What is customer retention?

Definition, importance, strategies, and examples

Customer retention refers to the ability of a brand to retain its customers over a specific period of time. An effective customer retention strategy ensures your customers are accurately educated about your brand and drives brand loyalty that can result in repeat purchases.

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What is customer retention?

Customer retention is the act of creating customer loyalty that results in repeat purchases. It quantifies your brand’s level of brand loyalty, the act of customers favoring your brand above other brands with similar offerings. It’s also a fantastic way to build customer loyalty, the relationship between your brand and your customers.

Customer retention means that your customers are dedicated to your brand’s offerings, and it can contribute to your expansion: Rather than having a continuous churn of new customers, repeat customers speaks to their satisfaction with your brand.

It’s also a crucial step in the customer experience found near the end of the customer journey map, loosely following customer acquisition, the process of bringing your brand to new customers. For more established brands, cultivating customer retention and loyal customers may be even more important than attracting new customers.

Why is customer retention important?

Customer retention is important because it can be greatly influenced by customer satisfaction. Additionally, it reduces the amount of effort needed to continually reach new customers, which can improve your advertising efficiency and be an important part of your economic strategy.

A good customer retention strategy ensures that your customers are accurately educated about your brand and products, satisfied with their purchases and their customer experience, and encouraged to return to your brand for additional products or updates.

What improves customer retention?

Customer retention is improved by reaching more returning customers, and there are many different ways you can do so. You should ensure your marketing strategy includes tools for converting new customers into repeat customers, by offering discounts on multiple purchases or prompting a sign-up for a newsletter with updates, for example.

Another important way to retain customers is to encourage customer engagement, which is the interaction of customers with brands via online shopping, social media, connected TV, and more. You can also retain customers through remarketing efforts. Remarketing refers to engaging audiences who have already interacted with your brand, to encourage them to take a desired action that may interest them, such as conversion.

How do you measure customer retention?

The primary metrics for customer retention are customer retention rate, which includes new customers and existing customers, and customer retention cost. Other metrics related to reaching audiences to consider are purchase quantity purchase frequency, and lifetime value.

Customer retention rate

Customer retention rate (CRR) is calculated by comparing the initial size of your customer base at the start of a certain time period to the final total number of customers, after new customers has been added. The formula below shows how to calculator your customer retention rate.

The formula for customer retention rate is:

Customer retention rate = ((Total customers – New customers) / Initial customers) x 100

Customer retention cost

Customer retention cost (CRC) refers to the total cost of retaining a customer. It includes the cost of marketing, sales, and customer service.

The formula for average customer retention cost per customer is:

Average customer retention cost per customer = Total cost of customer retention / Number of active customers

How do you build a customer retention strategy?

How you build your customer retention strategy will vary based on your overall goals, of course. However, there are three areas you should consider to help strengthen your strategy.

Improving relevance

Step 1. Improve your relevance

Remember, reaching new customers is the first step that leads to customer retention, so you should always consider how to improve your brand awareness and outreach. Make sure you’re educating potential new customers on your latest offerings, and then continue the conversation by providing those customers with recurring updates or subscription offerings, for example.

Customer feedback

Step 2. Address customer feedback

A big part of a customer retention strategy is ensuring your customer feedback is heard. With feedback surveys, customer service mechanisms, or return policies, for example, you can get direct inputs on what customers like about your brand, what customers expect from your brand, and what could convince customers to return for more. You can also utilize your customer service feedback as a way to create open dialogues, rather than using your brand communications in a one-way conversation.

Incentivizing customers

Step 3. Incentivize your customers

Getting creative with your incentives can play a huge role in your customer retention strategy. For example, providing rewards or loyalty programs, referral discounts, or time-sensitive deals can help encourage your customers to return again and again.

Examples of customer retention strategies

These three examples showcase how Amazon Ads products can help your campaigns not only stand out but encourage customer retention and loyalty.

Case Study

When Govee wanted to reach their loyal customers and retain shoppers’ business, the smart home and lighting device company used immersive content in their Stores and Posts (beta). Their high-quality content, which also helped to build brand equity, had a meaningful impact on the business.

Two girls dancing with headphones on

Case Study

When creating a campaign for a new product, Cheetos worked with Amazon Ads to help communicate the versatility of their brand. With the help of Amazon DSP static and video placements, the creative strategy promoted Cheetos Mac ’n Cheese as a meal that consumers could snack on.

Cheetos Mac ’n Cheese

Case Study

One of the goals of Japanese health and beauty brand MYREX was to engage their existing customers, with a combination of Amazon Ads products. By utilizing Sponsored Products, Sponsored Brands, Sponsored Display, and Amazon DSP, they were able to reach both existing and potential customers.

MYTREX products

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