Your loyal customers play a vital role in maintaining your bottom line, cutting acquisition costs, and growing your business. That’s why customer retention should be a top priority for every business.

This post covers everything you want to know about customer retention, including how to measure it and how to improve it.

What is customer retention?

Customer retention refers to a company’s ability to keep existing customers coming back—in other words, turn one-time purchasers into loyal customers.

Measuring customer retention (with the metrics we’ll discuss below) can help a company understand the effectiveness of its products or services and the overall customer experience.

 

Why is customer retention important?

Think about where you like to get a haircut. Do you visit a new salon or stylist every time or stick with what you know and like? If you’re like me, once you find a good hairstylist, you stay loyal to them. And you help the business by doing so because the stylist can count on you to show up every few months.

That’s all to say your loyal customer base is crucial to your business. Here are a few reasons why:

Cost savings

It’s generally cheaper to retain an existing customer than it is to acquire a new one. In fact, it’s about 5x more expensive to gain a new customer, and customer acquisition costs have increased by over 50% in recent years.

This doesn’t mean you shouldn’t go after new customers. You should. But you should also invest in nurturing your existing customers because this can grow your business more quickly and reduce the need to spend more of your budget on acquisition.

For example, my hairstylist provides great service every time I get a haircut, keeping me coming back every few months rather than trying a new salon. In the long run, the stylist and the salon reduce costs by nurturing me as a customer rather than spending more on advertising to gain new customers.

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