Customer retention: Metrics, strategies, and examples

Businesses work hard to attract customers through marketing, social media, and sales strategies—it only makes sense to invest in customer retention as well. A good retention strategy requires a blend of quality customer-facing interactions and an outstanding customer experience to strengthen a buyer’s relationship with your brand.

Keep more customers by creating a seamless experience that makes them happy every step of the way. Luckily, the following metrics, strategies, and examples will give you everything you need to keep your customers coming back.

More in this guide:

• Why is customer retention important for businesses?
• Key customer retention metrics to measure (+ formulas)
• 8 strategies to retain customers
• 6 customer retention examples and why they work
• Frequently asked questions
• Boost your customer retention with Zendesk

Why is customer retention important for businesses?

Customer retention is important for businesses because it’s easier to keep profits high when you turn customers into repeat buyers.

Customer retention can indicate whether your product and the quality of your service exceed customer expectations—and it’s the lifeblood of most subscription-based companies and service providers. That said, it can bring several benefits to your business no matter your industry:

• Greater cost savings: Customer retention is more cost-effective than spending money to acquire first-time customers. When customers keep returning, they spend more—offsetting customer acquisition costs (CAC).
• Better bottom line: Pitching upgrades or cross-selling to existing customers is a great way to generate more revenue for your business. It’s also easier than converting new customers because past buyers know your product works and trust your business.
• More customer loyalty: Once a customer trusts your product, they will generally be less interested in your competitors. Not only that, but satisfied customers often become the best brand advocates, drumming up interest for your business free of charge with their persuasive word-of-mouth testimonials.

While sales and marketing efforts are important, your business will truly shine when you prioritize customer retention.

Key customer retention metrics to measure (+ formulas)

When you’re ready to assess your customer retention metrics, use the following formulas.

Customer retention rate

Perhaps the most obvious way to measure customer retention is with customer retention rate. This metric shows the percentage of customers who remain loyal to your business over a specific period of time.

First, you’ll need to identify the time period you want to measure—whether that be a month, a quarter, or a year. Next, identify the number of customers at the start of the period, the customers who you gained during the period, and the customers at the end of the period. Put it all together, and you get the following formula:

Customer churn rate

A less direct indicator of customer retention is your churn rate—the percentage of customers lost during a period of time. Companies that struggle with customer service retention usually have a high churn rate.

Low retention rates or high churn rates could be bad signs, indicating that something about your customer experience isn’t going well. But don’t panic—there are several changes you can make to turn the churn around.

Customer lifetime value

Customer lifetime value measures the total revenue you can expect from a customer during their lifetime and helps a business discover its most loyal customers. The longer a customer remains loyal to a company, the higher their lifetime value becomes.

For example, a customer who signs up with a 50 percent discount and then closes their account would have a low lifetime value. Businesses will want to find what customer groups have the highest lifetime value to maximize profits and discern mutual opportunities.

Repeat customer rate

The repeat customer rate accounts for all customers who have made two or more purchases. This is a popular customer retention metric among e-commerce businesses that can be applied to other business models.

Purchase frequency rate

Purchase frequency rate shows how much repeat business you get over a given amount of time. The time period can range anywhere from a week to several years. However, it’s generally a best practice to calculate this annually to get a clear view of fluctuations and the role that certain factors—such as seasonality—play in this information.

8 strategies to retain customers

Improving customer service retention means improving the customer experience. Here are eight strategies you can use to create a winning CX and keep your customers coming back.

1. Offer omnichannel support to reach customers where they are

Omnichannel support—and, by extension, omnichannel customer service—is an excellent tool for customer retention. It allows agents to access contextual information about clients across various platforms to curate highly personalized experiences.

Aside from the ability to execute conversational sales and support strategies, it also creates a better CX for clientele. When businesses offer omnichannel support, customers can chat with a person on the platform of their choice and receive faster resolutions.

2. Respond to customer support queries quickly

Quick first replies can result in higher customer satisfaction. Even if you can’t solve the ticket immediately, it still pays to respond to the customer ASAP.

A quick reply can be a short message letting the customer know you received their question. Or, better yet, provide an estimate for how long it will take to solve their problem. Customers are more willing to wait if they know you’re actively working towards a solution; setting time frame expectations upfront helps.

3. Personalize support interactions

Customers feel frustrated when they have to explain an issue over and over; and exhausting, repetitive interactions make customers more likely to leave.

Equip agents with customer service software that has the capabilities they need to easily pull customer information, view the conversation history, and streamline conversations. The Zendesk Agent Workspace, for example, offers agents customer context in order for them to deliver a personalized experience.

4. Incentivize loyalty

Increase customer retention by rewarding customers who are loyal to your company. By showing customers you appreciate their business, you give them another reason to stick around.

To buy your business some customer goodwill, consider offering:

• Loyalty programs

• Discount codes

• Special offers

• VIP events

• Early-access benefits

There are several types of loyalty programs, from points-based systems to tiered rewards. These incentives help collect detailed customer data which allows your business to offer more personalized experiences and messaging.

5. Offer a referral program

Referral programs serve the dual purpose of boosting customer retention and aiding acquisition efforts. This word-of-mouth marketing strategy is effective because it brings in new prospects who already have faith in your business based on the recommendations of someone they trust.

It also fosters goodwill with existing customers who receive additional benefits for shopping with you and advocating for your brand. Some popular incentives include:

• Cash

• Free merch or products

• Store credit

Offering these incentives will benefit your company because it encourages customers to keep coming back, and the social proof loyal customers provide will also give your business a competitive edge.

6. Create a positive experience for employees

Happy employees are generally more inclined to provide top-of-the-line support and form long-lasting relationships with clientele that improve customer retention. Incentivizing staff to create connections can go a long way in building trust, making it easier to keep customers loyal to you, even if issues arise.

Creating a positive work environment also helps reduce turnover rates and improve the employee experience. This is great for businesses because the longer your staff sticks around, the more knowledgeable and tuned in to customer issues they’ll be.

7. Gather customer feedback often

Customer feedback is one of the most valuable tools to increase customer retention and reduce churn rates. If you want to know what is and isn’t working for your customers, it helps to hear it straight from the horse’s mouth.

Give customers a voice by conducting surveys. Customer satisfaction surveys can be as simple as asking for a “thumbs up or thumbs down” after resolving a ticket, but it’s especially useful to ask more specific questions, such as:

• How would you describe your experience with our product?

• What isn’t working for you and why?

• Which of the following channels do you prefer using for customer support?

Additionally, supplement your surveys with feedback from customer service team members. They’re closest to customers and can identify common complaints and general preferences.

8. Build a strong customer community

Create an online community for loyal customers to interact with each other and share their experiences. This can serve as an educational forum for customers to learn more about your products and gives you a direct line to their thoughts and problems. Interacting with customers in online spaces like these allows you to address concerns early and keep buyers engaged long-term.

6 customer retention examples and why they work

Customer retention is the key to success. But don’t just take our word for it. Here are a few real-life ways well-known businesses are making retention a priority.

1. Offer a seamless online experience

One of the most basic examples of a customer retention strategy is meeting customer expectations. Customers today expect online experiences that are on par with, or better than, in-person experiences. In fact, according to Zendesk Benchmark data, 65 percent of customers want to buy from companies that offer quick and easy online transactions.

Amazon is one of the standouts for delivering that experience as they offer simplified transactions, free two-day shipping with a Prime membership, and an easy-to-use UX.

2. Make every customer feel like a VIP

Luxury hotels are renowned for high-quality, exclusive customer service. The Four Seasons expands that feeling of luxury to every customer through a combination of technology and white-glove service.

Guests can use Four Seasons Chat to message staff through channels such as WhatsApp for inquiries or service requests, including restaurant recommendations and reservations, room service orders, arrival or early checkout, and even a private jet reservation.

3. Build empathetic customer relationships

One thing you should know about customer service skills is that empathy is key to building lasting customer relationships. During the COVID pandemic, Zappos started a hotline where customers could call or chat with a support team member about anything—even the hottest Netflix shows. This fostered genuine, personal interactions that showed Zappos cared about its customers and didn’t treat them as another number.

4. Be proactive

Customers expect brands to anticipate their needs and get in front of issues before they even happen. That’s why proactive service is so important in retaining customers. Dollar Shave Club welcomes website visitors with a chatbot to answer common questions before a customer reaches out to customer support or abandons their cart.

5. Support causes your customers care about

Customers are growing increasingly conscious, and many prioritize buying from socially responsible companies that prioritize diversity and inclusion in their workplaces. Knowing this, Bombas donates a clothing item to a homeless shelter or homelessness-related charity with every purchase.

6. Create a unified customer view

According to Zendesk Benchmark data, 73 percent of business leaders say there’s a direct link between business performance and customer service. Enable agents to create richer, more personalized experiences for your customers by creating a single customer view. Polaris aims to retain valued customers by using powerful support software to achieve best-in-class support across several channels, increasing agent productivity by 30 to 40 percent.

Frequently asked questions

Boost your customer retention with Zendesk

Building your company’s reputation and a loyal customer base doesn’t happen overnight, but with dedication and the right CX partner, you’ll be much closer to earning the trust of your customers.

Use Zendesk to connect with customers. With leading customer service features like AI agents, automated QA, and integrated support, you’ll be even closer to cultivating a customer experience that people will rave about.

Learn how our customer service software can help you create meaningful connections with your customers.