Your Guide to Customer Retention in 2020 and Beyond

Savannah Morgan
A man taking a woman's order at a cash register.


Most business advice on the internet focuses on customer acquisition, which makes sense. Without customers, you won't have anyone to sell your products and services to. But if you own or work for an established organization, customer acquisition isn't the end all, be all. In fact, there's a good chance your money is better spent on customer retention instead.


In this article, we'll teach you what customer retention is and why it's so important. Then we'll dive into five tips you can use to better retain your customers.

What is Customer Retention?

Customer retention refers to the strategies a company deploys to increase its number of repeat customers, as well as the profitability of each buyer.


To calculate your company's customer retention rate, simply subtract the number of customers acquired from your total customer tally over a given time period; then divide that figure by the number of customers you had at the beginning of the predefined time period and multiply the result by 100.


Confused? Here's an example:


Let's say your company had 10 customers at the start of the quarter, gained 2 new ones during that time period, but lost one as well. Our equation would look like this:


( (11 - 2)  / 10 ) ) x 100 = 90% Retention Rate


Once you know your customer retention rate, you can work to improve it, which we'll discuss later in this article. But first, let's cover why customer retention is so important.

The Importance of Customer Retention

A computer displaying business metrics.


When it comes to business, there are a lot of metrics to keep track. Do you really need to add customer retention into the mix as well? Of course, you don't have to. But an optimized customer retention rate will result in increased revenue, free marketing, and better feedback.


Let's take a quick look at each of these exciting benefits:

1. Increased Revenue

Did you know that it's anywhere from 5 to 25 times more expensive to acquire a new customer than it is to keep an existing one? You can save your organization a lot of money by simply keeping your current patrons from churning!


The same HBR study referenced above also shows us that just a 5% boost to your company's customer retention rate can increase its revenue by 25% to 95%. With numbers like these, why would you not want to optimize customer retention? If you don't, you're leaving money on the table, which is never good for business.

2. Free Marketing

What do you do when you discover a new product that blows your mind? If you're like the rest of the world, you tell your family and friends about it.


By creating loyal customers who love your company and the products and/or services it offers, you'll be able to generate free word-of-mouth marketing. Since 92% of modern consumers trust recommendations from friends and family over every other form of advertising, this channel often proves wildly effective.

3. Better Feedback

Lastly, customer retention will give you the opportunity to glean better feedback from your target audience because repeat customers will have a better idea of what needs to be improved about your company.


There may be an area of your business that you've overlooked. But you can guarantee that a paying customer won't forget about a less than exemplary experience.


At the end of the day, 97% of consumers are more likely to become loyal to a company that implements their feedback. But 55% of consumers will stop buying from a company if their feedback is continually ignored.

5 Tips to Retain Your Customers

Two women discussing customer retention strategies.


If you can boost your customer retention rate, you'll likely see increased revenue numbers, experience free marketing, and glean better feedback. But how do you better retain your customers? That's what we'll cover in this section!


Keep reading to learn five valuable customer retention tips that you can implement immediately to improve your business.

1. Focus on the Metrics That Matter

When seeking to improve your organization;s customer retention rate, it's important to focus on specific metrics like repeat customer rate, purchase frequency, and average order value. Let's take a more detailed look at each of these:

Repeat Customer Rate

Your company's repeat custom rate tracks the percentage of customers who make multiple purchases from you. In general, the higher this percentage is, the more successful your customer retention efforts are.


Repeat customer rate is calculated by dividing your repeat customer tally (customers who've made two or more purchases from you) by your unique customers total (the number of individual customers who've made at least one purchase from you) over a specific time period. We recommend one year.


For example, if you served a total of 1,000 customers in 2019 and 670 of them made more than one purchase from you, your repeat custom rate would be 67%.

Purchase Frequency

Next, we have purchase frequency, which measures how often customers return to your business to make additional purchases.


To discover your company's purchase frequency, divide your total number of orders over a specific time frame (i.e. one month) by the number of unique customers you served. To illustrate this equation, imagine that you fielded 100 orders in the month of July from 72 patrons. Your purchase frequency in this hypothetical scenario would be 1.39.

Average Order Value (AOV)

While the above two metrics track how often customers make purchases from your company, average order value (AOV) tracks how much each order is worth to your business. In other words, AOV is the average amount of money a customer spends, per transaction.


Calculating AOV is straightforward. All you have to do is divide your company's total revenue by the total number of processed orders over a specific amount of time. Let's say you run an ecommerce store that brought in $1.2 million in revenue in 2019, while feilding 56,971 orders. Your AOV would be $21.06. 


Once you understand how to measure and use each of these three metrics, you'll have the information you need to build an effective customer retention strategy.

2. Invest in Customer Service

Great customer service is the backbone to all successful customer retention strategies. To offer top-notch service to your customers, focus on consistency, communication, and personalization:


  • Consistency: Your buyers want to know what to expect from your company. This will allow them to trust your brand and rely on it in their times of need. To offer consistent service, map out a customer experience journey, beginning with effective onboarding.
  • Communication: Clear communication is essential to excellent customer service. Without it, you won't be able to provide your buyers with the support they need. Use technology to your advantage and consider implementing chatbot, help desk, and social media monitoring tools so that you can quickly and efficiently engage customers in meaningful conversations that increase your customer retention chances.
  • Personalization: A consistent customer experience that features clear communication is vital. But to really make your customer services shine, add personalization into the mix as well. Customer insights can be used to make product recommendations based on purchase history, names can be included in email communications, and tools like CloudApp will allow you to create customized video tutorials to explain processes.


You'll be able to retain your customers at a much higher rate when you offer personalized customer service that's consistent and focused on clear communication.

3. Implement a Customer Loyalty Program

One of the best ways to increase retention is to implement a customer loyalty program. 


Businesses in the food industry use this tactic all the time. You know what we're talking about… "Sign up and receive a free drink after your tenth order!"


Customers love loyalty programs because they get free stuff. Companies love loyalty programs because they encourage customers to order more often. It's a win/win scenario that you should consider implementing immediately.


Here are a few tips to help you get your program off the ground:


  • Start Early: Give customers a few complimentary points when they sign up for your loyalty program. This will show them that earning points is easy. It will also get them closer to their first reward, which is how you'll get them hooked.
  • Diversify Your Rewards: If you offer your customers the same reward every time, they may lose interest. Diversify your offerings to keep your audience engaged. Also, try rewarding customers for things other than purchases. For example, you could give them bonus points for posting about your brand on social media.
  • Promote Your Program: It may seem obvious, but people have to know about your loyalty program to participate in it. Make sure you promote your rewards in-store, on your website and social media channels, etc.


If you're looking for inspiration when it comes to customer loyalty programs, take a look at what Starbucks, Sephora, and Hyatt have to offer.

4. Ask Your Customers For Feedback

Earlier we mentioned that one of the main benefits of customer retention is the high-quality feedback you'll receive. To get this quality feedback, take time to ask your best customers what they think about your brand. What do they like? What do they think could be improved?


But don't stop there! We also suggest asking churned customers why they decided not to continue buying from your company. That way you can learn what's driving folks away.


The key to feedback is action. If all you ever do is collect customer opinions, but never actually do anything with these important insights, your retention metrics will suffer. Instead, take feedback seriously and implement audience suggestions whenever you can.

5. Analyze Your Customer Retention Plan

Finally, you need to analyze your customer retention plan on a regular basis. Are the strategies you've implemented working? If so, double down! If not, discover why and then adjust your approach appropriately.


In all likelihood, your customer retention efforts, especially in the beginning, will be a mixed bag. Some tactics will prove successful while others won't move the needle — or worse, move it in the wrong direction. This is all part of the process.


Stick to it and eventually you'll come up with a balanced customer retention strategy that works for your specific company and unique audience.

Boost Customer Retention

A woman jumping with an umbrella.


An effective customer retention plan will enable your company to increase revenue, benefit from free marketing opportunities, and receive top-quality feedback. Fortunately, boosting your company's customer retention metrics is easy if you follow these five tips:


  1. Focus on the Metrics That Matter
  2. Invest in Customer Service
  3. Implement a Customer Loyalty Program
  4. Ask Your Customers For Feedback
  5. Analyze Your Customer Retention Plan


If you're looking for software to help you increase retention, consider CloudApp, a visual communication tool that includes easy-to-use screen and webcam recording, GIF creation, and image annotation features. The best part? CloudApp is free to use! Sign up today and join thousands of other companies using our software to delight their customers.


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