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Understanding How Customer Retention Affects Your Bottom Line

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In today's competitive business world, customer retention is crucial. You know that your loyal customers are essential. They help you generate revenue by continuing to do business with you time and time again. But exactly how much of an impact does customer retention have on the overall health of your company?

Let's break it down and dig into ways to improve the retention rate of your business.

What Is Customer Retention?

Customer retention refers to a company's ability to keep its existing customers happy and eager to continue doing business with them. A core base of clients provides your business with a consistent stream of revenue, which is necessary to stay in business.

It also costs less to keep existing customers than to find new ones through marketing campaigns. Loyal customers will even recommend your business to others and leave positive reviews, marketing your business for you.

Measuring the Impact of Customer Retention

You need to look at a few different numbers to evaluate your customer retention strategies and their impact on your bottom line.

Customer Retention Rate

Measure the loyalty of your customer base. To calculate your retention rate, divide the number of customers at the end of the period by the number of customers at the start of the same period. Then multiply the result by 100 to get a percentage.

Customer Lifetime Value

Customer lifetime value is the total amount of money a customer will spend with your business throughout their relationship with you. Multiply how much that customer spends on each purchase by the number of purchases they make per year, then multiply that number by the average length of time they remain a customer.

For example, if a grocery-store customer spends $50 on each purchase, makes 26 purchases per year, and remains a customer for seven years, their lifetime value would be $9,100 ($50 x 26 x 7).

Thinking about averages often makes more sense unless you're dealing with extreme outliers. For example, a dentist might see their patients for $100-dollar teeth cleanings twice a year over 10 years. Their patients' average lifetime value would be $2,000.

Customer Acquisition Cost

Finally, how much does it cost you to acquire each new customer? Consider the amount you spend on finding and marketing to prospects over a period of time. Then divide that number by the average number of new customers you gain over that time.

New customers aren't cheap. In fact, gaining a new one can cost you five to seven times as much as retaining an old one.

How To Increase Your Retention Rate and Average Lifetime Value

You want to keep your existing customers for longer and, ideally, do more business with them. That means increasing customer loyalty and improving customer success. These tips will help you improve your retention rate.

Make Customer Service a Priority

Understand your clients, and create a customer experience that strengthens their relationships with your brand. Know their needs and preferences and accommodate them as much as possible. Everyone wants to feel recognized and valued.

So take the time to listen and learn. Ask for feedback and respond to it promptly. Make a genuine effort to understand their perspective, and be patient and empathetic when dealing with customer feedback. Fourteen percent of customers leave because a business doesn't address their complaints adequately, and the cost of customers feeling unheard has been calculated as a $75-billion problem across U.S. industries.


Effective communication is an essential part of your retention strategy. Whether face-to-face, via email, or over the phone, communication is critical in shaping how customers perceive your brand. 

Communication should be:

  • Clear. Avoid jargon or technical language that might confuse or frustrate customers.

  • Concise. Get directly to the point, and demonstrate you value their time and yours.

  • Easy. Use communication tools that allow customers to reach you through their preferred channel.

  • Prompt. Respond to messages quickly, and use technology to speed up the process. Automated tools like chatbots allow customers to resolve common issues. You can set up channels, such as Facebook, to deliver an immediate reply to let people know you'll be in touch soon.

Communication is the foundation of a good customer relationship. Learn more about the tools Scorpion provides to make good customer communication easy.

Offer Referral and Loyalty Programs

Loyalty programs are an excellent way to show your customers how much you appreciate their business. 70% of U.S. consumers say that customer loyalty programs play a factor in their decisions. Give clients discounts, bonus products or services, or exclusive event invitations to thank them for their long-time business.

You can also start referral programs to take advantage of word-of-mouth marketing and create brand ambassadors who will help spread the word about your business.

Stay in Contact

Keep in touch with your customers through email, social media, and a strong content strategy. These channels have proven particularly powerful in increasing customer retention rates. Email marketing has demonstrated 56% more effective than other channels, followed by social media marketing at 37% and content marketing at 32%.

Regularly provide your audience with updates, promotions, and new product announcements. Stay present in their lives and minds so they remember you the next time they need your products or services.

Focus on Quality and Reliability

Ultimately, customer retention depends on the quality your business offers. All of these tactics can't make up for defects in products or services. Continue to provide exceptional value and quality, and good reviews and loyal customers will follow.

Develop Your Retention Strategy With Scorpion’s Help

Customer retention is essential to your bottom line, and an outstanding customer service experience is critical to your retention rate. That's why it's so important to give customer satisfaction the proper attention and use the best tools to improve relationships with your brand. Stay connected through the right channels, create incentives for referrals and repeat business, and make the overall customer experience as positive as possible.

Schedule a consultation today, and discover how Scorpion's platform can help you increase customer retention, bringing your business long-term financial success. Hold on to the customers you have now for years to come.