You've probably heard it a million times. Finding new consumers is more expensive than getting existing ones to make a repeat purchase. It's true for many businesses, especially in the competitive professional service industry, where new customer acquisition has become more and more expensive.
You work hard to attract new customers to your business. But even if you have a stable flow of new buyers to your business, you leave money on the table without a streamlined retention strategy. In the best-case scenario, you may still make profits, but you're missing the bigger picture.
Think of it like a leaky bucket beside the river. You work to fill the bucket up, but half leaks out the bottom by the time you get back to your camp. You run out of water sooner and have to refill more often - it's exhausting and unsustainable. Directing focus to retention reduces profit leaks, and with technology like chatbots, an impactful and engaging customer retention strategy is easier than ever. Let's take a look at how to get there.
What is Customer Retention?
Customer retention is the process by which a company increases the number of repeat clients, improves revenue per existing client, and discourages them from switching to a competitor. It shows whether your product and service meet the needs of your current customers.
Why is Customer Retention Important?
While attracting new customers is a vital part of a successful business strategy, it may not bring the biggest value for the money. Despite what many business owners believe, a bigger focus on customer retention instead of attracting new clients can have a higher impact on the profits. A steady flow of new clients generates stable income but a business should also consider the costs of attracting those clients.
When you do that, it's clear that maintaining relationships with existing customers leaves more money in the bank. And happy customers are more likely to recommend your services to their network, creating a powerful, organic buzz that reduces marketing costs and increases the referrals that bring new business more easily and for free. Therefore it not only increases not only the amount of money spent by each client but also has a positive impact on new customer acquisition.
Studies vary on the specifics, but one thing remains the same. Attracting new customers is a lot more expensive than retaining them. Even more important, retaining customers provide future value for your business. For example, Harvard Business School says that a 5% increase in customer retention can improve profits by 25% to 95%. What is more, Forbes estimates that it can be as much as five times more expensive to attract new customers than it is to retain them.
Key Customer Retention Metrics
Customer Retention Rate (CRR)
The customer retention rate is the percentage of previous clients who continue to remain loyal to your firm over some time.
Customer Churn Rate (CCR)
The percent of customers lost during a given time is known as the customer churn rate. A high churn rate indicates difficulties in client retention.
Customer Lifetime Value (CLV or CLTV)
Customer lifetime value is the total amount a customer is worth to a business throughout their relationship.
When to Focus on Customer Retention?
Whether you should focus more on acquiring or retaining customers is largely determined by where your company is in its lifecycle. A firm that just started yesterday is very different from one that has been operational for many years.
When you've just started, one thing you should be concentrating on is bringing in new clients. At this point, you should concentrate on ways to expand your client base and attract new customers.
You've acquired some consumers and are now receiving little sales. You can start to incorporate basic retention elements at this time to encourage each consumer to make a repeat purchase.
You're not quite a professional services behemoth yet, but your sales are growing consistently. This is the time to start thinking about how you might integrate retention into your acquisition efforts.
You've now established your position as a professional service business. Finding methods to expand when your firm is at this stage is typically challenging. You should double down on increasing customer lifetime value.
Your company has now completed the first round of hurdles. You've had a several early successes, and you have a lot of automation in place. It's time to focus on retention to keep your business thriving.
Strategies to Boost Customer Retention
Customer retention strategies allow you to maximise the profitability of each customer. You should make certain that the customers you worked so hard to acquire stay with you, have a great customer experience, and continue to benefit from your services.
Customer retention methods are the business practices and initiatives that a company uses to increase customer loyalty and enhance customer lifetime value. Your customers see similar offers or lower prices all the time, but this isn't what causes most customers to choose another service provider.
There's a widespread belief that quality is the only thing that matters, but it's not just the quality of your service. Customers also seek quality in their overall experience from the first interaction to the last. Up to 70% of customers leave due to poor service, real or perceived.
Chatbots offer a low-cost, low-hurdle approach to engage new consumers and convert them into repeat customers. Let's take a look at how chatbots can be used to improve retention strategy.
1. Save Their Time
Customers are busy and have become accustomed to immediate answers thanks to the Internet. Small companies may find it difficult to match the example set by big enterprises, leaving consumers dissatisfied.
During the week, a potential client sees that Ellen's gym offers women-only hours to assist customers to feel more at ease working out. She dials the gym to find out when female-only sessions are, but no one picks up the phone, so she leaves her name and number with a voicemail.
It takes two weeks for a callback, or worse, no one ever calls. It could have been a simple oversight - Ellen was swamped with New Year's registrations or inadvertently deleted the voicemail. Regardless, her gym missed out on a potentially lucrative client.
Chatbots never sleep. They're always available and never go offline for hours on end. Installing a chatbot to handle requests for open hours, availability, or other common inquiries ensures that you can interact with new and returning customers quickly. Given that 90 percent of consumers want a response to their inquiry right away, chatbots are an important investment for improving customer engagement and retention.
2. Improve Booking Experience
Carrie doesn't have the same issues as Ellen. She has a full-time manager at her local salon and several part-time assistants to handle messages and keep the front desk operating smoothly. Clients, on the other hand, must call ahead of time to set up an appointment and wait while the desk checks calendars to ensure they get the right one. It takes even longer to cancel or reschedule an appointment.
With the right chatbot, Carrie can automate these tasks so that her part-time assistants can focus on the human touch to differentiate her business, and further improve the number of customers that keep coming back.
People expect seamless experience over their channel of choice, so offering an omnichannel booking system driven by an intelligent chatbot makes it so much easier for customers to manage their appointment requests. A customer could inquire about appointments during off-hours and receive help from a chatbot that can check a calendar instantly and make an appointment right there.
If a customer needs to change the appointment, they can log into whichever channel is most convenient and speak with a chatbot to reschedule with minimal friction. This improves the overall satisfaction and positively influences the number of customers that keep coming back.
3. Enhance Communication
A solid customer retention strategy includes attention to the customer pre, mid, and post-sales. Chatbots can be used as an interface between your company and its customers. When using a chatbot, you can answer the most common questions that your customers might have before engaging with you.Ninety-six percent of customers will leave your business because of one poor customer service interaction, and the majority of them won't tell you they're leaving; they just disengage. In both cases above, Carrie and Ellen may not know why a specific customer decided not to return, but the long-term effects of their loss are clear.
Chatbots help with customer assistance and follow-up strategies that keep retention high. Clients who book appointments in advance expect a reminder, but calling or messaging takes time. There's also a greater potential to miss one.
Automating messages to remind customers about an upcoming appointment or give directions if they need help finding you ensures every appointment receives a timely reminder with no one falling through the cracks, saving time and reducing costs. Sending reminders also increases the percentage of people arriving on time and can reduce missed appointments by 60%.
Sending thank you messages after the appointment helps the customer feel appreciated and further increases their likelihood of repeat business. A chatbot can help send a customized response for each client.
The Impact Customer Retention Has on New Customer Acquisition
The process of finding and converting potential consumers to buy your services is known as consumer acquisition. A customer retention helps to maintain the relationships you've built with your customers and keep them coming back, it also makes it more likely that they'll recommend your business to others. Customer retention plan not only saves your business money but also makes money.
A professional image is crucial to building the trust necessary to win new clients, but there's only so much your marketing can do. Positive reviews from previous customers make up a significant part of that professional image, so it's essential to have a consistent flow of positive reviews coming in. Even better, reviews and referrals from trusted sources such as family and friends offer the biggest return. They increase awareness, build trust, and shorten the sales cycle. Best of all? They're free.
One significant benefit of customer engagement lies not just in customer lifetime value but in customer advocacy as well. Over 80% of customers search out local reviews for businesses before making a move, so chatbots could reduce the friction in leaving those reviews your business needs.
For example, a customer receives a yearly air conditioning check-up reminder from Michael's servicing business. After the appointment finishes, a chatbot asks the customer several questions during a natural conversation on their mobile device. An additional 10% off coupon for future services is available if the customer leaves a testimonial, which further incentivises the customer to provide positive feedback about the business. The result? Another great review and another brand advocate.
Customer retention is the key to success in business today. The majority of consumers will leave because of one bad experience, but using consumer-friendly technology can improve overall customer satisfaction and make it easier to retain more clients.
Happy customers not only result in a higher customer lifetime value but are also more likely to refer your business to their network. Companies with a high referral rate have a significantly higher chance of attracting new customers and report a faster closing time on sales. Those referrals make returning customers an even more valuable part of the overall business strategy.
Chatbots offer a low-investment way to keep customer retention high and encourage referrals and word-of-mouth recommendations. Investing now creates a strong foundation for long-term success.