Retaining customers is an important part of running a successful business. As such, every local business should aim to have a good retention rate. But it’s not always as simple as that—what’s considered “good” varies by industry.
Why Does Customer Retention Matter?
To get an idea of why customer retention matters, consider a few statistics.
Multiple figures and data points show that you will spend less retaining existing customers than you will attracting new ones.
- Depending on the study, acquiring a new customer costs anywhere from 5 to 25 times as much as retaining a current customer
- 82% of companies agree that retaining customers is less expensive than getting new ones
Another major category of statistics shows that retained customers are more important to your overall sales and bottom line than new customers.
- A 5% increase in customer retention can lead to a 25 to 29% increase in revenue
- Retaining customers increases profitability by 25 to 95%
- Current customers spend 67% more than new ones
- Companies report that 65 to 75% of business is from retained customers, not new ones
- Nearly half of a business’s revenue comes from about 8% of the most loyal customers
Average Customer Retention Rate by Industry
Next, let’s talk about what you should aim for. The following shows the average customer retention rate for each industry, from lowest to highest.
- Media – 84%
- Professional Services – 84%
- Automotive and Transportation – 83%
- Insurance – 83%
- IT Services – 81%
- Construction and Engineering – 80%
- Financial Services – 78%
- Telecommunications – 78%
- Healthcare – 77%
- IT and Software – 77%
- Banking – 75%
- Consumer Services – 67%
- Retail – 63%
- Hospitality, Restaurants, and Travel – 55%
Overall, your goal should be to get your customer retention rate as high as possible and then maintain (or continue to improve) it. For most companies, the goal will be over 85%. But if you are in certain industries, especially travel, you may want to set your goal a little lower to be more realistic.
How to Calculate Your Customer Retention Rate
With the average customer retention rate by industry in mind, it’s time to calculate your retention rate. Then, you can compare it to the average for your industry.
To calculate your retention rate, you will need to choose a period of time for the calculation. Then, make sure you know how many customers you had at the end of the time, how many you had at the beginning, and how many you gained.
Start with the number of customers at the end of your time frame. Subtract the number of customers gained from this figure. Then, divide it by the number of customers you had at the beginning of the time. Finally, multiply this by 100.
Tips for Improving Customer Retention
While the average rate of customer retention varies by industry, the strategies to improve customer retention don’t. Now that you know why retention rate matters and have an idea of where your retention rate should stand, here are some tips every local business can use to increase customer retention.
→Create a Customer Feedback Loop
One of the absolute best ways to retain customers is to make them feel heard and take their suggestions and comments to heart. The best way to do this is to ask for feedback and actually follow through. For example, if multiple customers complain about a particular process or product, try changing it.
Of course, you can’t always please everyone, so you’ll need to use your best judgment and decide which feedback to prioritize. A single complaint in a sea of positive comments may not be as important. Even in that case, however, it lets you know that at least some of your customers see room for improvement.
→Reward Promoters and Loyal Customers
The classic method of rewarding loyal customers is to create a loyalty program of some sort. People can earn points when they shop with you and trade those in for rewards or discounts. Or maybe you’ll offer a freebie after a certain number of purchases.
The key here is to make your loyal customers feel valued. Consider sending them exclusive discounts via text message or email as part of the customer loyalty programs.
For even better results, personalize the customer loyalty program however you can. For example, a beauty salon could offer an overall loyalty program or the ability to choose from a program for specific services. This ties into segmentation, another tip we’ll discuss below.
→Start a Referral Program
You may think of a referral program as more of a way of acquiring new customers than a way to retain existing ones, but it can do both things. If someone refers your products or services, they are more likely to keep using them. Of course, part of this is that they have already shown they are happy with your offerings. But they may also want to share the experience of using your products or services with the person they referred you to.
→Ensure a Smooth Customer Journey
Delivering a smooth customer journey is yet another essential step to improving customer retention. This involves more than just delivering excellent customer service. You should also offer your customers the communication and payment channels they prefer. For example, offer the ability to pay over text. Offer communication via texting, webchat, and social media.
→Communicate With Customers Regularly
To boost your customer satisfaction and retention, keep your customers updated. Make sure they always have the latest information about your products and services. This includes new product launches as well as offers. And remember to use multiple channels to maximize the number of eyes you’re reaching.
→Provide Resources to Improve the Product Experience
If your customers get the most out of your product or service, they are more likely to be happy with it and stay with your company. So, give your customers the tools they need to make the most of your product. Maybe this is a tutorial or demonstration, whether in person or on your website. It can include video tutorials, blogs with tips, blogs with industry education, and more. See what types of resources your audience prefers.
→Focus on Relationships
Don’t look at customers as someone to have a business transaction with. Instead, look for the potential to build a relationship. This is crucial, as customers are more likely to keep buying from you if they feel connected, boosting your average customer retention rate.
→Segment Customers
As you onboard new customers, segment them in some way. This will let you send them more targeted offers, whether via text or email. That, in turn, helps customers feel as if you understand them and put in the effort to have a relationship with them. That should boost customer loyalty and retention rates.
Improve Customer Retention With Podium
Combine the above customer retention tips with some help from Podium to maximize your customer retention rates. With Podium, all of your customer communications will be stored in one spot, making it easy for customers to reach you on their preferred channel. That boosts customer satisfaction. You’ll also be able to make it easier for potential customers to contact you, remove friction from your payment process, increase sales with text campaigns, and more.
