How can you improve customer retention and increase their average basket?

A satisfied customer is your best asset. Find out how to effectively manage a customer retention strategy.

A satisfied customer is your best asset. Find out how to effectively manage a customer retention strategy.

Finding and securing new customers will always be a priority for companies. But once that customer has made their first purchase, there is still work to be done.

Understanding how to encourage your existing customers to repeat their shopping experience and increase their average basket is a real challenge. This is called customer retention. It is a strategy that will improve your revenue growth and profitability.

Why is customer retention important?

The growth of your business depends on your ability to retain your customers. The Gartner Group, a leading US consultancy and research firm, has found that 80% of a company’s future profits will be generated by just 20% of its existing customers.

Despite this, companies persist in focusing twice as much on acquiring new customers. Let’s look at three reasons why customer retention is important:

• Conversion potential: According to the Harvard Business Review, it is 5 to 25 times more expensive to acquire a new customer than to retain an existing one[1]. Your existing customers are 60-70%[2] more likely to repeat their buying experience,while the probability of converting a new customer is only 5-20%.
• Increased revenue and profitability: Improving your customer retention rate will significantly increase your revenue. It is easier to get an existing customer to repeat their purchase experience than to convince a new customer to make a purchase. By increasing your customer retention rate by just 5%, your company’s revenue could increase by 25-95%[3].
• Lower customer acquisition cost: customer acquisition cost – CAC – is the amount spent by a business to convince a new customer to make a purchase. Acquiring a new customer can be expensive. Focusing on retaining your existing customers will reduce your CAC. Loyal customers are more likely to tell their friends and family about your products and services. One study found that customers acquired through word of mouth spend 200%[4] more than other customers.

Tracking customer loyalty measures

Before you can improve your customer retention rate, 4 KPIs need to be tracked.

Your retention rate is the percentage of customers who have made more than one purchase from your company. Tracking this rate is the best way to see how well your retention strategy is working.

Repeat customers

To track your repeat customer rate, you need to know:

• How many customers have made more than one purchase in the last year
• How many unique customers you have had in the last year

The formula for tracking your repeat customer rate:

The number of customers who have bought from you more than once / The number of unique customers

Customer churn rate

Customer churn is the percentage of your customers who stop buying your products or services.

Some level of customer churn is normal in any business. Depending on the type of business you have, a churn rate between 5 and 7% could indicate a problem. A high churn rate could indicate that your product or service is failing to help your customers achieve their goals.

The formula for monitoring customer churn:

(Number of customers at the beginning of the year – Number of customers at the end of the year) / Number of customers at the beginning of the year

Purchase frequency

This is the frequency with which the customer makes a purchase. A higher frequency of purchase translates into higher revenues and better profitability.

The formula for tracking purchase frequency:

Number of orders placed / Number of unique customers

Average basket value

The average basket value is the average amount a customer spends on each purchase.

The formula for tracking the average basket value:

Total revenue earned / Number of orders placed

4 ways to improve customer retention

Be accessible

Whatever your business, being easily accessible is very important. This is especially true in the event of a problem.

A 2016 survey examined the main frustrations experienced by 1,200 consumers. The survey[5] found that the main cause of customer frustration was waiting too long to speak to a representative on the phone.

Here are some tips on how to be more accessible to your customers:

• Allow your customers to contact you 24 hours a day, 7 days a week,
• Offer your customers various ways to contact you (e-mail, live chat, phone call, social networks, etc.)
• Offer your customers the possibility to receive a quote or ask a question on your website
• When customers call, give them the option to bypass the automated phone service and speak directly to a representative.

Personalise the customer experience

All your customers are different. So you need to interact differently with each one. Don’t address a long-time customer in the same way as a newly acquired customer.

You can personalise your interactions with your customers based on their geographical location, purchase history, etc. One study[6] found that when companies create a personalised customer experience, they generate almost four times more revenue than companies that do not.

You can personalise your interactions with your customers in the following ways

• Email advertising
• Social media
• Your website
• Webinars

Encourage your customers to leave feedback

Soliciting and responding to customer feedback is key to any retention strategy. It is difficult to improve your customer retention rate without knowing why your customers stop using your products and services.

Here are some methods for soliciting and receiving quality customer feedback:

• Send email surveys to all new customers and ask them for feedback on their experience.
• Send an email survey every time a customer complaint ticket is closed. This will help you determine if the customer service agent was able to provide a solution that met the customer’s expectations.
• Offer live chat support on your website: 44% of customers think this is the most important feature that e-commerce sites can offer[7].

Create a loyalty programme

One of the best ways to increase customer loyalty is to create a loyalty programme. This will allow you to offer more value to your customers and encourage them to keep buying your products and services.

Keep the following points in mind when considering the creation of a loyalty programme:

• Help your customers understand how it works (e.g. earning points and usability).
• Create an onboarding customer journey for new members to engage them effectively and sustainably.
• As soon as a new member signs up, send them an email to thank them and let them know how to earn more points.
• Give members ways to earn points and rewards beyond just making a purchase. For example, your customers could earn extra points for referring a friend, sharing on social networks, etc.

Personalised video to boost your loyalty/sponsorship programme

The personalised video is an indispensable tool in any customer loyalty strategy. Marco Vasco, leading tailor-made travel company, builds loyalty among its existing customers through a referral programme that allows them to benefit from discounts on their next trip, in exchange for referral(s).

Marco Vasco had noticed that customers were not aware of the sponsorship programme. This meant that they were unaware of the benefits available to them, which had a negative impact on their level of loyalty to the brand. Not knowing that they could benefit from discounts, they might be tempted to book their trip with another agency.

In order to improve customer understanding, Marco Vasco decided to send its customers personalised videos explaining how the referral programme works and the benefits it offers.

Customers receive a personalised email with an animated GIF. They are invited to watch a short personalised video reminding them of the benefits and how the referral programme works. At the end of the video, they sponsor one or more of their relatives to receive a discount on their future trip.

The use of the personalised video has enabled Marco Vasco to increase the loyalty of its existing customers and to increase their average shopping basket.