Stop the Churn: 3 Simple Customer Retention Strategies for Startups

“Retention is the single most important thing for growth”

Alex Schultz (VP of growth @ Facebook)

Retaining your startup’s loyal customers can, in many cases, prove to be more valuable than a customer acquisition strategy. The process of attracting and converting a lead into a paying customer can cost a business significant sums of valuable resources. Startups that focus purely on customer acquisition may miss out on the benefits that customer retention can provide.

According to research from Oberlo, the customer acquisition cost can range anywhere between 5 times and 25 times more than the costs involved in retaining an existing customer. 

Read on if you are looking to reduce customer churn, minimize your operational expenses, and retain your startup’s most loyal customers in the long run.

The Benefits of Retaining Your Customers

One notable benefit of customer retention is lower overall costs to your business. However, there is a slew of other reasons why you should focus on your customer retention strategy too.

For starters, if you are spending less to have an existing customer continue to support your business, you can more effectively improve the profitability of your startup. Forming strong relationships, retaining your customers, and keeping them happy may simplify your marketing campaigns as well. Happy customers who repurchase from you may share reviews, online recommendations, and even your own marketing materials with their friends, family, and colleagues. This results in effortless organic online and word of mouth marketing for your brand.

Building relationships with your customers will also enable your business to gain valuable feedback. This feedback is vital for knowing how to improve product development processes. Loyal customers make excellent test groups too. They tend to be very willing to try out your new or experimental offerings and offer feedback before you officially launch them.

An increase in customer retention also reduces churn and the number of issues your business will face overall. Returning customers who already enjoy your products, services and customer service are generally more likely than new customers to forgive errors on your part, should they ever happen. This minimizes strain on your customer care department and stabilizes your cash flow at the same time.

Analyzing Your Startup’s Churn Rate

Before you can even begin to implement strategies designed to minimize your business’s churn rate, you need to know exactly what its churn rate is. 

You cannot fix what you aren’t aware of. 

This is why it is essentially important to track and analyze your churn rate closely, and to determine the primary reasons behind your customer churn.

Customer churn refers to the number of customers who opt to stop supporting your business and buying your products and services over a specified period of time. Your churn rate is typically calculated by dividing the number of lost customers by your total number of customers.

A general formula for calculating churn rate can be written as such:

Churn rate = (your business’s number of churned customers/its number of customers in total) *100

Applied to a real-world situation, the calculation may look something like this:

Churn rate = (120  churned customers/1200 total customers) *100

                    = a churn rate of 10%.

This is an extreme example of customer churn for an established business, but a conservative figure for a new business. Average churn rates for established companies can range anywhere between 2% and 8-9% of a business’s monthly recurring revenue. However, for younger startups that are still finding their footing in their industries, the churn rate can be as high as 24% in some cases.

This hefty churn rate is why it’s crucial to have customer retention strategies in place to ensure that you can minimize this churn and retain your loyal customers. Even when facing formidable competition. 

3 Simple Customer Retention Plans for Your Business

If you’re looking to supercharge your startup and retain your valuable customers, it’s time to start implementing some simple yet effective customer retention strategies. These approaches will create a solid foundation for your future retention efforts and help you to meet your business goals.

1. Create Engagement and Competition Strategies

The digital environment and social media have made it easier than ever for businesses of all sizes to launch promotions, competitions, and contests that effectively engage existing and potential customers. These engagement plans come in all shapes and sizes. The more creative brands tend to fare best when it comes to retaining their existing customers and attracting new attention from their target audience.

Customer engagement and retention contests can include photo contests, user-generated content competitions, and the sharing of any content that serves to retain customers and further your startup’s social media marketing goals. 

Contests may seem better suited to entertainment and consumer brands. But even B2B businesses and service providers have used them successfully to engage their audiences. Your brand could, for example, launch a strategy that encourages customers to publicly share how your products or services have improved their lives. You can offer a prize or significant purchase discount to the most memorable and shared story.

2.  Develop a Customer Loyalty Program

This is perhaps one of the most popular and widely used customer retention strategies. It’s particularly popular with smaller businesses that are looking to gain an edge against their competitors. 

Loyalty or reward programs usually offer discounts on customers’ future purchases, freebies, or loyalty points that can be redeemed for in-demand benefits. These benefits include free shipping, discount coupons, or other tempting specials. 

Loyalty schemes have a reputation for ‘cheapening’ a brand’s value. But in most customers’ eyes, this couldn’t be further from the truth. Millions of customers across industries and sectors have come to expect special offers, coupons, and free deals from the companies they support. It’s therefore crucial to integrate this effective strategy into your customer retention and marketing plans. 

Let your existing customers know about your loyalty plan, the advantages it offers, and exactly how they can benefit from choosing to sign up. Most consumers can’t resist a free treat or a discount, and you can personalize these offerings using your customers’ data to add even more impact. For instance, you could promote customer loyalty by offering a discount voucher on their birthday. This humanizes your brand and shows your appreciation for continued support.

3.  Respond to Negative Customer Feedback in Person

It’s tempting to delete negative reviews of your business on Facebook, Twitter, or Instagram, but you may want to reconsider this approach. An existing customer who leaves negative feedback is actually providing a valuable chance for your brand to prove that it cares about all customer experiences, not just good ones. And it highlights how you want to rectify the situation causing the customer distress.

Deleting or ignoring poor reviews can harm your brand and damage existing customers’ trust in you, which can cause lasting customer churn. You won’t be able to ensure a 100% customer satisfaction rate. But it’s essential that you respond to customer complaints authentically and empathetically and offer solutions that meet the needs of the disgruntled party in a fair way. Customers who feel that you have treated them equitably and respectfully will be more likely to consider buying from you again. Even if they have had negative experiences with your brand in the past.

While we are on the topic of customer communications, it’s worth mentioning appreciation. Showing sincere gratitude and appreciation to your customers is one of the best ways to build a strong relationship with them over a period of time. It also helps your brand to stand out from the competition and show a more human side to your startup. After all, very few customers enjoy robotic, insincere interactions with the businesses they support.

Some of the best ways to thank your customers for their business include:

• Sending personalized thank-you notes. If you sell physical products, adding a personalized handwritten thank you note is a sincere and memorable way to show your appreciation for your customers. If you sell digital products and services, you could go the extra mile and send your customers recorded videos or personalized emails to express your gratitude.
• Highlighting your loyal customers. Any customer would appreciate a social media shout-out from a business they have recently purchased from. Encourage your supporters to use branded hashtags specific to your business when posting about your products. This not only encourages user-generated content, it gives you the ideal opportunity to form strong customer relationships. You can use the branded hashtags to find their posts, repost them, and show them some appreciation using your official social account.
• Giving back to your community is also an excellent way of showing appreciation. Startups usually operate in a limited physical range, which makes it easy to support a charity or good cause in your area that aligns with the values and ethics of your existing customer base. Donate a part of your profits in your clients’ honor to show them that you care about worthy causes and making a positive impact on society. 

Reduce the Churn by Providing Value

This is the key takeaway.

“If churn isn’t in the single digits it’s absolutely the only thing you should be focusing on.”

Josh Pigford

As a startup, it’s crucial that you focus your efforts on customer retention and customer acquisition. 

Your existing customers are your most immediate, primary source of revenue and support. Stats show that just a 5% increase in retention can lead to as much as a 25% increase in your profits. For a startup, this is a statistic that shouldn’t be ignored. 

Implementing some simple customer retention strategies in your marketing strategy clearly goes a long way when it comes to providing value and compelling your customers to continue supporting your business. 

Gather customer feedback on a regular basis, weigh up key metrics, listen to their concerns and requests, and respond authentically with a willingness to meet their needs. Provide them with added value in the form of loyalty benefits and engage them with social media contests that encourage them to share their experience with your brand. 

It’s these small efforts on your business’s part that can build you a lasting, loyal customer base for years to come.