As budgets were slashed and priorities changed during 2020, getting new customers suddenly became a lot harder. People are looking for the best possible deal, and customer retention is no longer just a smart strategy; it’s essential.

If you don’t spend enough time looking after your existing customers, they’ll disappear. As we look forward to finally seeing the end of 2020, choosing the right customer retention strategies will be more important than ever in 2021.

What is customer retention?

Customer retention refers to the strategies and tactics that a company uses to keep as many of their current customers as possible. Rather than relying solely on new customers, a customer retention strategy will promote loyalty in existing customers so that they’re not tempted to turn to one of your competitors.

For e-commerce and traditional businesses, customer retention programs encourage customers to come back and buy again. If an electronics store sells you a digital camera, they’ll want you to come back and buy your car stereo, a mobile phone, and any other gadgets you need from them too.

For SaaS and other subscription-based businesses, it’s slightly different. Rather than focusing on customers making additional purchases (although upgrades and cross-sells are always good), client retention is about ensuring each customer is getting enough value from the service so that they stay subscribed. Microsoft doesn’t want you to sign up for Office 365 for just one month; they want you to stay subscribed to the service for as long as possible.

Why is customer retention important?

While it’s tempting to keep chasing new customers at all costs, your existing customers are a goldmine that you can’t afford to ignore.

You don’t need to spend a fortune marketing to people who’ve already purchased from you. After all, these are people who’ve already gone through the conversion funnel with you at least once. An existing relationship means they’re more likely to trust you and be willing to spend more with you, making them more profitable for your business.

As an added benefit, investing in customer retention services creates more loyal and happy customers. That makes them more likely to refer others your way, meaning your customer retention programs can indirectly lead to more new customers anyway.

When to focus on customer retention

As important as customer retention services are, their value changes depending on the stage of your business. Obviously, you need to have some customers in the first place before you need to worry about retaining them. For companies that have just started up, your focus has to be on acquiring new customers and gaining traction.

Once you’re established and have enough customers coming in to support your business, it’s time to shift your attention to keeping those existing customers happy. That doesn’t mean abandoning new customer acquisition entirely though. Rather, you need to keep a balanced approach, maintaining a reliable flow of incoming customers and then looking after them so they stick around. The more established you are, the more resources you can allocate to client retention.

How retention fits your business

Customer retention applies to any business you can imagine, but it’s most important when selling frequently purchased items or for subscription-based businesses.

For example, if you’re a car dealership, it’s highly unlikely that you’ll sell to the same person every week, no matter how good your customer retention strategy is. Sure, it would still make sense to look after your customers, as they can be a valuable source of referrals. However, there’s a limit to how much value a single customer can bring.

On the other hand, if you’re selling something that’s used frequently, then a good retention strategy will dramatically increase each customer’s value to your business. Even for relatively cheap commodities, retained customers bring in significant revenue. Starbucks and McDonalds have built global franchises based on selling coffee and fast food to retained customers. Charles Duhigg, in his bestselling book The Power of Habit, explains how Target markets to expectant mothers, as they realized that customers who bought baby formula and diapers from Target were more likely to buy the rest of their weekly shop there too. Once people form a shopping habit with a particular store or website, they’re more likely to keep shopping there.

For SaaS and other subscription services, client retention is critical. As long as your customers are loyal and keep their subscription, their value goes up. Whether it’s a B2C offering like Netflix or Spotify, or a B2B product like Microsoft or QuickBooks, the whole business model is based on retaining customers as long as possible.

How to calculate your customer retention rate and other key metrics

To work out your customer retention rate for a specific period, you need to know:

  • How many customers you had at the start of the period (CS)
  • How many customers you acquired during the period (CA)
  • How many customers you had at the end of the period (CE)

As you’re looking purely at customers who you’ve retained, we need to remove those newly acquired customers from the number of customers at the end of the period (CE-CA). Then, we divide that number by the number of customers we had at the start (CS). To get that as a percentage, simply multiply by 100.

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Customer Retention Rate (CRR) formula

So if you started the month with 200 customers, 50 new customers signed up, and you finished the month with 170 customers…

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Calculating the Customer Retention Rate (CRR)

There are several other metrics you’ll want to keep an eye on, depending on your business model.

  • Repeat customer rate. The percentage of customers who make a second purchase.
  • Purchase frequency. The number of purchases in relation to the number of customers.
  • Average order value. The average value of each order
  • Customer lifetime value (CLV). How much revenue the average customer brings in over their lifetime.
  • Customer acquisition cost (CAC). How much it costs you on average to acquire a new customer. If the CAC is lower than your CLTV, your business is profitable. If it costs you more to acquire a customer than they spend with you, your business isn’t sustainable.
  • Churn rate. For a SaaS business, this represents how many customers cancel their subscription. You can also achieve negative churn, which is when the added revenue from existing customers upgrading is greater than the revenue lost through churn.

The 3 best customer retention strategies

It’s not enough to recognize the value of your existing customers. You also need to know how to retain customers. To get any benefit, you’ll have to implement strategies designed to increase loyalty and keep your retained customers happy. Bearing in mind the many challenges businesses have faced in 2020, here are the most effective strategies you can use as we head into 2021.

Implement a subscription model

Moving over to a subscription model means trading a large one-off lump sum for multiple smaller payments. While Microsoft used to charge hundreds of dollars for Office, you can now pick it up for a few dollars every month. This can be a win-win, making it easier for your customers to budget their expenses, upgrading or downgrading as their needs change, while providing you with a source of recurring revenue.

This isn’t just for SaaS businesses though. Gyms are famous for using monthly plans, so that you pay the same amount whether you use the gym daily or workout just once a month. Along with their annual Prime subscription, Amazon also encourages you to “Subscribe & Save” when purchasing physical products by scheduling repeat deliveries.

Outstanding customer service

To improve customer retention, you need to increase customer satisfaction. People should be absolutely delighted with your service.

One way of achieving this is by having open lines of communication. Rather than making customers hunt for your contact details and then wait on hold for hours, do your best to remove friction and stress from the process. Live chat is a great communication channel that’s convenient for you and your customers. Its popularity grew significantly in 2020 and will definitely continue to grow in 2021. When a customer’s questions or issues can be resolved over a couple of messages in real time, it leads to a great customer experience. However, live chat can be limited when dealing with complex situations or trying to close an important sales deal—long written exchanges can be tiring to prospects and customers.

SnapCall has come up with the answer, helping customer support and sales teams deliver an extraordinary customer experience for potentially longer chats. With our click-to-call solution, an agent can now initiate a call with a customer right inside the chat—no need to leave the chat and explain the situation to another team all over again. Switching from chat to a voice call inside the chat doesn't require any phone numbers or other additional equipment. All your team and customers need to do is enable the microphone on their browser or mobile application, and they’re ready to get started.

This makes it simple for customers to get in touch and allows you to quickly resolve any issues to their satisfaction, leading to increased customer satisfaction and greater customer retention.

Additionally, more companies are replacing reactive customer support teams with proactive customer success teams. Rather than simply resolving complaints, these actively work with customers to get the maximum value out of your service. This means they’ll be happier and less likely to churn.

Editor’s note: For more ways to increase customer satisfaction, check out our guide on improving your net promoter score.

Reward loyalty.

Many companies reserve their best offers exclusively for new customers. However, if you don’t treat your existing customers well, they’re not going to stick around. Instead, reward their loyalty and show that you value their custom. For example, many companies are retaining customers by awarding them with points for each purchase which can then be redeemed for bonuses, or with a reward system, where customers and clients can win prizes at the end of the quarter.

B2B companies can also use other methods to reward their loyal customers, such as by offering discounts, upgrades, or personalized support. Many also send gifts at Christmas or other times of the year to their best clients, which is a great way to delight a customer and show that you value them


While acquiring new customers is vital for companies that are just starting, existing customers are a profitable resource that shouldn’t be ignored.

By measuring your customer retention rate, you can see if your existing customers are satisfied or if they’re abandoning you for your competitors. Then, by implementing strategies that encourage repeat purchases, providing high-quality customer service and rewarding loyalty, you can increase both the value you offer your customers and their value to you.

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