated email marketing campaign.
Whatever the effort ends up being, keep the customer at the heart of the effort and design it around what will resonate most with them to increase their sense of satisfaction and proper treatment.