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Customer retention strategies

Keep customers coming back for more with our guide to developing and retaining your best customers for less through customer service, loyalty schemes and marketing.

Keeping existing customers is easier and cheaper than winning new ones. For new businesses with tight marketing budgets, it’s doubly important to focus on retaining customers. Customer retention marketing is the most cost-effective way for new businesses to generate revenue, build a good reputation and transform customers into advocates who will recommend a business to others.

On the other side, it is surprisingly easy to lose customers if you don’t develop a customer retention strategy. Most businesses lose around one fifth of their customers each year, but it can be as high as 80% for those that simply ignore the importance of spending time and money retaining customers.


Why create a customer retention strategy?

The impact on your marketing budget can be huge. According to Bain & Company it costs seven times more to attract new customers than it does to keep them. Existing customers are already familiar with your company and have expressed a need and willingness to pay for your products or services – meaning that less money is needed to promote your business to them compared to new customers.

Research has also found that increasing customer retention rates by just five per cent can lead to an increase in profits of between 25% and a whopping 95%. In short, customer retention strategies help you build your business over time.


Understanding customer Lifetime Value (LTV)

Customer retention is about planning for the long term based on the belief that customers will become repeat purchasers. This means that a single customer will continue to buy from you over several years – which is described as the Lifetime Value (LTV) of your customer. To understand the importance of customer retention, take some time to measure the lifetime value of your customer – rather than the profits from a one-off sale.

Working out Lifetime Value (LTV): Lifetime Value is a profit forecast based on how much a customer spends with you on average over, say, a three-year period. For example, if a customer spends an average of £10 each month, their LTV is £360. Use LTV as a measure of the income you’ll earn from a customer so you can work out how much to spend acquiring and retaining them.

Establishing the LTV of a customer over the lifetime of their business relationship with you shows the importance of looking after your customers. It will also help you understand how much time, effort and money you need to spend in retaining that customer.


Measure and understand customer attrition

The first step to increasing retention is to understand why you’re losing existing customers, or what stops them from coming back. It could be competition from other businesses through to the fact that they didn’t like your product.

A good way to find out why customers leave your business is to conduct a survey of past customers. There are many free and cheap online survey services such as SurveyMonkey and SmartSurvey that can help.

Ask customers how satisfied they were with your customer service, what they thought of your product and pricing, and what would stop them from buying again. Find out what the ‘pain points’ are – the parts of the customer journey that put people off, such as lengthy delivery times or poor customer service. Use these to set targets for improving customer retention and measure regularly to check your progress.


Deliver business integrity and consistency

Successful long-term customer retention is built on your business reputation, and the customer’s belief that you will solve their problem or meet their needs for a fair price.

Focus on delivering a consistent, exemplary customer experience. Ensure business claims, such as speedy delivery or 24/7 availability, are a reality and make good on your promises. Customers will stay if you practice what you preach and take a genuine interest in them. Break that trust and they’ll head for the door. Several tools can help you deliver a consistent experience:

  • Create a mission statement – This should be a promise that you make to customers, what your business stands for, and what it aims to do. Print it out and make it visible in your office, and refer to it regularly to ensure it’s a key part of your business values.
  • Get feedback – Use surveys and polls to measure customer satisfaction, and learn how products and services can be improved to better serve your customers.
  • Ask for referrals – Happy customers are willing to endorse your business. Use online services such as FEEFO and ask customers to rate your business.
  • Practice good deeds – Set up a company charity and issue press releases about your money raising activities. Donating to charity, supporting local communities or getting involved in other philanthropic activities sets your company out as being caring and compassionate.
  • Be clear and transparent – Set out your terms and conditions, especially around processes such as delivery, refunds and customer complaints. Make sure you’re easy to contact, and respond quickly to customer questions and issues.

Deliver brilliant customer service

Research has found that customers ditch a company not because of price but due to poor customer service.

Make customer service a priority. Focus on delivering higher than expected service to every customer. Consider surprising and delighting customers, such as including a small gift in the delivery or a handwritten ‘thank you’ note. Ensure you deliver on every promise both before and after the sale. Empower your staff to deal with problems promptly, with the ability to go above and beyond to resolve situations to the customer’s satisfaction.


Keep in touch with your customers

One of the biggest reasons customer stop buying from you is that they simply forget your business exists. Avoid losing customers by keeping in regular contact using a range of communications:

  • Email – This is a cheap way to inform customers of upcoming promotions. Use it to send vouchers and coupons to encourage repeat business. Remember to only send marketing emails and information to customers who have agreed to receive them.
  • Keep it personal – Rather than an impersonal marketing leaflet or email, try to personalise it as it helps make customers feel valued. For example, if you’re running a restaurant send customers a coupon for a free bottle of wine or a dish to celebrate their upcoming birthday.
  • Create a communication calendar – Schedule how you can keep in regular touch with your customers including emails, phone calls and special offers.
  • Use social media – Keep Facebook, Twitter, Instagram, Pinterest and other accounts up-to-date by posting news and offers, and respond quickly to customer comments and ask them to follow you so they see your updates in their social networking feeds.

By making existing customers feel valued and keeping them informed, they’re more likely to come back again.

Involve your customers in your business

Customer feedback doesn’t need to be limited to surveys. Consider inviting customers to give feedback on a new offer or new product before you launch, asking for their suggestions or even using them in your marketing material. This boosts brand engagement and endows customers with a sense of ownership in your products, which is likely to result in word-of-mouth recommendation. Remember to credit users for their suggestions and interest, and send them something as a thank you.


Create a customer loyalty scheme

Customer retention is all about loyalty, and the more money customers spend with you the more you should reward their business. Loyalty schemes and frequent shopper programmes are great way to increase your customer-retention levels and in turn boost profits. Loyal customers not only buy more and are willing to pay more, they serve as advocates for your company by sharing their positive opinion with others.

A loyalty scheme can be as simple as stamping a card each time a customer buys a coffee from you and giving them the sixth one free through to more complex schemes, but all share similar characteristics:

  • Set the scheme goals – Your scheme should reward the right customer behaviour, such as spending more on products or buying additional products or services.
  • Make rewards simple – They should be easy to obtain and redeem. Loyalty cards, for example, work well for coffee shops and cafés as well as service-based businesses such as hairdressers and beauty salons.
  • Make it exclusive – Hold preview events for selected customers so they get the first chance to learn about and buy your new products.
  • Surprise and delight your best customers – Treat your highest-spending customers to a day out such as a trip to the races or other sporting event.
  • Offer extras – For clients whose business makes up a large proportion of your profits, offer preferential service such as waiving minimum order values or offering free delivery.

Solve customer complaints quickly

Over 95% of dissatisfied customers don’t complain, they simply walk away to do business with your competitors and you may never know the reason why. Worse still, it’s likely they’ll share their unhappiness with others – so it’s important to look at customers who complain as a gift rather than a nuisance.

By complaining, they’re giving you another chance to keep their business. Your business needs a robust complaints procedure that’s designed to first acknowledge and then quickly resolve problems to the customer’s satisfaction. Consider complaints as an early warning system of customer attrition, allowing you time to act.


Keep tabs on your competition

It’s a good idea to keep an eye on your competitors. Despite your best efforts to retain customers, your competitors will be working hard to win their business. Along with marketing activity such as sales and promotions, consider price-matching competitors.


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Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

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