Referral Marketing

Strategies to Drive Customer Retention Through Loyalty

Why isn’t your company meeting customer loyalty expectations? Understanding this first is how you increase customer retention.


Your people need to do more. Simply putting out the minimum effort required to “satisfy” the customer just won’t cut it. Your competitors are going above and beyond, and that’s why you’re losing market share. It’s only a matter of time before your customers become theirs.

Sound familiar? If you’re making this speech to sales and service people, your customer retention rates are probably in the toilet. Current loyalty programs and email marketing aren’t working. Existing customers are unhappy. Your retention strategy needs a revamp.

How do you fix it? Firing a few people might help, but it doesn’t solve the systemic problem of why they’re not appreciative of customer loyalty. Why isn’t your company meeting customer expectations? Understanding this first is how you increase retention.

Customer Loyalty Program

A How-to Guide on Retaining Customers

Every customer is valuable, regardless of the size of your business. Each customer acquired should be treated like a member of the family. Customer loyalty should be acknowledged and awarded on a regular basis.

Communication is the key. Inexperienced businesses assume that they know what their customers want and never actually ask them for their input. Established brands are using quizzes and surveys to identify pain points and deliver a marketable product line.

You’ll find common themes if you have enough conversations with existing customers. By treating them as human beings, and not dollar amounts, you’ll gain some insight into how your business can better service them. You’ll also be able to resolve issues more promptly.

Retaining customers boils down to two main areas: make them feel wanted and give them what they’re looking for. That’s what turns the walk-ins into repeat customers. Treating them like a burden or disruption in your day will drive them into the arms of your competitors.

Why is Customer Retention Important?

If you’re the only game in town, customers will come to you automatically. Unfortunately, that is rarely the case in modern day America. There’s competition out there, lots of it, and customer acquisition costs money. That cost varies by industry, but it’s always there.

Take retail as an example. The average cost per customer acquisition (CAC) for a retail business is $10, so the lifetime value of that customer has to exceed that. We’re talking profit, not consumer spending. Most retail profit margins are under 5%.

The CAC for a consumer goods business like a grocery store is $22 per customer. The average profit margin for grocery sales is 2.2%. Do the math. That customer needs to spend $1000 just for you to break even. Are you starting to see why customer retention is important?

Counting the number of customers acquired during any given period is useful for calculating short-term revenue, but customer retention metrics are how lifetime value is determined. Knowing where you break even can help you design loyalty programs to keep them coming.

This is why building a positive relationship, starting with the very first visit, is critical for success. Customers didn’t just walk in. You paid for them to be there. Now, you have to find a way to get that money back. That’s where a retention strategy and loyalty programs come in.

How Does Loyalty Drive Customer Retention?

Customers Are the Best Advocates

Loyalty is earned, not bought. Sure, you can spend money on a loyalty program to bring an existing customer back in the door, but the culture needs to be right for them to keep coming back on their own. The only way to retain customers is to make them want to be there.

Ken Blanchard, author of “Raving Fans,” summed it up best. “Just having satisfied customers isn’t good enough anymore,” he said. “If you really want a booming business, you need to create raving fans.” In other words, your customers should be your best advocates.

This is where an average existing customer can become a walking, talking promotional instrument for your company. Reward their loyalty and offer them something for bringing in new customers. They’ll be happy to do it because you treat them better than your competitors do.

Let’s say you have a group of loyal customers who frequent your establishment more often than the rest. You could offer them discounts on their own services in return for volume sales generated from them sharing a referral link to their friends. Do you think that would work?

This is how you build your base and increase retention rates. Once regular customers bring their friends in, they are unlikely to shop anywhere else. Human beings are social creatures. Relationships are important to them and they recommended you.

Calculating the Retention Rates of Your Loyal Customers

The formula for calculating customer retention rates is R=((E-S)/S) x 100. The “E” stands for the number of customers at the end of the period. The “N” is for the number of customers acquired during that period. The “S” is for the number of customers at the start of the period.

If you looked up a customer retention definition, this is what you would see, but it doesn’t tell the whole story. This formula assumes that customer retention refers to the total number of customers you have, but it does not look at them as individuals.

Customer loyalty can’t be measured by an algebraic formula and it’s not enough to simply retain customers. Truly loyal customers will recommend your products or services to others. That’s what you want to track. How many referrals have been issued during that period?

Doing this requires more than an Excel spreadsheet and word of mouth confirmation. A referral program targeted to loyal customers needs to be well- organized, incorporate an email marketing component, and properly promoted. Talkable can help you do all of that.

Steps to Revamping Customer Loyalty Programs

Prior to implementing any kind of new loyalty or referral program, it’s important to do a cultural inventory of your business. Current customers won’t recommend you if their experience is less than satisfactory. You’ll struggle just to keep their business. Take a hard look at how you service your existing customers before taking on new ones.

The next step is to scrap your old referral plan. You can use anecdotal data to identify your best influencers, but you’ll be guessing. Setting up a new referral program with trackable links and a support system for referrers will get you far better results. The old way of simple word of mouth doesn’t work today. Stop pretending that it does.

Finally, reward those who recommend you to others. Goodwill is great, but it's not tangible or quantifiable. The most successful companies can tell you exactly where their referrals are coming from and how their marketing efforts influence them. That’s the point you want to get to. It takes time and hard work to achieve it, but it’s worth it.

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