How to boost customer retention: 5 proven strategies

What if we told you that one single aspect of your business has the potential to increase your profits by as much as 95%?

And that you don’t need loads of money or complicated tools to tap into that potential?

We’re talking about customer retention: one of the most powerful yet oft-overlooked strategies for business success. 

If you’re not already focusing on customer retention, now is the time to start — and it’s probably easier than you think. 

In this guide, we’ll show you how to double down on your unique value proposition, connect with your customers in a way that resonates, and foster long-term client relationships.

We’ll explore what customer retention actually means, outline the concrete benefits for your business, and share practical tips and strategies for how to improve customer retention. 

What is customer retention?

Customer retention is all about keeping hold of your customers on a long-term basis. 

While customer acquisition seeks to get new customers through the door, retention focuses on encouraging them to come back and stay loyal over time. 

Customer retention is both a strategy and a metric. In practical terms, it encompasses all the steps you take to keep your customers engaged and satisfied. It requires building meaningful relationships with your customers, meeting their expectations, and consistently delivering high value. 

Customer retention rate measures the effectiveness of those efforts by calculating the percentage of customers retained over a specific period of time. 

How to calculate customer retention rate 

To calculate your customer retention rate over a given period, you’ll need the following data:

• The number of existing customers you had at the beginning of the period in question (perhaps you started Q1 with 55 customers, for example). 

• The total number of customers you’ve got at the end of that period (say, 73 customers at the end of Q1).

• The number of new customers you acquired within that period (e.g. 31 new customers throughout Q1). 

You can then use this customer retention rate formula:

[(Total number of customers at the end of the period – the number of new customers acquired) / the number of existing customers at the start of the period] x 100. 

Your customer retention rate (CRR) is then expressed as a percentage.

So, for our hypothetical data for Q1, we would calculate the customer retention rate as follows:

• 73 total customers at the end of Q1, minus 31 new customers acquired = 42

• 42 divided by 55 (the number of existing customers you started with) = 0.76

• 0.76 multiplied by 100 = a CRR of 76%. 

Customer retention rate is a useful metric if you’re able to track the comings and goings of your customers. But, for many small businesses — especially those reliant on footfall — gathering that kind of data isn’t always possible. 

However, that doesn’t mean you shouldn’t care about customer retention. Even without calculating your customer retention rate, you’ll see the impact of customer retention reflected in your cash flow, revenue, and the overall health of your business.

With that, let’s consider why customer retention matters.

Why is customer retention important?

 The importance of customer retention is clear when you consider how it impacts your bottom line and your brand reputation.

It’s widely documented that retaining existing customers is much cheaper than acquiring new ones, and that a higher retention rate is linked to an increase in profits. Some studies suggest that just a 5% increase in customer retention can boost profits by at least 25%.

That’s because existing customers tend to purchase more frequently than new customers — and, when they do, they’re likely to spend more money per purchase. 

Then there’s the matter of your reputation. If you excel at customer retention, it means that your customers are happy. Happy customers are more inclined to promote your business through word-of-mouth referrals and positive reviews — helping you with the (otherwise rather costly) task of customer acquisition. 

All in all, customer retention:

• Maximises the lifetime value (i.e. spending potential) of each customer

• Drives revenue and increases profits

• Is more cost-effective than new customer acquisition

• Leads to referrals and free word-of-mouth marketing

• Lays the foundation for financial stability and long-term growth 

It doesn’t matter whether you’re just starting to think about how to run a business, or if you’re looking at how to scale your business with low-risk, low-cost business growth strategies: customer retention is crucial at every stage.

What are the factors that influence customer retention?

Whether they’re grabbing a takeaway coffee, shopping for vintage clothing, or getting a pair of shoes reheeled, there are certain expectations that customers have from a business. 

If you can meet those expectations, you’ll be well on your way to fostering customer loyalty and boosting customer retention. 

The main factors that influence customer retention are:

• The customer experience (CX): A great customer experience is shaped by factors such as personalised and relevant marketing, good customer service, a straightforward purchasing process, a positive experience with your products and services, and effective follow-up. Businesses that think continuously about how to improve the customer experience will automatically boost customer retention.

• Product/service quality: This pertains to how effectively you meet your customers’ expectations with the products or services you offer. In other words, do your customers consistently get what they pay for? If you order a bouquet from your local florist, for example, you expect the flowers to arrive fresh and healthy. If you buy a coffee, you expect it to be served hot.

• An attractive value proposition: As part of customer retention, you want to prevent customers from switching to competitors — and that means positioning yourself as the most attractive option. A strong value proposition requires smart pricing strategies, thinking carefully about how to create a USP for your business, and effectively communicating that value with a robust marketing strategy for your small business.

• Brand reputation: When customers feel good about your brand, they’re more likely to stay loyal. A positive brand reputation is built on trust, reliability, and strong core values that resonate with your target market.

• Convenience and accessibility: The easier it is for customers to find, access, and engage with your business, the more likely they’ll be to stick around. Flexible opening times, offering a variety of payment options (including cashless payments — especially important in our increasingly cash-free society), efficient communication channels, and a fast checkout process can all help to optimise convenience and boost customer retention.

5 customer retention strategies that all businesses can implement (with examples)

1. Foster loyalty through shared values 

When starting your business, you may have crafted a mission statement to define your company’s vision and purpose. 

Within this vision, you’ll have outlined the core values and principles you’re committed to — such as operating sustainably or supporting arts and culture in the local community.

Now, make sure you communicate those values clearly and integrate them into your everyday business practices. You’ll attract customers who share your values and build a connection that stands the test of time.

Example:

A small bakery is committed to sustainability as part of their core values. They use locally sourced ingredients and eco-friendly packaging, which they share proudly on their website and in-store. This resonates with customers who are also committed to leading an eco-friendly lifestyle, so they choose to shop there and stay loyal based on those shared values.

2. Deliver exceptional customer service 

It’s not enough to sell a great product or offer a useful service; those are a dime a dozen. Without good customer service, you’ll struggle with customer retention. 

Make sure your customers can reach you with questions and issues, provide prompt confirmation of bookings and orders, be quick to apologise and offer solutions when things go wrong, engage with warmth, empathy, and professionalism, and establish clear protocols for how to deal with difficult clients. 

Example:

A customer goes to their local plant store to buy a new plant. The sales assistant greets them warmly and shows them to the section for indoor plants, talking them through each plant and the type of care it needs. As the customer is a first-time plant owner, the assistant writes down some care instructions and gives them a free sachet of plant food. A month later, the customer returns because the plant isn’t doing so well. The assistant inspects the plant and shares some advice for how they might revive it. 

Another month later, the customer returns to say the plant has died. Seeing how upset the customer is, the assistant offers them another plant free of charge, pointing them towards a more low-maintenance option. Bowled over by the excellent customer service they’ve received, the customer recommends the store to their friends, leaves a great review on Google, and — most importantly — comes only to this shop whenever they want a new plant.

3. Communicate just the right amount 

Communication is key for keeping your customers engaged and staying front-of-mind. But communicate too much and you risk overwhelming them, annoying them, and eventually driving them away.

So where’s the sweet spot?

Focus on keeping your communication meaningful and relevant. If you’re not delivering any value to the customer, think twice before you hit send, post that flyer, or publish that social media post. 

This is especially important if you’re using email marketing for your small business, but it applies to other channels, too. If you greet a customer and they say they’re just browsing, don’t keep asking if they need any help. Likewise, refrain from sending constant appointment reminders by email or SMS; just one or two should suffice.

Example:

An independent bookseller wants to boost customer engagement to improve retention. They research how to use social media for a small business and determine that they should post on Facebook regularly. At first, they share a few posts a week to promote new books or discounts, together with their monthly email newsletter. Customers find this valuable and are encouraged to come in and visit the store.

But, over time, they increase the frequency of their posts and emails to once or twice a day. This leaves their customers with communication fatigue, causing many of them to unfollow and unsubscribe. In doing so, those customers no longer hear about new books and discounts — and eventually stop shopping there altogether.

4. Keep honing your competitive edge

If you want to retain customers, you need to stay competitive. Besides meeting customer expectations with your products and services, look for opportunities to provide additional value. 

You might run a special out-of-hours service a few times a month to cater for customers who can’t make it during usual business hours — or you might create bundles or packages to offer multiple products or services at a discounted price.  

At the same time, make sure you stay relevant and up to date. Keep an eye on what your competitors are doing (consider looking into how to do a competitor analysis) and keep abreast of your customers’ preferences. 

If you own a food truck, for example, you might notice that many of your competitors are now selling plant-based options in addition to their usual tasty delights. If that’s something that might tempt your loyal customers away, consider updating your own product range. 

Ultimately, you want to give your customers every reason to stay — and that means evolving and adapting to stay competitive. 

Example:

A coffee shop owner notices that more and more customers are coming in with their laptops and asking for free wi-fi. Curious, she visits some other coffee shops in the area and sees that they’re now advertising free wi-fi and a laptop-friendly space. 

To cater to this rise in remote workers and stay competitive, she upgrades the wi-fi, creates a sign to advertise out front, and sets up a special seating area. Her regular customers can still enjoy a cosy, sociable atmosphere — but they now have the option to bring their laptop if they wish.

5. Listen to your customers 

Customer retention relies on keeping your customers happy and consistently meeting their needs. It’s therefore crucial to listen to your customers and act on what they tell you.

If you’re a cash-only business and your customers regularly ask if they can pay by card — or complain about your cash-only policy — it may well be time to explore additional payment options for small businesses. If you notice that many customer reviews mention waiting too long to be served, you might look at ways to boost your efficiency in that area. With SumUp Kiosk, for example, customers can browse the menu and place their order whenever they’re ready using a simple tablet-style interface. 

On the flip side, if you trial a new product or service and your customers tell you how much they love it, consider making it available permanently. 

There’s no one better than your customers to tell you where your strengths and weaknesses lie. Seek their feedback and use it to continuously optimise and improve.

Example:

A small local restaurant regularly receives great feedback on their delicious homemade pizzas, but they notice that lots of customers get frustrated when they realise they have to queue up at the counter to pay at the end of their meal. Some customers have even complained about it in online reviews. To make sure they’re meeting their customers’ expectations, the restaurant owner invests in portable card readers to facilitate tableside payments.

The most common customer retention challenges (and how to overcome them)

1. Underestimating the importance of customer retention

Many business owners underestimate the impact of customer retention on long-term success — and therefore don’t prioritise it when thinking about how to start a business.

You might be tempted to focus primarily on customer acquisition, parking customer retention until much later on. But, in doing so, you’ll miss out on countless valuable opportunities to nurture customer loyalty and increase your profits. 

The fix: 

Prioritise customer retention from the outset. If you’re just in the process of launching a business, make sure you have a robust customer retention strategy in place. If your business is already up and running, start focusing on customer retention as soon as possible. 

2. Over-promising and under-delivering 

In a bid to attract more customers, you might unintentionally make grand promises that you can’t realistically keep. When you over-promise, you run a high risk of under-delivering — leaving your customers disappointed and dissatisfied. This will make it difficult for your customers to trust you, and they may not be willing to return. 

The fix:

Don’t try to do everything; focus on doing one thing (or a few things) to a consistently high standard, and only make promises that are realistic and attainable. This is crucial for building trust, managing client expectations, and providing a good quality product or service — all of which contribute to customer retention. 

3. Falling behind 

Customer expectations are continuously evolving, and so is the competitive landscape. Even if you’ve got one of the best small business ideas around, don’t fall into the trap of thinking you never need to update or add to your offering. The goal posts are always moving, and it’ll be difficult to retain customers if you don’t stay competitive. 

The fix:

Be agile and adaptable. Stay on top of industry trends, take note of what your competitors are doing, and stay attuned to how your customers’ needs and expectations are changing over time. 

4. Spending too much money on customer acquisition

When looking at how to improve cash flow, many small businesses go straight to customer acquisition, spending a significant portion of their small business budget on costly acquisition campaigns. But actually, customer retention is much more cost-effective and yields a greater ROI. 

The fix:

When it comes to managing your small business expenses, you want to spend every penny wisely for maximum return — so allocate more of your budget to customer retention. Over time, this will prove significantly more fruitful in terms of driving revenue and keeping costs down. 

5. Taking loyal customers for granted 

Over time, many companies make the mistake of growing complacent — assuming that loyal customers will remain so without ongoing effort. They don’t show appreciation for those customers or reward them for staying loyal, and that can lead to unexpected churn. 

The fix:

Remember that customer retention is built on reciprocity. Reward loyal customers with personalised communication, exclusive offers, and a token of appreciation on special occasions. If it makes sense for your business, consider setting up a customer loyalty scheme. 

Key takeaways and next steps

If you’re only focusing on how to get clients and not putting enough thought into retaining existing customers, you’re missing a huge opportunity to boost your bottom line.

Customer retention is one of the most powerful strategies for business success, proven to:

• Increase the lifetime value of each customer (because loyal customers spend more, and purchase more frequently, than new ones)

• Drive revenue and boost profits, helping you secure your foothold in the market

• Enhance your brand reputation through positive word-of-mouth marketing

Customer retention yields a significant ROI — and it’s much cheaper than new customer acquisition. 

With the strategies we’ve outlined in this guide, you can build a business that your customers genuinely appreciate — and show your customers that you appreciate them in return. That’s the foundation of true customer loyalty and long-term customer retention.