What is customer retention? A beginner’s guide to increasing CLV



Customer retention has often been overlooked in favour of acquisition, but it’s something no business should be ignoring. 

The best strategy is to find a balance between acquisition and retention. It’s all very well acquiring new customers, but the real value is in keeping them over time.

Which brings us to…

Customer lifetime value (CLV)

This is a metric all companies should be paying attention to. In a nutshell, it’s the total worth of a customer to a company over the course of their relationship.

It isn’t always easy to measure, as customers move between channels, login under different email addresses, and so on. However, if you have a clear view of CLV then this should inform future business strategy so you can find the right balance between acquisition and retention.

The key to increasing customer lifetime value is to focus on customer retention, as a happy customer is more likely to be a loyal customer.

Customer retention: the stats

There are millions of stats on customer retention and related issues. Here’s a selection:

  • 66% of consumers say features, design and quality of product or service are the leading factor that determined brand loyalty (Support.com).
  • The top three reasons consumers switch brands: cheaper pricing (31%), rude staff (18%) and too many mistakes (16%) (Verint).
  • 71% of consumers have ended their relationship with a company due to poor customer service. (KISSMetrics)
  • The probability of selling to an existing customer is 60 – 70%. The probability of selling to a new prospect is 5-20% (Marketing Metrics)
  • On average, customer retention rates are 18% higher when employees are highly engaged in the retention program. (Thanx)
  • According to the White House Office of Consumer Affairs, loyal customers are worth up to 10 times as much as their first purchase.

The benefits of customer retention

  • Improved CLV. Customers who stay longer spend more.
  • Data. If you are retaining customers, then you have data on purchase history and behaviour to inform future strategy,
  • Reviews and ratings. Loyal customers are more likely to leave positive reviews of your products or services.
  • Recommendations. Happy customers are more likely to recommend you to their friends and family.
  • A reputation for service.

Examples of retention in practice

Let’s take Amazon. I signed up for an account many years ago, and shudder to think of how much I’ve spent with them over the years.

Indeed, now that Google shows recent purchases, this is a common sight for me.


Why do I shop with Amazon again and again? Well, the stock is always competitively priced for one thing, but it’s more than that.

It’s the all round customer experience. Repeat purchases are easy on website and app, partly down to UX, partly because saved payment details means I have to expend very little effort to buy anything.

It’s also about service – things arrive quickly, they arrive when promised. It works so you trust Amazon to deliver again and again.

Then there’s customer service. You can contact Amazon quickly without waiting on the phone for hours, returns are easy, Amazon pays for returns, and doesn’t ask too many questions (though this customer was apparently banned for excessive returns).

Some companies hold on to customers simply because it’s too much hassle to leave. For example, the car insurance company which offers you the best deal is likely to increase your premium 12 months later when renewal is due, in the hope that you wont notice or won’t be bothered to take the time to find a better deal.

car ins

The same applies to energy suppliers. It’s pretty easy to find a better deal and switch online but less than 20% of customers actually do this. It’s retention through inertia.

How can I improve customer retention rates?

You need to have the basics in place – a product or service that people want, the right pricing etc.

Unless you have the kind of business model that ‘locks’ people in, or generally makes it harder to switch, like the insurance examples above or perhaps another subscription model, you have to work hard on retention.

I’ll go into some detail on exact retention methods in a future post, but customer experience is at the heart of this.

If you deliver on time, handle returns and customer questions effectively, and make repeat purchases easy, you’re halfway there.

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