How to develop an effective customer retention strategy quickly during COVID-19, is a key concern for many business owners. And rightly so.
With extended lockdowns, stay at home directives, and social distancing, most businesses have lost clientele. A recent report indicates that US store visits conversion dropped as much as 90% in March alone. Thanks to stimulus packages like CARES Act Paycheck Protection Program, US business owners can now heave a sigh of relief.
But is it yet Uhuru?
In today’s rapidly evolving business ecosystem, smart business owners, large and small, are after how to develop an effective customer retention strategy quickly to offset churn due to COVID-19. FEMA reports that over 40% of small businesses in the US fail after a natural disaster, a quarter of them within a year.
Post COVID-19, will your business also fail or fail to fail?
One way to keep in business after Coronavirus is through effective customer retention now.
What is Customer Retention and Its Importance?
Customer retention encompasses everything businesses do to maintain/retain their existing customer base or market share. Research shows that customer retention is 5-25x cheaper than customer acquisition.
Also, brands that know how to develop an effective customer retention strategy and implement it can expect to grow a customer base with high lifetime value. Frederick Reichheld in his research found that increasing customer retention rate by 5% could increase profits by 25% to 95%.
Some Key Benefits of Effective Customer Retention
- Lower CAC from referrals
- Lower marketing spend
- Higher profits
- Higher LTV
- Customer trust and loyalty
- Free word of mouth
- Familiarity and history
- Rapport with customer support
- Genuine customer feedback
- Willingness to try new products
And the following are:
Some Consequences of Poor/Ineffective Customer Retention
- Higher CAC
- High churn rate
- Lower profits
- No repeat business
- Lower LTV
- Unhappy customers
- Bad word of mouth
- Stressed support team
- Zero feedback
- Unwillingness to try new products
10 Reasons Why Businesses Lose Customers
- Poor products/services
- Poor buying process
- Poor customer experience
- Poor customer service
- Unresolved complaints
- No feedback process
- Unrewarded loyalty
- Arbitrary changes
- Better competitors
- No documented customer retention strategy
Speaking of customer retention, here are:
Some Interesting Customer Retention Statistics to Note
- It is 5-25X cheaper to retain than to acquire customers.
- The chances of being patronized by existing customers is 40% higher than potential customers.
- The probability of an existing customer buying from you is about 65%, while the probability of selling to potential customers can be as low as 5% and not higher than 20%.
- In the event of releasing a new product or service, your current customers are 50% more likely to try it out.
- About 90% of individuals trust the recommendation of their friends or family member, who is an existing customer of a particular brand.
- When you increase your customer retention by as little as 5%, you potentially increase your profits by up to 25% to 95%.
How to Develop an Effective Customer Retention Strategy Quickly
If you need an effective customer retention strategy ASAP to keep you in business after COVID-19, here are:
5 Ways to Develop an Effective Customer Retention Strategy Quicky
1. Determine your CAC
Most businesses depend on paid marketing channels to get the word out. Others depend on more traditional methods including word of mouth. In truth, customer acquisition will either cost you time or money.
So, what’s the real cost of acquiring a customer?
The most basic way to calculate CAC is shown below:
CAC = Total Marketing Expenses + Total Sales Expenses
No. of New Customers Acquired
This is a very basic way to calculate CAC and although it ignores certain key components of CAC, it still suffices for most SMBs. Brian Balfour of Reforge delved deeper into exactly how to calculate CAC.
To develop an effective customer retention strategy quicky you need to first ascertain your CAC and answer the following questions:
- a. What is my CAC?
- b. Is it relatively high, fair, or low?
- c. What is my ROI on CAC?
- d. What can I do to lower CAC?
One of the easiest ways to lower CAC is to improve customer retention rates. To do this you’ll need an effective customer retention strategy in place. Which brings us to point #2.
2. Determine Your Churn Rate (True Cost of Churn)
Having calculated your CAC, it is important to also calculate your churn rate. Most lead funnels are porous with wide-open BOFUs, suffering significant lead leaks and exits leading to huge churn.
Churn rate refers to the percentage of paying customers or subscribers who leave or cancel their subscriptions within a given period. If your churn rate is 50% annually, you’ll be out of business in 2 years if you fail to acquire new customers in 2 years.
Other factors to consider when calculating churn rate include cost to re-acquire old customers, CAC, and LTV lost due to churn.
Churn Rate = No. of Churned Customers (nChurned)
No. of Total Customers Before Churn (nCustomers)
Andrew Tate throws more light on how to calculate churn rate.
To develop an effective customer retention strategy quicky you need to first determine CAC as we’ve shown, then determine churn rate (as we’ve just done) and answer the following questions:
- a. What is my churn rate?
- b. What is the real cost of this churn to my business?
- c. Why am I losing customers?
The best way to lower churn is to improve customer retention rates. To achieve this you’ll need an effective customer retention strategy that effectively investigates and addresses why customers leave. Which brings us to point #3.
3. Investigate Your Churn Rate
If you have extremely high churn rates, chances are your customers are pissed off. Perhaps their complaints have gone unanswered and unaddressed. Take time out during this lockdown to review your support tickets. You might be shocked by what you’ll find.
You should also track your online mentions (e.g using Google Alert) and online reviews. By implementing active social listening you can also eavesdrop on what customers are saying about your brand or business on social media. This can give you valuable actionable insight into why they left and why others are leaving.
One of the best ways to lower churn rates and increase customer retention rates is to collect customer feedback and act accordingly to address customer grievances. Which brings us to point #4.
4. Track and Talk to Your Customers, Past, and Present
Deep dialogue with customers and staff can help you diagnose the cause of your high churn rates. If you also record unusually high staff churn, it may be time to have a heart-to-heart discussion.
To really hear them, you need to go near them.
This may mean creating and building your social presence, following them on trending social media platforms, and really meeting them where they like to hang out online.
Track and talk to churned customers. Find out why they left. Ask if there’s something you can do to make it up to them, better yet make them an offer they can’t resist.
Also, focus on your present customers. Prevent them from leaving by engaging and interacting with them. Find out what they want, what changes they might like to see. This is a key part of how to develop an effective customer retention strategy quickly.
By automating your business processes you will better be able to operate at scale. There are several steps and tools that can help you to automate your small business processes leading to customer retention.
You can start by taking your business online. Create a website, Google My Business Page, social media accounts, and other digital marketing outlets.
CRM tools can help you automate the process of gathering customer data, processing, and presenting them. This way you have actionable data with which you can hyper-personalize and tweak your business offerings to suit changing consumer tastes, behavior, and preferences.
Here are some tools to help you grow your business, boost customer satisfaction, and improve customer retention rates:
- HubSpot CRM
- Base CRM
- Less Annoying CRM
- Google Analytics
- Intercom Early Stage
Now is a great time to work on your customer retention strategy. In this post, we have highlighted what a customer retention strategy is, why it is important and how to develop an effective customer strategy quickly.
- Determine your CAC
- Determine your churn rate
- Investigate your churn rate
- Track and talk to past and present customers
Let us know in the comments section if this has taught you how to develop an effective customer retention strategy quickly.