Anyone can promise new users shiny features that look good on paper, but it’s the companies that meet or exceed customer expectations that succeed. Your customer retention rate is a direct reflection of your business’ ability to deliver on its promise and provide value to customers.
But it’s too easy for companies to fall into the trap of focusing solely on acquisition, ignoring customer retention altogether. A solid customer retention strategy can be the difference between survival and growth. We narrowed down our list of 10 customer retention strategies used by some of the world’s most successful companies to get you on the right track.
10 Effective Customer Retention Strategies and Examples
- Bring in the right leads
- Create ‘wow moments in your onboarding
- Create customer loyalty programs
- Showcase social proof
- Engage and educate your customers (and don’t stop)
- Automate failed payment recovery
- Reach out to disengaged customers
- Ask customers for feedback
- Thank customers for their business
- Build a community that keeps customers coming back
1. Bring in the right leads
Industry leaders believe focusing on your product above all else is the most effective way to mitigate churn. But since customer retention actually starts at the back of user acquisition, there’s value in analyzing the front of the funnel. If your teams are bringing in leads that aren’t the best fit for your product, churn can quickly spin out of control.
Say you have 5 bad fit customers that churn at $50k annual recurring revenue a pop—that’s $250k a year that your business is no longer earning! Over 5 years, that becomes $1.25 million lost—or on the flip side, $1.25 million in churn you can negate by onboarding 5 great-fit customers instead.
As you think about customer retention strategies, start at the beginning of your user’s journey. Are you promising features through product marketing that you can’t deliver? Are you bringing in users whose needs don’t match your value proposition? If so, these new users are at risk of churning.
Pursuing customer acquisition doesn’t mean much if your churn rate is high. That’s why you should look at things like KPIs, customer retention metrics, and customer lifetime value—aka, the value your product provides to customers over their lifetime.
Customer success is all about customer fit. Start by revisiting or creating buyer personas (yes, for unfit customers, too) to help you develop an ideal customer profile (ICP). Then, align your entire team—sit down with every department and ensure that everyone knows the exact customers you’re targeting.
Effective customer acquisition is a team effort, so make sure to facilitate open lines of communication between marketing, sales, customer support, and product development. Use meetings or Slack channels to communicate internally about your ICP or buyer personas. Establish a lead qualification framework so that your marketing and sales teams know which leads to sell to or ignore. Teach your support team how to spot a bad-fit customer in their pipeline and how to deal with them. Assist your development team in communicating transparently about product updates—whether through pop-up alerts, release notes, or tool-tips.
Leverage user segmentation for more effective targeted messaging that increases the quality of your leads. Domino’s used Segment to launch Facebook and Google ad campaigns targeted at specific customer personas. By identifying its target audience, Domino’s ensured it would deliver the right messaging to the right people at just the right time—pulling in the right leads. The results? A 65% decrease in cost per acquisition and incremental increases in conversions for both customer acquisition and customer retention.
2. Create “wow moments” in your onboarding
Now that you’re bringing in the right leads, make sure to set them up for success. User onboarding is the most important part of the user journey. You could be losing up to 75% of your new users within the first week because of a poor user onboarding experience.
As a general rule, the more you guide and educate your first-time users, the more likely those leads become long-term customers. Focus customer education on product features in a way that pushes customers to the “wow moment.” This is the moment when a user experiences their first big success with your product. At this point, they see how your product actively improved their issue, and now they’re hooked. Users who never reach this “wow moment” are almost certain to churn.
Add more resources, education, and one-on-one engagement into your onboarding process. The quicker your product becomes a part of a user’s daily life, the better your chances are of retaining that customer.
Let’s look at how Trello onboards customers and guides them to their “wow moment” faster. After signing up, customers can create their first board or see the product in action via the public Template Gallery. Here, customers can quickly understand how Trello works by checking out a variety of use cases. Then, they can copy any templates they like for immediate implementation. Trello also includes friendly pop-ups to highlight useful features so that users can learn as they go. And if new users need a hand, Trello offers a help center with robust, visual resources.
3. Create customer loyalty programs
Loyal customers are the best customers, as they’re more likely to make repeat purchases and recommend your business through word-of-mouth and referrals. A customer loyalty program can offer your users tangible rewards and reasons to stick with your company for the long term.
A McKinsey survey found that subscribers to paid customer loyalty programs like Amazon Prime are 60% more likely to spend more on a brand. That study also found that members of free loyalty programs are still 30% more likely to spend on a brand.
Boost your customer retention rate with these 3 loyalty program ideas:
- Points or stamps accumulated per purchase or month of subscription to a service. Customers can redeem their points for rewards when they reach a certain threshold.
- Benefits such as exclusive discounts, free gifts, or free shipping.
- Personalized offers that cater to your customers’ interests, purchase history, and preferences.
Starbucks has one of the most famous customer loyalty programs in the world, and it includes all three elements above. Customers earn points (which they call “Stars”) proportional to their order amount. Later, customers can redeem Stars for rewards that range from a free drink add-on to a free bag of coffee beans. Members get free refills on regular brewed coffee and tea, as well as a free birthday treat. Starbucks members also receive personalized offers to earn bonus Stars if they purchase certain items that they’ve bought before.
By the numbers, Starbucks’ reward program experiences great success—even following a dip in growth from the pandemic. In Q3 2021, Starbucks rewards members were responsible for 51% of all spend in U.S. stores. Starbucks saw over 24 million members become active for 90 days, which represented an increase of 8 percentage points in participation for that quarter.
Loyalty programs like Starbucks’ make customers feel valued and boost retention while simultaneously generating insightful customer data that businesses can use to personalize offers and drive sales.
4. Showcase social proof
Have you ever picked one restaurant over another because of positive Google reviews? Or bought a product because your favorite Instagram account promoted it? Social proof affects how people perceive your business’ value—for better or for worse—affecting user acquisition and loyalty.
Consistently show your customers how other users are succeeding on your platform. Add testimonials and reviews to your website and integrate them throughout your marketing materials. Highlight successful customers via podcasts, case studies, or blog posts, and share them with your active user base.
Consider Salesforce and its suite of tools focused on customer relationship management and customer experience. Salesforce includes over 80 customer stories in its resource center that highlight exactly how its clients succeed with their platform. Website visitors can explore these case studies, drilling down by industry or use case (e.g., marketing, sales, small business, and financial services). Each blog post shows how Salesforce helps its customer succeed—and features photos, quotes, metrics, and a step-by-step breakdown of that customer’s journey with Salesforce. These stories call attention to the success of previous and current customers but, more importantly, make that success accessible to new customers.
Exposing your customers to social proof not only inspires and encourages your customers but also educates them on the different ways they can leverage your product or service. Not to mention, people love to be featured and promoted for their successes. Aim to create customer stories on high-value customers to support your relationship with those accounts.
5. Engage and educate your customers
One of the core reasons customers churn is that they no longer see the value in your product. But sometimes, they simply may not understand the potential value they could be getting from your product. Consistently engage and educate your users to show them how your product benefits them and how they could leverage it more effectively.
As your customers advance, their needs will ebb and flow. Constant communication and education are key to continually proving your worth. Education is a multi-department effort involving your customer success, content, and marketing teams. Address customer concerns and questions on your blog or through webinars. Automate email campaigns to deliver educational and value-adding content to your customers, such as new feature releases, customer highlights, product hacks, and more.
You Need a Budget (YNAB) is a budgeting tool that takes its customer education so seriously that it’s a focal point of both its marketing and customer retention strategies. YNAB hires teachers that specifically educate users on how to get their full money’s worth out of the platform, hosting free budgeting workshops and live Q&A sessions almost every day. Its website includes blogs, video courses, podcasts, and guides. Meanwhile, its weekly newsletter includes product updates and short informative tips.
Creating these kinds of resources will not only benefit your users but your team as well. As your CS team sees trends in questions, your content team can whip up posts to address them. Your sales team can also work to address common pain points in demos and webinars. This collaborative work will educate your customers and decrease the amount of time your customer service reps spend answering questions.
6. Automate failed payment recovery
Involuntary (or passive) churn is the easiest revenue leak to plug since these customers don’t intentionally leave your product. Unlike the customers who churn due to an issue with the product, these customers churn because of billing issues.
It’s common to think failed payments and billing issues aren’t that big a deal for your bottom line; what are a few failed transactions? However, over the past several years, ecommerce retention tool Churn Buster says that up to 50% of your total churn could be attributed to those failed payments.
Luckily, up to 70% or more of these payment failures can be automagically recovered through proper dunning—communicating with your customers to ensure payment of your accounts receivable. Start by revising your current dunning system. How much work is your support team putting into recovering failed payments? How often are these attempts successful? You’re likely letting far too many customers slip through the cracks and burdening your support team with unnecessary work.
You should never lose a customer involuntarily. However, manual dunning can be overwhelming for your team. Companies big and small rely on tools like Churn Buster, Gravy, Chargebee, and ChargeOver to automate their failed payment recovery campaigns. Automation helps you plug the leak of involuntary churn without adding extra work to your CS team’s plate.
Churn Buster helped golf gear subscription service Short Par 4 retain an extra 21% of its subscribers every month. That’s 200 customers that Short Par 4 would have just lost! Compared to its manual payment recovery rate of 45% to 55%, automation helped the client recover up to 71% of its failed payments.
7. Reach out to disengaged customers
The more your customers engage with your product, the more it becomes an integral part of their lives. If you listen to Spotify every day or watch Hulu every night, it’s unlikely you’ll cancel those services. That means it’s likely that your customers who use your product infrequently are more likely to churn. Prevent customer churn by tracking and analyzing customer usage and proactively taking action to re-engage customers before they cancel.
Set up systems to monitor and flag user inactivity or activity that looks like someone may cancel soon, like visiting the pricing page or looking for ways to cancel. Tools like Braze Predictive Churn or CRM filters can help flag those at-risk customers. Then, develop a system of communicating with those inactive users to re-engage them before or right after they leave. Consider using customer retention strategies like win-back email sequences and automated live-chat messages to prevent your support team from burning out.
These emails can be:
- A special offer or incentive
- A “what you’ve missed” update on any new products or features
- A humanized “we miss you” email
- A reminder that the customer’s trial is ending or membership is up for renewal
- An opt-in touch base to make sure the customer is still interested
Check out this email from Appcues, which lets our customers know about new features they might not know we added.
Re-engagement communications help you reconnect with customers at the perfect moment, making them reconsider giving your brand another chance.
8. Ask customers for feedback
Customer insight is vital for improving retention and reducing churn. Understanding where your product excels and where it falls short in the eyes of your customers can drive your entire team to address concerns and improve customer satisfaction. Integrating customer feedback means that your product continuously improves and delivers a better customer experience.
And we don’t just mean responding to customer complaints and bad App Store reviews. You have to be proactive in seeking out feedback. Set up automated email campaigns to send surveys to your customers after a certain amount of time or engagement. Gather and track the responses. Analyze and share high-level insights with the whole team. Use the data gleaned to improve your product, hone your marketing tactics, and educate your customer success team.
Many top brands use the Net Promoter Score (NPS) system to ask users how likely they are to recommend their product or service on a scale, usually from 1 to 10. Usually, you can follow up with a quick question asking customers why they would give that rating. By combining a quantitative NPS rating with qualitative feedback, product teams can quickly evaluate successes and pain points.
With Appcues, we use NPS to glean insights from our users with an easy 1-question survey. Experimenting with where, when, how, and who we prompt for feedback has helped us increase response rates and get a steady stream of input from our users. We go above and beyond with our NPS data, using it to align our product development teams. We also automate customer interactions thanks to integrations with services like HubSpot. All in all, NPS helps us keep a finger on the pulse of our customer satisfaction—figuring out what works and what could use some work.
9. Thank customers for their business
A simple “Thank you” can go a long way toward boosting customer retention.
Your customers didn’t have to choose you. But they did. And you should thank them for it.
It’s the nice thing to do, and it personalizes your brand and the customer experience.
Spotify’s Wrapped notes at the end of each year may be one of the highest-profile examples of a major brand saying thank you:
A simple “Thanks for spending [year] with us” has carried Spotify far.
In 2019 alone, at least 1.2 million tweets mentioned Wrapped shortly after it came out. That’s not a 1:1 for customer retention, but it’s almost certainly a positive indicator.
10. Build a community that keeps customers coming back
Community is an incredible motivator. Brands that create thriving communities surrounding their products and services also create one of the most powerful customer retention strategies there is.
Customers aren’t just coming back for the brand or its products or services. They’re coming back for each other. And what they get out of interacting with each other — knowledge, connection, a sense of belonging, and so on.
That’s powerful. And it works wonders for Airbnb, which has created an online community for its hosts.
The community center allows hosts to connect with one another, ask questions, share tips, troubleshoot, vent, and even set up in-person get-togethers.
Each of those hosts is an important part of Airbnb’s network (and ability to bring in revenue). And the community makes them feel important. That’s a perfect recipe for customer retention.
Key customer retention metrics
You can use the above customer retention examples and strategies in your own customer retention program. But how will you know whether it’s working?
By measuring the right stuff.
Consider the following customer retention metrics and whether they might be worth paying attention to in your own strategy:
- Retention rate
- Churn rate
- Repeat customer rate
- Purchase frequency rate
- Customer lifetime value
Let’s take a closer look at each of these retention metrics:
Customer retention is, in and of itself, a metric. It’s the most important metric to track as you work to improve your customer retention strategy.
To measure it, choose a time period—quarterly or monthly usually works—and calculate the following numbers:
- How many customers you had at the beginning of the period you’re measuring
- How many customers you had at the end of that period
- How many new customers you got during the period
Then, you plug those numbers into the customer retention rate formula, which goes like this:
(Number of customers at the end of the period - number of new customers acquired during the period) ÷ number of customers at the start of the period x 100 = Customer retention rate
Let's say you had 200 customers at the start of the quarter, acquired 40 new customers during the quarter, and had 220 customers at the end of the quarter.
- Number of customers at the start of the period = 200
- Number of customers at the end of the period = 220
- Number of new customers acquired during the period = 40
Plug these into the formula:
(220 - 40) ÷ 200 x 100 = 90
So, your customer retention rate for the quarter would be 90%.
Customer churn rate tells the percentage of your customers who leave over a particular period.
It’s pretty easy to calculate. Here’s the formula:
(Number of customers lost during the period ÷ number of customers at the start of the period) x 100 = Customer churn rate
Let’s say you had 1,000 customers at the beginning of the month and you lost 50 customers during that month.
- Number of customers at the start of the period = 1,000
- Number of customers lost during the period = 50
Plug these into the formula:
(50 ÷ 1,000) x 100 = 5
That means your churn rate was 5% for that month.
Customer lifetime value
Customer lifetime value (CLV) transcends the discussion of retention, but increasing customer retention naturally improves CLV.
In any case, it’s a critical metric for many aspects of your business. Here’s how to calculate it:
Average purchase value x purchase frequency x customer lifespan = CLV
Start with the average purchase value. For most SaaS companies, that will be a fairly stable subscription payment. But if you have multiple subscription tiers or another complicating factor, make sure you’re actually averaging the purchase value over all customers.
Then move to purchase frequency. If all of your payments are made monthly and you’re measuring CLV for the past year, your purchase frequency is 12.
That’s the simplest possible example—make sure you’re getting an accurate number for your situation by dividing the number of purchases over the measured time period by the number of customers over that same period.
Finally, account for customer lifespan. Average out how long customers stay with you in months or years (whatever makes most sense for your current system of metrics).
Now, put it all together. Let’s do that with an example:
Let's say your business had a total revenue of $100,000 last year, with 2,000 purchases made by 500 unique customers. Your average customer continues to make purchases for 3 years.
- Average purchase value: $100,000 (total revenue) / 2,000 (number of purchases) = $50
- Purchase frequency: 2,000 (number of purchases) / 500 (number of customers) = 4
- Customer lifespan: 3 years
Plug these into the formula:
$50 x 4 x 3 = $600
That puts your CLV at $600.
Customer retention ensures your company’s future
Keeping your existing customers is key to making it in the long run. By using customer retention strategies to keep your customers happy, you’re not just protecting your business, you’re future-proofing it. Let these customer retention examples inform your own retention strategy and watch your revenue rise.