Customer Retention Management Explained 

Customer retention is one of the most important parts of customer success, and it should be a priority for most businesses today. Customer retention is more important than ever during the current recession when many organizations can’t afford to invest large amounts of resources in expensive customer acquisitions. Retention is a much cheaper option for keeping revenue growing.

A strong customer retention management strategy is the key to improving and maintaining your business’s customer retention rate. Your customer success team's actions to improve customer loyalty and incentivize customers to stay with your business long-term all fall into the category of customer retention management. 

A robust retention management plan is crucial for today’s organizations. One of the best ways for customer success teams to improve their retention management abilities is by adopting software that’s specifically designed for managing customer retention. Let’s break down the concept of customer retention management further and analyze a few of the most effective strategies and tools for customer retention.

What's Customer Retention?

Customer retention is the idea of keeping existing customers long-term instead of losing their business after they’ve used the product or service for only a short time. Customer retention rate is a measurement of the percentage of total customers your business retained during a specific period of time.

Customer Retention Rate Formula

The answer to the question “what is a good customer retention rate?” varies by industry. For example, in the retail industry, a retention rate of around 63% is typical, while in the insurance industry, the average retention rate sits much higher at approximately 84%. 

To calculate the customer retention rate for one month, use this formula:

Customer retention rate [CRR] = ((Number of customers at the end of the month [E] – number of customers gained during the month [N]) / number of customers at the start of the month [S]) x 100

or

CRR = ((E – N) / S) x 100

The customer retention rate formula excludes the number of customers gained during the period of time being measured because retention rate is specifically a measurement of how many pre-existing customers were retained during that time period.

Why's Customer Retention Important?

Once you understand the definition of customer retention, the next question is: why is customer retention important? Customer retention is important for a vast number of reasons. First and foremost, a high customer retention rate correlates with high customer lifetime value (CLV). Customer lifetime value is simply the amount of revenue you can expect to generate from a customer over the course of their entire time with your business. Naturally, the longer you retain a customer, the more time they’ll have to continue generating revenue, so their CLV will likely go up.

Customer lifetime value aside, customer retention is especially important today due to the poor economy. Most companies have been forced to make budget cuts in at least one area or another, and few organizations have extra cash to funnel toward customer acquisition. 

Customer acquisition can be very expensive, and it can take quite some time before new customers generate enough revenue for the business to recoup the money it spent to gain the customer. Retention is a much more financially attractive option because it costs significantly less to retain a customer who is already onboarded and actively generating revenue for your business.

In short, the main reason why customer retention is important in today’s economic climate is growth. Growth via acquisitions is expensive, and most companies don’t have the resources right now for that route to be viable. Retention, on the other hand, promotes cost-effective growth by improving CLV and nurturing opportunities for upsells.

What's Customer Retention Management?

Customer retention should clearly be an area of focus for today’s customer success teams — and this is where retention management finally comes into play. But what is customer retention management? 

Customer retention management is the practice of crafting and maintaining a customer experience that prevents customers from churning and encourages them to remain loyal to your business for a long time to come.

Here are a few of the best strategies you can use to manage customer retention at your business:

5 of the Best Customer Retention Strategies

• Empower Customers - One of the fastest ways to hurt your business’s customer retention rate is to provide a poor customer support experience. Customers who have problems with or questions about your product or service don't want to wait around for answers. One of the best ways to combat this problem is to equip them with the tools to become self-sufficient product experts. A learning management system like Northpass can enable you to share resources with your customers so they have access to the information they need anytime, anywhere.

• Create Relationships - Try to find ways to develop relationships between your customers and the whole customer success team. Suppose a customer develops a great relationship with their direct customer support representative and that representative leaves or becomes otherwise unavailable long-term. In that case, the customer might be unhappy with the change. It’s best for customers to have a positive relationship with the brand, not just a single employee. One great way to build relationships with customers is to schedule periodic check-ins from someone in a leadership position to find out if the customer has needs that aren’t being met and offer them additional support.

• Ask for Feedback - Whether you use check-ins or another method, gathering customer feedback is essential. If you don’t know why customers are churning, you can hardly expect to prevent it from happening in the future. Track your customers' qualitative and quantitative feedback to get the clearest picture of the factors contributing to churn. It’s also important to gather feedback from each account’s entire team — don’t limit it to only the decision-maker's point of view.

• Communicate - If you want to convince customers to stay with you, they need to see clear value from your product or service. Customers who see concrete benefits are far less likely to churn than customers who don’t really understand what your product or service is doing for them. Your customer success team should communicate frequently with customers and share metrics that point to value. For example, if your software has contributed to an influx of new leads throughout the previous quarter, make sure you communicate this success to the customer. In addition to successes, you should also frequently update customers about what you’re working on to improve results even further.

• Set Expectations - Sometimes, customers churn simply because expectations weren’t defined clearly enough. You need to ensure customers understand your services' scope and go over all relevant details, like pricing before they sign up. If expectations don’t align, it is better to establish that now before you invest time and resources into onboarding the customer, only for them to churn immediately. Make sure you clearly communicate with potential customers about their expectations for your business and what your business is realistically able and willing to accommodate. Starting out on the same page is essential for a lasting, healthy relationship between a customer and a business.

Customer Retention Management Software

Improving customer retention management is often challenging, and customer success teams will likely face roadblocks along the way. However, you can make the process much easier by implementing dedicated tools for customer retention management. Customer retention management (CRM) software, often called customer relationship management software, is a type of software platform that helps customer success teams manage the customer lifecycle. Here are a few examples of traditional customer retention software platforms:

• Salesforce Sales Cloud - Salesforce is one of the most well-known CRMs on the market. Salesforce Sales Cloud provides customer success teams with a full toolbox of industry-specific apps and processes to aid customer retention.

• Hubspot -  Hubspot is another very popular CRM. Hubspot acts as a single, customizable database where you can house relevant information about leads and customers for easier management.

• Zoho CRM - Zoho CRM is another example of CRM software that provides a full customer lifecycle management toolset. It comes with numerous features and AI processes to promote better customer relationship management and better customer retention.

Besides traditional customer retention management solutions like Salesforce, Hubspot or Zoho, you can also use other kinds of software as tools for managing customer retention. A learning management system (LMS) like Northpass is a great addition to your customer retention strategy. 

You can use an LMS to build a customer education database where your users can access valuable information about your products and services directly at their point of need. This can greatly reduce friction in many places throughout the customer support experience and contribute to a higher customer retention rate.

One of the most effective customer retention management solutions is to combine a learning management system with a CRM. For example, you can integrate Northpass with Hubspot to create a highly-effective combination of retention management tools.