A company earns 60-70% profit while selling to its existing customer base compared to 5-20% of profit earned from new customers. This data shows how existing customers of any company largely contribute to the overall growth of that company.
However, retaining existing customers in this competitive market is very challenging for any business. A customer gets numerous options for any particular product or service from many other suppliers in the marketplace. As a result, if any brand is even the slightest bit inferior to other prevailing brands, a customer will switch over to its competitor in a fraction of a second. Also, due to so many options available just at a fingertip, customer expectations are high.
So, in response to this situation, for any business that has been able to leave a mark on existing customers’ minds, it is ideal and beneficial to retain those customers.
Hypothetically assuming the rate of customer retention won’t manifest the actual picture. So here is the formula used all around the world for computing CRR:
CRR= [E-N/S] x 100
For better understanding, here is an example:
If there are 1000 customers during the beginning of four months, 200 customers are lost, and 500 new customers are gained in the given period, according to the formula,
CRR= [(1300-500)/1000] x 100 = 80%
According to the computation, the customer retention rate for the given period is 80%. This rate of customer retention rate is impressive. Furthermore, this can be improved and increased by using different retention techniques and strategies.
In order to accelerate in the long run, it is necessary to keep existing customers satisfied.
Here are the aspects that show how significant it is to retain the existing customers:
1. Reduces Organizational Cost
Catering to the demand of existing customers is far less expensive than targeting new customers any day. Firstly, marketing cost is mitigated since you don’t have to spend more to create brand awareness and reach your target customer. According to a study, it was estimated that the cost of gaining new customers could be five times more than serving old customers.
Secondly, word-of-mouth from your existing users helps in acquiring new customers free of cost. Also, it just takes some incentives-offers, rewards points, coupons for any business for customer engagement.
2. Builds Brand Loyalty
The foremost reason why a business should retain its customers is brand loyalty and customer trust. Due to this loyalty and preference, the chances of bouncing over to a competitor are very minimal.
3. Reduces Time Spent and Increased Efficiency
In any business, knowing what your customer wants and desires is a complicated and prolonged procedure. But, in contrast, a business can mitigate this procedure by serving its existing customers since they are already aware of exactly what their customers are looking for.
4. Creating Brand Reputation
An existing happy customer creates and portrays your brand in the real world. It means a client who is already aware of your brand will be building a reputation for your brand.
Various factors that influence customer retention are:
1. Company Response
In the first place, the approach of a business leaves a good mark on its customers. The way an organization responds to and handles a customer’s complaint or feedback impacts their existing customers. Positive responses help to build a good impression and experience.
2. Product/Service Experience
The foremost factor that keeps a customer inclined towards a brand or a company is the product quality or services. This factor greatly influences whether they will stay or switch to other similar brands prevailing in the marketplace.
3. Delivery Timing
Punctuality and commitment have a huge impact on customer experience. If the ordered product or service is delivered at a stated time, then the customer will be obliged, and if not, then a customer might become unsatisfied with the service of the brand.
The average customer retention rate shows the actual percentage of the customer being retained by different industries in the current year. Here is the customer retention rate by industry:
The average CRR of this industry is minimal. The reason behind the low CCR is tough competition, ample options for customers, and a very low difference in price.
The average CRR is higher due to the trust and services provided by this industry set in the mind of a client and, in turn, customers can stay even for life long. In the banking sector, some of the banks such as JP Morgan Chase, Goldman Sachs, PNC, Morgan Stanley are very well known for their competency in this industry.
An insurance policy is a one-time purchase, which is bought for long-term planning and unpredictable circumstances. If an insurance company can provide the service as per the customer’s expectation, then the rate of customer retention will be high. One of the befitted examples is State Farm Group, an insurance company with a 90% customer retention rate.
Telecom is all about communication. So, if a client gets a telecom service that enables one to have smooth and uninterrupted communication both professionally and personally-friends, then that telecom service provider becomes the topmost choice for that client and builds brand loyalty too. Furthermore, AT&T, Verizon Communication, Comcast Communications are some of those companies that fall under the telecom industry.
IT Service: 81%
This industry has a comparatively higher CCR in comparison to other industries. Its prompt service and outcome to its clients work in favor of the IT Service Provider.
The media industry retains the highest rate of average customer retention rate. The reason for the highest CCR is a high budget, target to a large mass, and retargeting budget enables this industry to retain its existing customer utmost. For example, Netflix is a renowned brand that has successfully managed to retain its average customer rate up to 74%.
Professional Services: 84%
Factors such as customization, building close relationships, and impeccable service lead to a high CRR in the Professional services industry.
Yet, again cut-throat competition, less price difference, and many options make this industry difficult to retain its customers. Though there are a large number of leads and new customers approaching the e-commerce business, the CCR is comparatively lesser than other industries. However, an e-commerce brand, Amazon, has bagged up a 90% average customer retention rate.
Technology has provided a greater platform for the education system and broadened the horizon to gain an education. This industry has gained immense popularity because of the upsurge in online classes due to the pandemic. Some ed-tech companies such as Coursera, INC, UDEMY, MasterClass are successfully catering to the demand for online education and courses.
Fintech includes mobile payments, automated investment apps, cryptocurrency, online lending businesses, and crowdfunding platforms. They have made the process of making financial transactions seamless through advanced technology. As a result, CCR for the Fintech industry is comparatively higher than other related industries.
Gravity Payment is a US-based Fintech company that has maintained up to 95% customer retention rate and continues to serve its existing customers successfully.
Travel and Hospitality: 55%
This CRR in travel and hospitality is considered elite. Though due to the pandemic, there were travel bans and restrictions. However, the industry managed to gain this rate of customer retention. One such firm in the Travel and hospitality industry is Marriott International that has set a benchmark in hospitality service.
Sports & Gaming: 31%
This industry has gained a lot of popularity these days. E-sports has become very popular nowadays. The approach of this industry to innovate perpetually makes its users very intrigued and engaged.
Food Tech: 16.5%
In recent days, due to the advancement in technology and change in lifestyle, people are adopting the concept of food tech very well. As a result, this industry has impeccably befitted in the lifestyle of people and flourishing.
Many factors determine the average customer retention rate for any industry. However, industries can work upon these leading factors and achieve the desired organizational goal.
These are the topmost techniques an organization can opt for to increase the average customer rate. Along with these techniques, an organization can take the initiation of interacting with the customer personally to know them better and their preference. Also, it can come with some VIP programs specially designed for its high-end clients.
In the course of time, many industries have experienced an increase in their customer retention rate. However, the quality of product and service provided will always remain key factors in influencing customer’s buying decisions. As a result, customer satisfaction is the most important element and can make or break any business. In addition, companies have to laser focus on getting their customer retention right as the future will only get more challenging and complex with the emergence of new, disruptive technologies.
MoEngage is a leading engagement platform that companies prefer to use for creating and driving their growth strategies successfully. MoEngage is trusted by some of the leading brands across industries to help them strategize their customer retention program and amplify customer engagement right through its customers’ buying cycle.
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