Retaining customers is the clearest indicator of how effective your company is at satisfying existing customers, as it's a reflection of their propensity to continue doing business with you.
There are hundreds of factors that go into retaining customers – here are the insights that are worth noting as you build your strategy.
We're proud of doing the legwork to generate insights with original stats and sources.
Beware of fake stats like this one: "44% of companies have a greater focus on customer acquisition vs. 18% that focus on retention."
Where did this one come from? I've seen it cited in numerous places with "study shows..." But.. What study? Where? If you know, can you send it to me? Be careful with sites that are irresponsibly making up stats – or perpetuating a fake stat – to rank.
The stats I could actually find, come from a broken 404ing report from BIA/Kelsey and Manta (yes like the directory). All we have is the press release, and the caveat that the study is focused on small businesses which depend more on local traffic for repeat business than online-only businesses. That said, in 2012 the fake stat may have been reasonable:
"In 2012, BIA/Kelsey reported that small business owners prioritized customer acquisition over customer retention at a 7-1 ratio." That means in 2012, 87% of small business owners were prioritizing new customers over tending to their existing ones.
"Recently , a new trend is developing as 61% of small business owners surveyed report over half of their annual revenue comes from repeat customers rather than new customers and that a repeat customer spends 67% more than a new customer."
"In line with this, small business owners are spending less time and money on customer acquisition; only 14 percent are spending the majority of their annual marketing budget to acquire new customers, and only 20 percent are investing most of their time and effort to acquire new customers. This is a significant shift in behavior as small business owners have realized that existing customers play a more influential role in business success than new customers."
That means just two years later, only 34% of small business owners were spending most or all of their time on acquisition.
And that's 2014. We can probably infer that post-pandemic, loyalty is more important than ever, as customers are shorter-tempered. Customers are more likely to leave brands they aren't loyal to, and stick by the ones they are. And you might not know why unless you ask with a survey.
This image from Qualtric's 2024 Consumer Trends Report, 21% of customers will simply slip out the side door and not give a reason for it:
Measuring customer retention
Retention is the art of cultivating relationships over time that turn into long term brand loyalty measured by repeat purchases. It’s where the genuine value of a brand is unfailingly revealed.
- 44% of businesses still aren’t calculating their retention rate according to Customergauge, but it is not clear whether this stat is reliable as it is not cited.
Despite their lack of clarity in methodology, Customergauge.com did a great job of collecting the following averages from different surveys and trade reports.
Average retention rate by industry
- Insurance: 84%
- Retail: 63%
- Banking: 75%
- SaaS: 35%
- Hospitality: 55%
- Media: 25%
- Fintech: 37%
- Edtech: 4%
Why launch customer retention initiatives?
The numbers tell a compelling story, but the underlying message is that retaining customers should be a top priority for all businesses.
Here are some reasons why:
- Improving retention by just 5% could increase your profitability from anywhere between 25 and 95 percent. (Bain.com)
- It’s five to six times more expensive to find a new client than it is to reactivate an old client. (Americanexpress.com)
- Millennials are also the most loyal generation to their favorite brands, with just over half (50.5 percent) saying they are extremely loyal or quite loyal to their favorite brands. (CrowdTwist)
- The average repeat customer spent 67% more in months 31-36 of their shopping relationship than in months 0-6. (Bain.com)
- 95% of customers say that trust in a company underpins their likelihood to be loyal, recommend them, make more purchases and spend more money per purchase (Salesforce)
How rewards, perks, and loyalty programs can drive up customer retention
While it's important to attract new business, allocating consistent resources toward retention efforts and customer loyalty strategies can significantly impact your bottom line.
- 53% of consumers admit that discounts and loyalty points make them stay with a brand longer.
- Accenture Interactive research shows that members of retailers’ customer loyalty programs generate between 12% and 18% more revenue for retailers than purchasers who are not program members. However only 19% measure success via ROI – most are tracking membership growth rate, share and number of transactions by members.
As you reevaluate your marketing strategy, consider this question — could the secret to elevating your company's success lie within the the relationships with customers you already serve?
Given that loyal customers are inclined to spend more and promote your brand through word-of-mouth, the return on investment for retention strategies, particularly through perks and loyalty programs, is undeniably high.
Paylode specializes in creating tailor-made rewards systems that resonate with your customer base. Contact us today, and let's transform your customers into a community of loyal advocates.