Customer Retention Rate: Connecting the dots between programs and people

2016-08-01 10:49:07

Customer Retention Rate (CRR) is a key metric measuring the proportion of customers retained in a given period. It is most often calculated weekly, monthly and annually as a means of tracking business performance consistency.

The value of customer retention rate as a metric is that it tracks loyal customer numbers.

Why is this important? It helps in the management of the tools and systems that any business deploys to ensure customers come back time and time again as repeat custom is far more profitable the new, more on that in a moment.

Customer Retention Rate = ((CE-CN)/CS)) X 100

CE = number of customers at end of period
CN = number of new customers acquired during period
CS = number of customers at start of period

Back to why tracking customer retention is so important. Savings! The average cost of finding new customers is 5 times more than that of retaining a satisfied existing customer. There is a small variance across industries in this multiple, the insurance industry for example record an 8-fold uplift in the cost of finding new customers.

Here’s another one: 80% of future profits come from 20% of ‘Existing’ customers, that’s from Gartner so solid figures…
Customer retention programs such as email communication/marketing and customer service if not up to the mark increase the likelihood of customer departure to try out the competition. Successful customer retention and loyalty programs reduce attrition and more importantly they make for happy customers. That’s why we’ve spent some time putting together a guide to retaining your most valuable customers.

How to create a successful customer retention program?

There is no better place to begin when looking to increase customer retention rate than by building a good customer relationship. This will make them want to stay as long as possible. A relationship is reciprocal though so how can a business maintain communications with customers?

A Loyalty Program is an excellent solution as it can provide: exclusive offers, an effective and (in the clients eyes) justified reason for constant communication, special content and surprise notifications. These can be put to work to make existing customers feel valued and special.

There are 3 core components that are essential for a loyalty scheme to have staying power and a hold over its members:

  • A Reward System
  • Gamification (Game Mechanics) 
  • Bidirectional Communication (A Feedback loop)

These elements combine to boost user participation, nurture their involvement and make them feel a part of something bigger than what is essentially a simple purchase transaction.


A Reward System

This is the most common feature in any loyalty scheme for several reasons:

    • Simplicity, a points and voucher system is relatively simple and inexpensive to implement vs. the ROI, if well managed
    • Value perceived, a voucher and more loyalty reward points for buying through their membership adds value to the purchase experience, whereas buying outside their membership (from another brand) means receiving only the item they purchase
    • Switching Cost, as above only from another angle, the loss of added value if they purchase outside the loyalty scheme is a turn-off, they identify switching brands with a sense of missing out
  • Retention Boost, along with rewards comes a sense of recognition and belonging for the consumer, the brand is giving them something back it’s rewarding their loyalty. This in and of itself is a powerful link between brand and consumer as it presents the brand as focused on customer care

Success in any rewards scheme comes from balancing the incentives on offer with brand goals. KYC is crucial to a rewards system as there are pitfalls; allocating the best prizes to infrequent purchasers, too many prizes or a complicated points award system can work against brands. Awarding a discount voucher for cat food to someone who has a purchase history of only ever buying dog food doesn’t communicate the message that the brand knows and wants to help them. It actually has the opposite effect and that’s negative for your customer retention rate.

How often a consumer buys, what she buys and how much she buys. This is the starting point. Armed with this information any brand can begin to decide who, what, why and when to reward. The foundation of a rewards scheme must be based on these elements to have relevance the customer.


Gamification (Game mechanics)

Often misunderstood Gamification is not simply mobile apps and video games; it is a retention strategy program that engages customers. It’s a spoon full of sugar to sweeten the user experience.

Gamification exists specifically to adapt to and address ever-changing brand goals and can also turn a well-run loyalty program into a new user acquisition system.

Gamification provides brands with a means of involving and talking to as oppose to broadcasting and talking at their customers and website visitors. An audience statically observes from a distance, a participant is a dynamic pro-actively involved player presenting any brand with a world of opportunity to communicate their message in a personalized and more meaningful way.

The following key capabilities combine to develop a new, interesting and exciting user journey that entices and engages existing and new users into participation:

  • Client retention, activation and new user acquisition
  • Raising brand awareness and creating a buzz around new products and services
  • Increasing web and foot traffic to websites, e-commerce site and POS
  • Leveraging social channels to boost internet presence and ramp up exposure to new customers
  • Influencing consumer behaviors to align with business goals
  • Feedback loops to identify trends and new target audiences
  • Rejuvenating tired consumer loyalty schemes or building new loyalty strategies from the ground up
  • Adding a new deeper and more emotive layer to the brand/consumer dynamic
  • Segmentation of CRM for targeted content delivery
  • And of course, stimulating repeat sales and new sales alike

Customer engagement, brand recognition and loyalty are a by-product of a well designed and executed gamification strategy. It literally inspires existing customers to more activity and uses this heightened activity to reach out and engage with new customers, which affects positively your customer retention rate.

Bidirectional communication (feedback loop)

Constant and relevant communication is where a lot of brands fall over, the main reason for this is an old school tendency towards end-to-end user journeys. When the goal should be a continuous user journey; retention, retention, retention….

Reduced costs in repeat custom not withstanding, why wouldn’t a brand want to know how their consumers feel? KYC and a holistic view of consumers is key to knowing how to plan ahead and nail KPI’s. Feedback is also a great way to test new products gauge the temperature and keep consumers informed.

Bidirectional communication is perfect when used to identify the most loyal customers, it’s a route to finding brand champions and advocates so they can be given a voice with which to promote the brand. In this way brands can create their very own Organic Influencer Marketing. What is Influencer Marketing other than word of mouth recommendations in the digital age.
Polls, quizzes, social media shares and many more activities can be tracked and the results will lead to useful data that can be used to move forward with confidence, even in these uncertain economic times.


Digital shift on retention programs

There is an enormous amount of commercial software within arms reach to enhance any customer retention strategy. There are some without which any customer retention program is destined for failure; CRM & Newsletter systems are the most common and very effective when used properly.

CRM (Customer Relationship Management)

CRM is up there at the top of the list, without a decent intuitive CRM all other strategies or planning will fail as there is simply no way to stay on top of the vast amounts of data accumulated. Automating processes, demographics, user types, behavioral patterns, purchase habits, segmentation, identifying trends, tracking orders, sales funnels, and all other aspects of day to day relationship management can be accomplished from here. In business as in life, you get what you pay for but most CRM systems these days are extremely customizable and so can be tailored to reflect the brands unique requirements.


The newsletter is the steadfast stalwart of brand communication. It may not be the all-encompassing solution that is was originally but technology moves on right…

There will always be a place for the Newsletter and when it is combined with a CRM it can be made more effective through segmentation.  Relevant content sent the right people, at the right time, etc…

Tracking opens, clicks, responses and conversions will help improve efficiency and help hone the art of the newsletter.

Gamification Platforms

Customer Retention Rate can be brought to life through gamification. Hooptap software is a great example of how to identify all those relevant dots that together paint the overall picture of any business.

It works seamlessly with CRM to take segmentation to the next level and it is a vibrant and fun environment where customers are encouraged and rewarded for participation. The resulting boost to interactions between brand and consumer when Hooptap’s Gamification Engine is introduced help to cement and enrich the relationship that will be key to retaining happy customers.

It can also through a variety of game mechanics drive and influence customer behavior. Once the brand decides on its area of focus the game mechanics can be reverse engineered and adapted to create the steps that will produce the desired outcomes.

Another aspect to digital solutions like CRM, Newsletter and Hooptap Gamification is that automation makes 24/7 and consistent personalized communication possible. The customer that wishes to shop at 3am can receive the same personalized experience with the brand as the person that shops at 10am. Automation means always open

Additionally global markets, language barriers and time zones make for some serious inconveniences in terms of communication but NOT in terms of customer retention. Not when you use the right technology with the right capabilities in the right way.

Brands need to stop thinking that they make customer come back purely through price, they need to help customers want to come back and for that they need to be relevant, and that relevance is only a phone call and a gamification integration away.


This post is also available in: Spanish

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