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Customer Retention

Everything you need to know about customer retention

What if we told you that keeping your existing customers happy is just as important to growing your business as selling to new ones?

Your sales team might not like to hear it, but customer retention should be playing a major role as you look to expand. Acquiring a new customer is often more expensive than retaining an existing one, making it more cost-effective to focus on building your customer loyalty and keeping customers happy so they continue to spend their hard-earned money with you.   

So, what is customer retention? How can you measure it? And, most importantly, how can it impact your business? Let’s take a look.  

What is customer retention?

Customer retention is your business’s ability to keep customers coming back time and again. Your customer retention rate is a percentage of the number of customers that you have – not surprisingly - retained after a certain period of time. This percentage can then be used to track how many new customers make return purchases and how many churn by closing contracts, cancelling subscriptions or simply not buying from you a second time. Understanding your customer retention rate is a fantastic way to measure and track customer loyalty and, over time, build brand advocates and grow revenue.

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Why is customer retention important?

Without your customers, you have no business; so your customer retention strategy needs to be at the heart of everything you do. Replying to emails quickly, or offering super-fast delivery, isn’t going to cut it anymore when consumers expect a seamless experience from start to finish.

The experience you deliver needs to be built on trust and help customers see and the appreciate the value of your product and service; so the next time they’re looking to buy or renew, or you’ve got an awesome new feature you want to upsell, there’s no doubt in the customer’s mind who they’re going to choose.

Making customer retention a key focus for your business can have huge benefits.

1. More revenue through the door

Increasing retention by just 5% can boost revenue by 25 to 95%. Existing customers have already bought into the brand once before; they understand the products and services on offer and are much more open to spending money with you, especially if you provided a great experience first time around.

2. Save money across the board

Retaining customers is anywhere between five and 25 times more profitable than acquiring new ones, depending on who you believe. Returning customers tend to spend more on average and buy more often, without the need to spend precious time and money on expensive marketing or sales campaigns. In fact, loyal customers are more likely to start doing your selling for you. On average, customers who’ve had a positive customer experience tell 11 people (Millennials tell 17!). Capitalise on this by regularly asking for feedback from your customers. The more happy customers you have, the more positive reviews you’ll have coming into the business.

3. Build customer loyalty

71% of consumers head elsewhere as a result of poor customer service; whilst 66% of people say the quality and features of a product or service were the number one reason for customer loyalty. Once you start taking customer retention seriously, you’ll hopefully start to notice why certain customers are leaving you and be able to take action to do something about it.

4. Retained customers provide valuable feedback

97% of consumers are more likely to stay loyal to a brand that takes their feedback on board. Part of a great customer retention strategy is communicating with your customers and building better relationships. Collecting regular feedback from your customers can help you paint a picture of your overall customer experience, but also give your customers a chance to let their voices be heard. At Feefo, we believe there’s no such thing as a bad review. Every piece of feedback is an opportunity to listen, learn and improve to help you build stronger relationships, improve customer retention and boost customer loyalty.

How customer reviews can help improve customer retention

Customer reviews can tell you so much about your business, from what people think about the quality of your products, to how your customer service team deal with complaints – all you have to do is listen.  

Take the time to read, respond and take on board what your customers are saying, both good and bad. If you really want to improve your customer retention, you need to know why people are leaving. So, start asking for regular feedback across your entire customer journey. It could be that people love your products, but your delivery company is consistently letting you down with lateness or poor service. With Feefo’s Campaign Manager Tool, you can start asking the right questions, to the right customers, at the right time, uncovering what customers really think about the entire customer experience and spotting trends to help improve your service.

The earlier you spot these trends and take action, the easier it is to prevent customers from going elsewhere.

We know what you’re thinking. It’s going to take a lot of time to wade through all of these reviews, right? Well, not necessarily. Feefo’s Performance Profiling uses sophisticated artificial intelligence to cut through the noise and zero-in on topics affecting your customers, and therefore your business, the most. This leaves you with more time to actually take on board what your customers are saying and get to work on starting to improve your customer loyalty.

You’re nothing without your customers, and if you don’t pay attention to what they have to say, you might just lose them forever. They have valuable insight into your business that only they can provide, so make sure you’re talking to them and using what they’re saying to improve your business.

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“Feefo’s AI-powered Performance Profiling tool has enabled us to improve our delivery process and initiated some fascinating conversations between us and our customers, resulting in Iceland being able to better respond, listen and take action on feedback.”

Rachel Lewis, Customer Response Co-Ordinator

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How to measure customer retention

It’s surprisingly simple to measure your customer retention rate. By using the retention rate formula, you can quickly determine the percentage of your customers that stayed with the business over a given time period.

What is the retention rate formula?

To figure out your customer retention rate, you need to decide the period of time you want to measure - it might be monthly, quarterly or even annually if you’re looking more long term.

Once you know how long you’re measuring, the customer retention rate formula you need to use is:



Now don’t run a mile. It might look a little daunting, but trust us, learning this quick bit of maths is going to be well worth your time.

Let’s look at an example to make things a little easier.

Imagine you begin the quarter with 100 customers (number of customers at start of period), your sales team brings on board another 25 (number of customers acquired during period), but you lost a further 15. This takes your number of customers at the end of the period to 110. Your customer retention rate formula will look a little something like this:

(110 – 25) / 100 X 100 = 85% Retention

Now you have your customer retention rate you can start to track it over time. You can also use the data to see which of your customers have churned and run surveys to try and discover the reasons why they’ve turned their backs on your business. Any information you do gleam from your unhappy customers can be used to improve the areas of your business that are underperforming, which in turn should see your overall customer retention rate start to climb.   

Heath Crawford used Feefo to start collecting independently verified reviews from their clients. Prominently displaying Feefo feedback on their website has not only given prospects a reason to buy, it has also played a big part in helping them to retain existing clients. Heath Crawford now boasts an impressive 94% customer retention rate. By collecting feedback from these customers using Feefo, they’re able to track the quality of service they provide and gain valuable insights on where they can improve to maintain their high standards.

“Since using Feefo it has allowed us to show the physical evidence and proof of how strong our customer service is. We share this evidence with our prospects to help win more business, and it is testament to our staff’s hard work and great service that we have been awarded the Gold Feefo Trusted Service Award for 2017 and 2018.”

Oliver Leyens, Director

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There’s a couple of other customer retention metrics you'll want to keep an eye on if you’re serious about your customer loyalty.

Customer churn rate

Let’s start with the basics. Your customer churn rate, sometimes referred to as your customer attrition rate, is the number of customers that stop doing business with you over any given period. This could be calculated differently depending on what you want to measure. It might simply be the total number of customers lost, a percentage of customers lost versus your total number of clients, or you might choose to track the revenue value of the customers that you’ve lost.

The simplest method uses the following formula:


However you choose to measure it, knowing and understanding why your customers churn is crucial in helping you manage your customer retention strategy.

Product return rate

If you're a retail business, you might be more concerned with your product return rate. 30% of all products ordered online are returned – which is bad news for retailers.

Calculating your product return rate is easy enough:


It’s what you do with this information that’s important.

If you start asking your customers for feedback after they’ve returned an item, you’ll start to uncover common reasons why they’re sending things back and spot trends and previously unseen issues. Once you know all this, you can do something about it and start to improve your products and ultimately bring your return rates down.

Customer lifetime value (CLV)

What is customer lifetime value?

Customer lifetime value lets a business determine the total revenue they can expect to bring in from a single customer during the entire time they’re with the business. The more loyal your customers are, the greater their lifetime value.

How to measure customer lifetime value

To find out your customer lifetime value (CLV) you're going to need to know a few things first.

The first thing you're going to want to do is figure out your customer value. 

To do this, use the following steps:




The next thing you're going to need to work out is your average customer lifespan. Use the following formula to help:




Now you're ready to calculate your customer lifetime value. Take your customer value and your average customer lifespan and multiply them together, like so:




Knowing your CLV goes hand in hand with any retention plans you may have, as you can start to identify the sections of your customer base that are most valuable and offer the best opportunities for growth.

Net Promoter Score (NPS)


What is NPS?

Net Promoter Score measures the loyalty of customers by asking them one simple question: “How likely are you to recommend our company to friends, family or colleagues?”.

NPS scores are measured on a scale from -100 to +100. The higher the number, the better the score.

Depending on how customers rate your business, they’ll fall into one of three categories:

Promoters: Score the company a 9 or a 10. They’re loyal customers who are likely to act as brand ambassadors and come back time and again.

Passives: Respond with a 7 or an 8. They’re happy with the service, but not blown away. If you’re using NPS to help with your customer retention, then your passive customers are where you want to focus your efforts.

Detractors: Give a score between 0 and 6. These are your unhappy customers, and most at risk of churning.

Why is NPS important for customer retention?

 When it comes to customer retention, NPS gives you a great indication of your customer loyalty, and quickly indicates potential customers who are heavily at risk of churning, giving you time to hopefully solve any problems they’re having or make improvements that will stop anyone else leaving for similar reasons in the future.

You can find more information on NPS here.

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Customer retention strategies

Now that we’ve establish what customer retention is and how you can measure your customer loyalty, it’s time to put it into action.

Here are a few techniques you can work into your customer retention strategy.

Make customer feedback part of your day to day


96% of customers read reviews, so if your customers are using them every day, why aren’t you? The key to keeping any customer happy is understanding how they feel and asking for regular feedback is the best way to get to the bottom of what your customers really think about your business.  

It’s all well and good collecting reviews, but for them to really make an impact, you need to listen to what your customers are saying and use this insight throughout your business. Make it part of your customer service team’s day to day to monitor, read and respond to customer feedback. You could even target your sales team and account managers on the quality of their service by rewarding those that get the most positive mentions in their customer reviews – our Insight Tags tool can help with that.

Identify customer churn reasons as early as possible

People can stop using your business for any number of reasons, but the sooner you figure out why, the sooner you can do something about it!

Use each opportunity you lose a customer to dig a little deeper and discover what the real issues are behind them leaving. Cancellation or returns surveys can be a great way to uncover trends that could be affecting your business. Tools like Feefo’s Performance Profiling automatically highlight common themes within your feedback, allowing you to spot and act on any problems quicker.  

Just talking to your customers on a more regular basis can help you spot things before they become a problem, giving you the chance to turn a potentially at-risk customer into a loyal one, so don’t be afraid to reach out!

Create a customer relationship roadmap – and stick to it!

Your relationship with every customer begins long before they actually buy from you. Everything from your marketing, to your sales process, to your customer success team plays a part in shaping the opinions that consumers have of your business.

That’s why it’s important to use your customer relationship roadmap to get your customers excited about the future and give them plenty of reasons to stick around. Tease them with upcoming offers, let them know about all the exciting new features that you’re planning to add and make them feel like an integral part of the journey.

Constantly communication is key, each time you catch up with your customers use it as an opportunity to discuss progress, revaluate goals and ensure you’re meeting their expectations.

Set realistic expectations

It’s crucial that you establish some expectations as early on as possible – and better yet make them clear, realistic and most of all achievable. There’s nothing worse for customer retention than letting your customers down again and again. Whether that’s repeated delays to product releases, hidden fees or shoddy packaging, not delivering on your promises is sure to upset more than a few customers.

Establish a loyalty programme


If you don’t have a loyalty programme already, the demand is there. More than three-quarters (77%) of consumers are a member of at least one loyalty programme and 72% believe they’re a good way for businesses to reward their customers. If you do have a loyalty programme, is it still effective?

Many loyalty programmes haven’t changed in years, but peoples’ shopping habits have. You need to know what your customers want. Run surveys and ask them exactly what they’d like to see from your future loyalty programme. Perhaps it’s time to ditch the paper cards and create an app, or maybe customers simply want to see different rewards.

Keep checking in with your customers to make sure your loyalty programme is hitting all of its objectives.

Celebrate success

Don’t just focus on problem-solving; when a customer achieves something thanks to your business, reach out and celebrate with them! It’s a great opportunity to share some social proof as to why your company is awesome, as well as contact them for a proper case study which you can use to win more customers.

Celebrate your successes too! Whether you’ve won an award, secured investment or reached a company milestone, share this with your customers so they can feel part of something bigger and proud to have contributed to your success.

Create a consistent customer experience

Consistency creates trust, as customers know you will deliver the same excellent service again and again. This means they’re much more likely to rely on you, rather than going elsewhere and risking it with a competitor.

To create this level of consistency, you need to build processes for every customer interaction – right through from when they first become a customer to when they contact your support team or leave/unsubscribe from your service. The processes you need to create and monitor will be different for every business, but the important thing is to ensure every team within your business is involved, as they will all have an impact on the customer experience.

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