Scuba Diving Into The Importance of Customer Retention

Every business strives to acquire new customers. But customer retention is crucial to growth. Let's learn what customer retention is and why it is so necessary.

Sudhersan Sugavanam
  • a month ago
  • 4 min read

Have you taken pictures while scuba diving?

Most people try and fail to take good pictures when it comes to scuba diving. Until they discover a secret: they can't stay still underwater but can hold onto nearby objects to steady themselves. Same way businesses try and fail. And here the secret is—giving your customers something to hold on to.

Sadly, only 18% of companies focus on retaining their existing customers, while 44% focus on acquiring new customers.

Who doesn’t want to grow an extensive customer base? Is getting new customers the key to growth?

Indeed all, and yes.

Growing a more extensive customer base can be thrilling, but retaining customers can make a difference in the growth of your business. But how?

Gear up; let’s dive.

What Is Customer Retention?

It’s always better to know the sea before we dive into it, so let’s see what customer retention is.

Customer retention is about building strong customer relationships, providing value in every interaction, and building loyalty that inspires repeat purchases. In simple words, customer retention refers to the ability of businesses to hold on to their customers for an extended period.

Suppose a grocery store gets a customer to make repeat purchases for a longer period; that is customer retention.

Hope that explains how the sea looks. Now it's time—masks on for a deeper dive.

Why is Customer Retention Important?

“Late for work? We got you!” Uber’s alert notification at 9:32 a.m. is a part of its retention marketing (marketing to existing customers). Why are they focused on existing customers too?

According to Brain & Company, a 5% increase in customer retention can increase revenue by 25%. That’s not all.

Here are five reasons why customer retention is important.

Strengthens Customer Relationships

When you retain loyal customers, you are more likely to build a strong relationship with them over time. This relationship further helps you unearth data that helps you understand what your customers prefer and sets the blueprint for growing your raving fans amidst customers.

The latest Segment report says 49% of customers are more likely to remain in business because of personalized experiences.

Customer Retention Importance: Sephora Landing Page
Source: Sephora

Sephora is a renowned e-commerce beauty company known for personalizing its customer experience with data and building strong customer relationship.

For instance, when a user buys regular products for frizzy hair. Sephora's notifications like, “Frizzy hair? Try [Serum].” intrinsically tempts the user to make a purchase. A study also says that Sephora's repeat users spent 15 times more than the average user because of their personalized experience.

Creates Customer Expansion Opportunities

Customer expansion means providing additional value to your existing customers, which in turn helps increase your revenue.

As discussed, the longer you retain customers, the more data you know about them. This opens the door to selling additional products and makes users upgrade or buy relevant add-ons to their existing plans.

Upselling not only helps the user get the right deal but also helps us generate more revenue when customers stick around longer. Technically, your product's LTV (Life Time Value - the total revenue generated from a customer) increases.

Customer Retention Importance: Grammarly application
Source: Grammarly

Grammarly, a cloud-based typing assistant, shows its free users why a premium plan might be more useful to them based on the usage data. This aids in converting existing free customers to paid subscribers, increasing the LTV.

Reduces Marketing Costs

SaaS Capital's 2022 Spending Benchmarks reports that the median annual sales and marketing spending percentage at 26%. In contrast, marketing to existing customers requires a lower budget as it eliminates the need to introduce your product, create brand awareness, and so on.

Zappos Loyalty program
Source: Zappos

Zappos, an online retailer, launched ‘Zappos Rewards’ in 2010 as a part of their customer retention strategy. The Zappos Rewards program offered members free expedited shipping and other perks, such as early access to sales and exclusive product offerings.

According to Forbes, the program had successfully retained customers and reduced the company's marketing expenses. Here’s how?

Zappos rewards program
Source: Zappos

Unlike “Stand a chance to win iPhone 14” (a typical reward program that most customers don’t engage in as it seems impossible), the Zappos rewards program was promising and feasible. For every dollar spent, the user gets 10 points. This motivated customers to make repeat purchases to reach higher levels.

Also, Zappos promoted Zappos rewards on their website. That means zero cost on other marketing channels.

Increase Brand Advocacy and Referrals

When your customers have a positive experience with your company and are satisfied with your products or services, they are more likely to recommend your company to their friends and family.

This type of word-of-mouth marketing can help you acquire new customers at a lower cost than traditional marketing channels, reducing marketing expenses and increasing profitability.

Manuka Doctor's Referral Program
Source: Manuka Doctor

Manuka Doctor, a manuka honey brand, noticed that referred customers had a 16% higher customer lifetime value than customers acquired from other means.

Also, regarding SaaS, since customers are potential reviewers, you can depend on them to provide higher reviews on G2 Crowd, Capterra, SaaS Genius, etc., with the right motivation.

Bringing It All Together

Customer retention is crucial for the success of any business. Retained customers are more valuable because they increase revenue, tell others about our business, and give us helpful feedback to enhance our products and services.

By prioritizing customer retention, businesses can reduce the costs of acquiring new customers, increase customer loyalty and satisfaction, and build a strong foundation for long-term growth.

To effectively retain customers, you can focus on educating them about your products and services because educated customers are more likely to remain in business. Connect with Trainn to know more.