A guide to customer retention for product managers
Customer retention is crucial for sustainable business growth, profitability and competitive advantage. This post offers a simple introduction to customer retention, its importance for your business and proven strategies you can use to increase your customer retention rate.
Key takeaways
Customer retention is a measurement of your ability to retain existing customers, keeping them engaged and loyal over a period of time
It is typically measured through metrics including customer churn rate, repeat purchase rate and customer lifetime value
By monitoring customer retention, product managers can see how well their digital experience satisfies customer needs, fosters loyalty and drives long-term customer relationships
What is customer retention?
Customer retention is the process of keeping your customers engaged, satisfied and loyal to your business. It involves making efforts to keep customers focused on your brand, product or service, rather than losing them to a competitor or through attrition. By focusing on customer retention, you can build long-term relationships with your customers, increase their lifetime value and create a loyal customer base. The best customer retention strategies are driven by digital experience intelligence, enabling businesses to:
- Prioritize customer satisfaction
- Promote ongoing engagement
- Deliver personalized experiences
Why customer retention is important
Customer retention plays an important role in the profitability of your business. Retaining existing customers is often more cost-effective than acquiring new customers. In fact, according to research from Harvard Business School, increasing customer retention rates by just 5% can grow a company’s profits by 25% to 95%.
During an economic downturn and in competitive markets, customer retention can provide your business with a significant advantage. This is because satisfied, loyal customers are less likely to consider switching to competitors. High customer retention is also a positive indication that your business is meeting customer needs and delivering an experience superior to the ones offered by your competitors, helping you to differentiate yourself in the market and maintain a strong position.
With this in mind, it’s imperative that product teams are able to get ahead of the issues that could lead to customer churn. Digital experience intelligence allows you to do just that, by surfacing user struggles and adoption or engagement issues that lead to the perception of a poor experience—faster than ever before.
Not only can you surface issues faster, but you’re also able to leverage the additional layer of context you get with a tool that logs every interaction to pinpoint exact causes/areas to be improved. Additionally, you can quantify the impact—enabling you to prioritize actions that will deliver the greatest value.
How to calculate customer retention rate
To calculate your customer retention rate, start by choosing the time period you’d like to examine. This could be done monthly, quarterly, or annually, for example.
Once you’ve decided on the relevant time period, you’ll next need to identify the number of customers you had at the beginning of that period. Let’s call this “C_Start.”
Next, you’ll need to determine the number of customers you had at the end of the period. We’ll refer to this as “C_End.”
After this, take a look at the number of customers you acquired during the time period. We’ll call this one “C_Acquired."
With all three figures to hand, you can now calculate your customer retention rate for the period using the following formula:
Customer retention rate = ((C_End - C_Acquired) / C_Start) * 100
This formula subtracts the acquired customers from the final customer count, divides it by the starting customer count and then multiples the result by 100 to express it as a percentage.
Key customer retention metrics and how to measure them
There are several key metrics that will help you better understand your customer retention. Below you’ll find an overview of these metrics, as well as an explanation of the formulas required to calculate them.
Customer churn rate
Customer lifetime value (CLV)
Repeat customer rate
Purchase frequency rate
Customer churn rate
Customer churn rate, sometimes called customer attrition rate, is the rate at which customers discontinue their relationship with your business. To calculate the customer churn rate for a specific time period, follow these steps:
Identify the number of customers you had at the beginning of the time period. Again, let’s call this “C_Start.”
Determine the number of customers you lost during that period. Let’s call this “C_Lost.”
With these figures to hand, calculate your customer churn rate using the following formula:
Churn rate = (C_Lost / C_Start) * 100
This formula divides the number of lost customers by the starting customer count, then multiplies the result by 100 to express it as a percentage.
Customer lifetime value (CLV)
Sometimes referred to as CLV, customer lifetime value is a metric that estimates the total value a customer is expected to generate for your business over their entire relationship with your company. To calculate CLV, follow these steps:
Determine the average purchase value (APV) by dividing the total revenue generated from all purchases by the total number of purchases
Calculate the average purchase frequency (APF) by dividing the total number of purchases made during the chosen time period by the total number of unique customers
Calculate the average customer lifespan (ACL) by determining the average length of the customer relationship in either months or years
With these values to hand, calculate the customer lifetime value using the following formula:
CLV = APV x APF x ACL
This formula multiplies the average purchase value (APV) by the average purchase frequency (APF), then multiplies the result by the average customer lifespan (ACL). This estimates the total value a customer can be expected to generate for your business over their entire relationship.
While the formula above provides a basic calculation, CLV calculations can also be more complex, incorporating variables such as customer acquisition cost, retention rates and discount rates to obtain a more accurate CLV estimate.
Repeat customer rate
Repeat customer rate is the percentage of customers who make repeat purchases or engage with your business more than once within a specific time period. To calculate your repeat customer rate, follow these steps:
Identify the number of unique customers who made a purchase during a specified time period (“C_Start”)
Determine the number of customers who made repeat purchases within the same time period (“C_Repeat”)
With these figures available, calculate the repeat customer rate using the following formula:
Repeat customer rate = (C_Repeat / C_Start) * 100
This formula divides the number of customers who made repeat purchases by the number of unique customers, then multiplies the result by 100 to express it as a percentage.
Purchase frequency rate
Also known as average purchase frequency, the purchase frequency rate measures how often customers make purchases within a given time period. To calculate the purchase frequency rate, follow these steps:
Identify the total number of purchases made by all customers within a specific time period. We’ll call this “total purchases.”
Determine the number of unique customers who made purchases within the same time period. Let’s call this “unique customers.”
Calculate the average number of purchases per customer using the following formula:
Purchase frequency rate = Total purchases / Unique customers
This formula divides the total number of purchases by the number of unique customers to provide the purchase frequency. A higher rate suggests that customers engage with your business more often, making frequent transactions—a positive indication of strong customer loyalty and engagement.
How to increase your customer retention rate: 10 proven strategies
It’s clear just how important customer retention is to the overall success of your business. It impacts not only your revenue growth, but your ability to foster long-term customer relationships and a loyal customer base, with all the benefits they bring. If you’re unsure where to begin with a customer retention strategy, here are 10 proven strategies to help you get started:
Have a strong onboarding process in place
Increase product engagement
Understand the customer experience and customer journey
Provide a personalized experience
Gather customer feedback regularly
Build trust with customers
Keep your products and services top of mind
Improve your customer support
Understand why customers return and churn
Start a customer loyalty program
1. Have a strong onboarding process in place
A smooth onboarding process builds trust and confidence in your business, increasing the likelihood of customers staying engaged. An effective onboarding also helps your customers achieve desired outcomes faster—and when customers experience value early on, they’re less likely to abandon your product before realizing its benefits.
The better your onboarding process is, the less friction and frustration your users will experience. Things like clear instructions and helpful tutorials can clear up confusion and prevent users from leaving in search of a simpler alternative.
2. Increase product engagement
By increasing regular product engagement, you help your customers to make your product an integral part of their routine or workflow. When this happens, switching to a competitor becomes less likely. This ongoing, habitual usage increases stickiness—creating a barrier that prevents your customers from churning. Product research can help you to gain a better understanding of customer behavior, revealing insights about which features are popular and which may be underutilized.
The more your customers use your product, the more they become product experts. As they continue delving deeper into the available capabilities and features, they discover additional value and find new ways of leveraging your product to meet their needs. This further solidifies their connection and makes them less likely to churn.
3. Understand the customer experience and the customer journey
An instrumental part of customer retention is understanding how customers experience the digital platform you provide. By identifying pain points and areas of friction, you can work proactively to resolve issues and create a smoother, more satisfying customer experience that keeps users engaged and reduces the likelihood of them churning.
A deeper understanding of the customer journey allows you to anticipate your users’ needs and expectations at different stages. By optimizing each touchpoint, streamlining processes and ensuring consistency, you can deliver a seamless, delightful customer experience that strengthens customer loyalty and encourages people to remain with your brand.
4. Provide a personalized experience
According to research, 74% of customers feel frustrated when website content is not personalized and 52% of customers expect offers to always be personalized.
Presenting customers with relevant content, recommendations, offers and workflows can have a significant impact on customer retention by making individuals feel understood and valued. Further, customers who feel their unique requirements are being catered to are more likely to be satisfied with their interactions with your business—and satisfied customers are much more inclined to stay loyal, continuing their relationship with your brand.
5. Gather customer feedback regularly
Regularly gathering customer feedback is a crucial practice for increasing customer retention. It not only allows you to identify potential improvements, but also enables you to resolve issues, complaints and areas of dissatisfaction before they escalate and lead to churn.
Voice of the customer (VoC) tools provide valuable insights into how your product or service can be improved to better meet customer needs. By listening to suggestions, ideas and feature requests, you can prioritize product enhancements that align with customer expectations and enhance their experience, encouraging them to stay loyal.
6. Build trust with users
Consistently delivering on promised features, functionality and quality establishes a reputation for reliability among your users. This trust contributes enormously to customer retention, as users prefer to remain with companies that offer consistency and credibility. Building trust is a process that takes effort on multiple fronts, from seeking and incorporating customer feedback to providing exceptional customer service, transparent communication, and demonstrating you have a customer-centric approach.
7. Keep your products and services top of mind
In addition to collecting direct feedback from your users, analyzing how customers interact with your product provides insights into your customers’ behaviors, preferences and interactions. This knowledge enables you to create personalized engagement strategies and prioritize product enhancements that satisfy the specific needs and expectations of your users. Addressing customer needs and pain points helps you to stay ahead of the competition and ensure your product or service remains top of mind for customers.
8. Improve your support
An effective way to improve customer retention is to offer prompt, efficient and proactive customer support. For example, by mapping out your customer’s digital journey you can identify and address issues before they escalate into major problems, becoming reasons for your customers to consider switching to a competitor. A deeper understanding of the customer experience enables support agents to work not only with speed but also with empathy—providing an experience that is more likely to build loyalty and strengthen the users’ relationship with your brand.
9. Understand why customers return and churn
A digital experience intelligence platform can help you to understand the pain points and frustrations that drive customers away—as well as the features that add considerable value to your product or service. By leveraging advanced insights from a DXI platform, you can make informed choices about which features to remove or change, as well as which audience segments to prioritize.
10. Start a customer loyalty program
A loyalty program is an effective method of encouraging ongoing engagement and interaction with your product. Whether it’s through points accumulation, tier progression or personalized offers, a loyalty program incentivizes users to actively participate with your business and strengthens the emotional connection between your customers and brand. This makes it more likely for them to continue their relationship with your business.
4 winning customer retention examples from top brands
1. Slack’s enhanced onboarding experience
Slack’s onboarding process is simple and intuitive, making it easy for new users to get started. The onboarding experience provides a clean, uncluttered interface that guides users through the product’s essential features without overwhelming them with unnecessary information. The simplicity of the onboarding experience helps customers quickly grasp the core functionality and start using the platform with minimal effort.
2. Coca-Cola’s “Share a Coke” customer engagement campaign
Coca-Cola’s “Share a Coke” campaign leveraged personalization, social sharing and emotional connections to increase customer engagement. By replacing the Coca-Cola logo on its bottles with popular first names, nicknames and terms of endearment, Coke was able to create a sense of uniqueness, encouraging customers to find bottles with their own names or the names of loved ones. Tapping into the emotional aspect of sharing and connecting with others, Coke’s campaign deepened customer engagement as people related their own stories and experiences to the campaign’s message.
3. Amazon Prime’s personalized user experience
Amazon Prime personalizes the user experience in several ways to enhance customer satisfaction and drive engagement. The most obvious example of this is the personalized product recommendations Amazon Prime provides using customers’ browsing, purchase and cart history. By suggesting relevant products, Amazon saves its customers time and effort, making its service more valuable and sticky as a result. Other examples of how Amazon Prime leverages personalization include the use of a customized homepage containing personalized deals and product showcases, targeted email campaigns that highlight products likely to be of interest to specific customers and targeted streaming and content recommendations based on a user’s watch and purchase history.
4. Chewy’s surprise reciprocity delights customers
Pet food and product retailer Chewy’s campaign, which involved gifting 1,000 free paintings of customers’ pets every week, was a stellar example of how unexpected, memorable marketing can create greater customer loyalty and retention. Receiving a painted portrait wasn’t just a great personal touch—it evoked a strong emotional connection between customers and Chewy’s brand. By making efforts to create a genuinely unique and memorable experience enhanced by the element of surprise, Chewy left a lasting, positive impression on customers. What’s more, the campaign lent itself to word-of-mouth promotion, helping Chewy to build its reputation as a company that goes above and beyond for its customers.
Make informed decisions about your customer retention strategy
Increase customer retention by understanding your customers’ digital behavior and enhancing their experiences with advanced insights from Glassbox's digital experience intelligence platform. Learn how Glassbox can help.
Customer retention FAQs
Q: What is customer retention?
A: Simply put, customer retention is about keeping customers happy and coming back for more. It’s about building strong relationships, providing excellent experiences and meeting the needs and expectations of your users. By focusing on retaining customers, your business can foster loyalty, increase repeat purchases and create a solid foundation for growth and success.
Q: How do you retain customers in product management?
A: Product managers can drive customer retention by working to understand the needs of users and leveraging feedback to continuously improve their products and features. Developing the relationship between customers and your product, providing excellent support and offering valuable incentives to continue engaging are key drivers in this area.
