How To Improve Customer Retention: 6 Essential Elements

by | Aug 20, 2018

Actively trying to increase customer retention is a secondary matter for many business owners. They’re simply too busy working in the business. But even a 5% increase in customer retention can make a huge difference to your profits.


It’s hard work winning new customers.

Time-consuming, expensive and often prone to trial-and-error…

So why do it any more than you need to?

Acquiring a new customer is anywhere from 5 to 25 times more expensive than retaining an existing one.

For many businesses, customer retention is treated as a matter of good fortune rather than good execution. Deliver your product or service, and ‘Hey Presto!’, hope that customers come back next time!

But it’s rarely that easy. Maximising customer retention takes planned and ongoing effort. In this post we explore the essential elements for retaining more customers, using real-life examples.


1. Know your customers


A doctor buys out a busy general practice from a retiring peer. It’s the kind of practice where patients are happy to wait an extra thirty minutes because they know they’ll really get looked after.

Month by month, patient numbers dwindle to the point that the waiting room is empty and the practice goes under.

The doctor had become complacent. Too focused on getting patients in and out the door, rather than making sure they left feeling satisfied. Were they ok with the diagnosis? Did they have their questions answered? Were they given clear next steps? Never did the doctor take the time to understand why customers chose that practice and what they expected.

Assuming that patients wouldn’t bother switching GPs – that the hassle of switching was too much – just wasn’t true anymore. Even more so in the age of electronic health records.

. . .

If you don’t truly understand who your customers are, or why they chose your business, you won’t understand how to acquire more like them.

If you don’t ask for feedback, you won’t know what you did well or can improve upon to make sure they come back.

And if you don’t collect contact details, you won’t be able to reach them later on. So you may find yourself having to re-acquire them at the same cost as a new customer. Ouch.


2. Exceed customer expectations


A consultancy wins a small piece of work to review part of their client’s organisation.

When they commence the project, they spend plenty of time up front with the client to refine their scope and approach based on what the client will benefit most from, rather than blindly deliver what they asked for.

The consultancy delivers a great piece of work and the client feels they are collaborative and insightful. The consultancy was willing to forgo future work in order to deliver the right outcome for the client now. Ironically, it was that customer centered approach that actually led to several million dollars follow-on work over the next few years.

. . .

If you don’t (at least!) meet customer expectations, then you’ve given them a good a reason to try someone else.

This makes setting expectations really important. Are you positioning your business as cheap? Or high quality? Perhaps you’re a specialist in a specific market segment?

If the customer’s experience is below the expectations you set, you face an uphill battle to keep them. And those expectations start right from the initial impressions of your ads, website, app or shopfront.

When a customer has a very good experience they are … 3.5x more likely to purchase and 5x more likely to recommend … than a very poor experience.

3. Know what the alternatives are

A startup enters the market with a disruptive offering that matches incumbents on price but offers far superior quality.

They launch with an aggressive marketing campaign and the incumbents are left scrambling.

In a panicked response the incumbents adapt their business model, choosing to copy the startup’s value proposition. Rather than emphasise their point of difference, they descend into a ‘me too’ competitive war. The result: Their margins get squeezed over time, triggering their decline.

. . .

While you shouldn’t obsess over your competitors, you should at least know a bit about them. Who are the main ones? What’s their value proposition? How do they compete with you? Even when differences between competitors appear minimal, below the surface there are usually big variations in customer service throughout the life cycle. Consider your favourite restaurants or tradespeople. I’m sure you can identify one-percenters that they do and the others don’t?

Seemingly small things can make all the difference: Being super responsive to customer enquiries. Over-delivering on the promises you make. Following up with a customer after you make a sale. They all show that you care and that the customer really matters.


4. Have a clear strategy and align the business to it


A new barbershop markets itself as providing the ‘best quality and best experience’. At the same time, they also introduce discounted pricing for the first haircut, meaning their price is 25% below the market average.

The one-off pricing attracts ‘discount shoppers’ who simply want the best price and consider a haircut as a commodity. They don’t value the extra ‘quality’ and, with no discount on subsequent haircuts, they choose an alternative barbershop.

Discounted pricing AND best quality AND best experience just created a jumble of conflicting messages that were unrealistic to start with. When is the best quality provider ever the lowest priced one? Ultimately, the barbershop faced high customer churn as they failed to meet anyone’s expectations.

. . .

Your product, revenue model, target market, and marketing channels all need to align.

Mixed signals make it difficult to retain customers – or acquire them in the first place. Even if you’ve cajoled customers into buying a near-unbelievable offer, the bar is extremely high to retain them. It’s better to be upfront, honest and consistent about how you’re positioning yourself in the market. If you don’t, customers will.


5. Remain front of mind


An electrician sends his tax receipts to customers via email at the end of each job.

When collecting the customer’s email address he includes a newsletter opt-in. This allows customers to receive the occasional email with tips on reducing their energy costs and home electrical safety.

Although he only sends an email every month or two, he’s front of mind whenever customers need more electrical work.

. . .

Even for products or services which are needed occasionally, you can still be front of mind when it comes time to buy again. Big businesses use mass media to maintain brand awareness, but for small businesses and startups, that just ain’t gonna happen.

But you can still level the playing field. If might be as simple as getting in touch with customers from time or time to check in. Or a loyalty program. Or even retargeting people (love it or hate it!) that have visited your website. There’s plenty of options as long as you’ve collected some data about your prospects or customers – and respect their privacy.


6. Provide value beyond the core offering


An online home furnishing retailer faces a competitive market with large, well-established players. Repeat purchases should be common, but they struggle to match the large players on price for commodity items.

Analysing their sales data it becomes clear that the majority of their sales are associated with the more unusual furnishings. They decide to leverage this by establishing a community for their customers to engage with each other. The community allows customers to share experiences, photos and thoughts on complementary pieces.

The retailer quickly sees a 25% increase in repeat business. It’s fueled by like-minded customers interacting with each other, which brings the retailer’s products to life.

. . .

The value you deliver to customers can be much more than the product itself. It’s the experience. The storytelling. The relationships.

Building a customer community is a great example. By providing a place for customers to interact with each other, sharing their experiences and ideas, they can get far more out of your product. And it fosters a much greater sense of customer loyalty too.


In the day-to-day grind of running a business, it’s easy to just move on to the next customer. But you can save a lot money and wasted effort by making sure to keep the customers you already have.

While these techniques are simple, they’re effective. One business alone achieved a 2500% sales increase by proactively seeking customer feedback and acting upon it. And it’s not an uncommon result.

Increasing customer retention rates by 5% increases profits by 25% to 95%.

Stats: Harvard Business ReviewTemkin GroupBain
Photo: Roman Arkhipov on Unsplash

Would you like help putting these tips into practice?

Book your free 30-min growth consultation today.


Starteer is an Australian business advisory practice that that helps emerging and mid-market companies accelerate and sustain growth. We support leadership teams to make the right People, Strategy, Execution and Cash decisions on the way to building valuable companies.

Our services span growth advisory, fractional growth roles and strategic coaching using the globally renowned Scaling Up methodology as a certified practice.

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