It is something of a truism in the business world to say that it is easier and cheaper to get existing customers to make further or repeat purchases than it is to find new customers. To put it in another context, a barman would do better to encourage customers already at the bar to buy another drink, than to stand outside and encourage passersby to come into the bar as new customers.

On average, acquiring a new customer costs five times as much as retaining an existing one. A study conducted by Bain & Company showed that a mere 5% rise in customer retention expenditure can increase overall company profits from anywhere between 25% and 95%. Suffice it to say, customer retention is a key component of success in business. It is fundamental in the process of maximising profits and ensuring that existing, loyal customers are satisfied with the products or services that they are paying for.

There is, of course, a balance to be struck. Despite the clear benefits of customer retention, no business could survive without continued customer acquisition – customer retention has little benefit if there are no customers to retain. But study after study reveals that focusing on customer retention reaps huge rewards for businesses and more and more companies have started to reallocate funds from their marketing coffers to improve their customer retention rate.

We are going to take a look at the ins and outs of customer retention, what it is, what its benefits are, and what the best methods are to be sure that existing customers are retained.

What is customer retention?

Customer retention refers to the number or rate of customers that are retained by a business over a period of time. This is when existing customers continue to purchase products or services from a business beyond the initial sale. High customer retention levels mean that, by and large, customers have not defected to a market competitor.

Customer retention begins with the first sale and continues through the entirety of the relationship between the customer and the business. The ability to retain customers, therefore, does not solely depend upon the quality of the product or service, and a large part of customer retention is informed by the ongoing relationship between the customer and the business. To achieve greater customer retention, amongst many other tactics, businesses may offer loyalty bonuses, high-quality customer services, utilise customer feedback, or if appropriate, they may develop the interface or user experience to improve the customer’s interaction with the product. Customer retention methods are not limited to these and different businesses may tailor their retention programme to suit their product or their customers.

So let’s jump in and take a look at some of the best ways to ensure a high customer retention rate.

How to improve customer retention rates

There are many methods businesses can employ in order to retain customers and the following list is in no way definitive.

So here a just a few of the ways your business could work to improve customer retention.

Track your churn rates

The churn rate refers to the number of customers that leave a business over a period of time divided by the number of remaining customers. This then leaves you with a basic metric by which to measure the customer satisfaction and overall success of a product. Once you have your initial churn rate figured out, you can set future targets to track the business’ progress and to measure how effective any other methods of customer retention have been.

The churn rate can also be a good indicator of whether a greater focus should be spent on customer retention or customer acquisition. Businesses with a good churn rate may have a good retention programme in place and could start focussing on an acquisition drive, those with a bad churn rate might decide to work on their retention programme.

Ask for customer feedback

Asking for customer feedback is a simple and direct way of finding out what is and isn’t working for your customers. The key to a good customer feedback system is knowing when and how to ask for it. Many businesses will send a very short survey after any direct personal engagement with a customer or after a significant milestone, say one year after their first purchase.

It is important to not put off the customer from giving feedback by burdening them with lengthy response forms or overly complex questionnaires. Many customers will turn off if the feedback form seems too much effort. Whereas a short, punchy feedback process can actually even aid in customer retention as the customer is reminded of the efficiency of the business. Try to keep your questions no more than five with the option of additional comments if necessary.

Build trust

It is crucial to the success of any business that they are trusted by their customers. Trust in the business world can mean many different things and it will often depend on the product or service as to how trust can be built and developed with the customers.

Trust may mean being honest if there are shortcomings that need to be addressed or worked on, or for the product to be reliable when the customer is in need. Trust may also be as simple as there being nothing concealed in the small print – no hidden costs or interest fees etc. These are just a few of the many ways that businesses can build trust with their customers. It may sound simple, but trust is vital in the business world. Once a customer trusts a business, they will not only be more likely to stay with it, but they will also be likely to recommend it.

Offer different customer services options

We all know that there is nothing worse than calling up a business and being left to wait on hold, listening to repeated telephone muzak for hours. As a method of communication, the protracted customer helpline feels increasingly outdated and will likely make the customer annoyed or frustrated with the business.

Try broadening your customer service options. For example, many companies now use social media and direct messaging as an accessible medium of instant chat. You could also try an app or website that allows customers to make any changes or fixes they need themselves by taking them through the options step by step.

Any options that will make your customer support services as simple and as quick as possible will always aid in customer retention.

Loyalty bonuses and gifts

The longer a customer has been with a company, the more likely they are to remain. Once they have been with you for a set amount of time, their trust, continued custom, and loyalty should be rewarded and the customer should be sure to know that they haven’t gone unnoticed.

Loyalty bonuses and gifts will come in all manner of forms depending on the nature of the business. Bonuses and gifts can also reduce the likelihood of the customer defecting to another company, as they can cover what the defection may have provided. You may also consider additional gifts or reductions for referrals and recommendations.

Be personal

Ultimately, no business is anything without its customers. They are as much a part of the journey as the staff and directors and without them, the business would crumble. So it is important that the customers are made to feel their inclusion and worth in the continued role they play in the success of the business.

Customers are an extended part of the family, so they should be treated that way. This may be as simple as using their preferred name in any correspondence. But it might also extend to tailoring specific services or packages to them or even offering small gifts and bonuses on their birthday.

What is customer acquisition?

Customer acquisition is precisely what it sounds like; it is the process of acquiring new customers for a business. Customer acquisition is what most marketing we encounter attempts to achieve, which is to bring in new customers through exposure and brand awareness to the point they make a purchase.

Customer acquisition is also a crucial component to success and finding the optimal balance between acquisition and retention is an important task for any business.

Customer acquisition vs customer retention

Most companies focus their attention on the acquisition of new customers rather than the retention of existing ones. Around 44% focus on customer acquisition, whereas 18% focus on retention, and 40% place an equal emphasis on both. Despite this trend towards a greater emphasis on acquisition, numerous studies detail the benefits of customer retention, and retention is regarded as a far more cost-effective strategy than retention.

Customer retention, by and large, is cheaper than customer acquisition. It is difficult to measure across the whole business sector and studies vary widely from suggesting that the overall costs of retention are anywhere between five and twenty-five times less than acquisition. This is not to mention the income generated by the different strategies. The success rate of selling to an existing customer is said to be between 60% to 70%, while the success rate of selling to a new customer falls between 5% and 20%

Loyal and continuing customers are also more likely to spend more as they trust the business and are willing to continue their custom and have faith that further products or services will be of equal quality or value. Furthermore, loyal customers are highly likely to refer friends and family, thus customer retention can also serve as an additional form of acquisition in the long term.

Although there is undoubtedly a balance to be struck, it seems that overall, a focus on customer retention has greater benefits than a focus on acquisition.

Customer defection

Customer defection refers to the loss of customers or a gradual decrease in purchases made by them. Defection is precisely what retention is designed to hinder, it is the antithesis to customer retention.

In some instances, customer defection is easily noticed. For example, if a customer were to entirely sever ties and end all their business with a company, then it would be clear that they have defected. However, if they have only partially defected and are still purchasing from one business whilst gradually starting to buy from another, then the defection is less easy to detect.

Customer defection can be measured and hindered by using the churn rate that we saw earlier. It may also be possible to work out a partial defection rate by measuring and comparing the financial contributions made by individual customers each year.


Customer retention is vital to ensuring longevity and success in business. Maintaining good relationships with long-term, loyal customers provides stability and growth and is shown to be a cost-effective way of continuing success. While the importance of customer acquisition should not be understated, it has been shown time and time again that a greater focus on customer retention benefits most businesses over bringing in new customers.