Holding on to customers - the importance of customer retention
Success Lesson 101 - Respect and retain your current client base and don’t only focus on getting new clients
3 min read
While it’s important to keep looking for new business opportunities and potential customers, startups should realize that for sustainable growth, they can’t ignore their existing base of customers. Startups, in the madness of constantly pitching and converting new clients, often undermine the importance of maximizing customer lifetime value in generating recurring revenue.
There are two things to bear in mind - 1) Obtaining new customers involves heavy cost, 2) Not only retained customers are a constant revenue source, but it’s also easier to expand the scope of work with them, and they prove to be great referrals. Customer retention rate is also a barometer for long-term success. Therefore, it’s important to invest in existing customers and scale up with them, while you work towards the vision of turning them into brand advocates.
Here are some tips that will help you achieve smart growth through customer retention.
Build a system to measure customer satisfaction
Having a retention review system will give you a clear picture of where you stand in your relationship with your customers. Regular meetings with the agenda to diagnose potential problems can give you an upper hand. Set your own metrics and see how you are improving or deteriorating, see how efficiently you are using resources toward customer retention, gain insights into customer satisfaction and chalk out the way forward map on the account.
Renewal Rate is your reality check
Renewal rate with your retained customers is the yardstick to indicate your customer happiness and health of the business overall. Try calculating the renewal rate by segment to have a complete analysis break down of the progress of different segments in your business, this will help you diagnose exactly where you are going wrong, this way you might identify the problem and provide a segment fit solution.
What makes you tick makes them stick
Pouring all your organization resources into your customer success isn't the answer if you are looking at improving the retention rate. Find out the factor responsible for tumbling retention rate, which can range from an increase in product/retention cost which could signal that you are drifting from the product-market fit, or analyze whether your marketing efforts are actually clearly defining your value proposition. Consider all the key players that help you hold on to the client.
Are your customers regularly using your product
Set a metric to understand how much your customers are engaging with your product - that is another sign of customer satisfaction. The more your customers use your product, the retention probability and rate goes up. A healthy engagement rate shows their potential to also be the advocates of your brand, which means more customers, with organic word-of-mouth marketing, which btw is the best kind of marketing with the possibility of better conversions.
If you can keep customers happy without spending a bunch of resources speaks volumes of the value you’re delivering. It will also reflect greatly on your portfolio with you approach investors, as they evaluate a company's worth based on whether or not they have high-quality customer retention than one with explosive growth but low retention.
Have some more ideas that have worked in your favor, in the past? Feel free to share it with us.