New business is always great. In most situations, the more customers, the better. That’s why almost all revenue teams devote most of their time and resources to acquiring new customers. Hundreds of billions of dollars are spent annually on advertising and marketing each year—in fact, the United States saw over $240 billion in ad spend in 2019 alone.
But while a new customer is always a worthwhile pursuit, you shouldn’t forget that customer renewals are just as important. It’s imperative that companies allocate time, effort, and resources to put together a comprehensive customer retention or customer success strategy. Here’s what you stand to gain from a high customer retention rate.
The Benefits of Customer Renewals
1. Retention is cheaper than acquisition.
It’s more cost-effective to keep an existing client than to bring in a new one. According to this Harvard Business Review article, acquiring a new customer is five to 25 times more expensive than retaining an existing one. While retaining customers may not always be easy, it definitely pays off.
2. Existing customers are more likely to purchase from you again.
If a customer is satisfied by the value of your product or service, they’re more likely to purchase again. So it makes sense that retained customers have been proven to buy more often and spend more than new ones, and it’s estimated that almost 65% of a company’s business comes from repeat customers.
3. You’ll have a higher chance of getting customer referrals.
Happy customers are the best form of advertising. Despite the massive strides undertaken by the marketing and advertising industries in recent years, word of mouth still reigns supreme, delivering higher conversion rates while expending minimal resources.
4. You’ll have a ready market for new products and services.
When you’ve proven your value to a customer, they’ll be six times more likely to try a new product or service from your brand when it becomes available. This also gives your company wiggle room to develop new products, different messaging efforts, and other branding initiatives.
5. Loyal, engaged customers are more willing to provide feedback.
Satisfied customers will be more willing to share their thoughts about your products and services and thus, will be more likely to tell you how you can improve. And if they have a bad experience with your company, they’d be more willing to let the issue slide—as long as it doesn’t happen again.
These are just some ways a great customer retention program can benefit your company. So how can you increase your customers’ likelihood of renewing their contracts with you?
How To Increase Your Customer Renewals
Here’s something all sales professionals should know: The more contacts you have within an account, the more chances you’ll have of entering sales conversations—which can lead to customer renewals.
“Let’s assume that you’ve met an extra five, six, seven people [within an account], gone out, and introduced yourself proactively to them. You’ve told them about what you’re doing in that account, you’ve told them that you’re working with their peers and colleagues, and you’re starting to actively strike up more sales conversations,” says Sales for Life CEO Jamie Shanks.
“You can call this cross-selling, upselling—it really doesn’t matter. But having more contacts or stakeholders in an account will absolutely increase the likelihood of renewal and expansion of business in any account that you’re dealing with.”
To expand your network and enter new sales conversations, you need to go where your customers are.
“You’ve got to be on platforms like LinkedIn,” says Shanks. “You’ve got to deliberately, and with intentionality, go out there, find people in all the key accounts, start connecting with them, and start striking up conversations with them.”
Do this every single day, and set targets for the number of people you’ll reach out to per session. This way, you can increase your network size gradually and strike up more conversations with people in your target accounts. Your customer renewal rate will thank you for it.
Key Customer Renewal Metrics
To see if your customer renewal efforts are working, you need to know how to measure customer retention. This allows you to make more informed decisions concerning your sales strategy. Here are the most important customer retention metrics that all sellers should know:
Calculating The Customer Retention Rate
- Count your total number of customers at the end of a specific time period.
- Subtract the number of new customers you’ve acquired during the same time period.
- Divide the difference by the number of customers you had at the start of the time period.
Customer Retention Rate vs. Churn Rate
Some sellers confuse retention rate and churn rate. These two metrics, though related, are vastly different.
The retention rate refers to the percentage of customers that have returned to your company to avail of your product or service within a certain time period. The churn rate, meanwhile, refers to the percentage of customers that you’ve lost over a period of time.
A high retention rate corresponds to a low churn rate, and vice versa. Customer churn is normal—but if it’s higher than five to seven percent, you should take a step back and evaluate your sales strategy.
Calculating The Repeat Purchase Ratio
The repeat purchase ratio refers to the percentage of customers that have returned to buy from your company again. It’s especially helpful for assessing the performance and impact of your company’s customer retention strategy.
- Get the number of returning customers.
- Divide it by the number of your total customers.
Calculating The Customer Lifetime Value
The customer lifetime value refers to the revenue generated by a single customer. Your customer lifetime value should ideally rise or, at least, stay constant—a shrinking number could indicate that you’re losing customers at a faster rate than before, and that’s not a good thing.
- Divide your gross annual sales by the total number of unique customers in a year. This is your average revenue per customer.
- See how many years each one of your customers has stayed with your company, and get the average. This is your average customer lifespan.
- Multiply the average revenue per customer by the average customer lifespan.
There are more metrics that you should track to get a clearer picture of your customer retention efforts, but you can start with these. The data you can collect from these metrics allow you to improve your customer experience and increase your renewals.
If your company doesn’t have a customer retention strategy in place, you’re missing out on several benefits. Not only is it one of the best investments that your company can make, but it’s also one of the most effective marketing strategies for your business.
There are many things that you can do to increase your customer renewals, but the easiest way to go about it is by increasing your connections within an account. This paves the way for more conversations, converts more champions for your brand, and, in time, increases your opportunities to upsell and cross-sell your products and services.