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Last updated on May 18, 2023

customer loyalty, customer retention

Creating a strategy to develop customer loyalty is one area of business that truly cannot be put on the back burner. 

It’s important that current customers know they are appreciated.

Time and time again, it’s been proven that loyal customers convert friends and family into customers just through word of mouth. And these customers contribute higher revenues for brands than new customers do. 

Cost of Attracting New Customers vs Retaining

Increasing customer retention rates by 5% can increase profits by 25% to 95%, according to research done by Frederick Reichheld of Bain & Company.

The probability of selling to an existing customer is 60 – 70%, while the probability of selling to a new prospect is just 5-20%.

Meanwhile, it can cost five times more to attract a new customer.

Think about that. 

If all the marketing efforts and money you spend on driving traffic to your business result in just one shot, who would you choose?

That’s right, existing customers!

So if your business cares about revenue and growth, it makes sense to focus your marketing on retaining customers too. But how exactly do you develop this customer loyalty?

Strategies on How to Develop Customer Loyalty

1. Customer Onboarding

Onboarding is a customer success function that teaches new customers how to use your product or service. Rather than struggling by themselves, customers are hand-held through the process.

This way, not only do they save time, but they can maximize their use of your product/service to help achieve their goals. 

Translation: Increase customer satisfaction, Improved brand experience. 

Onboarding is an effective way to increase customer retention because it prevents churn with new customers. Very often, your customers are busy and can’t afford to waste time. They need results fast. And if you can help them, they’re going to love you. 

2. Chatbots for Customer Service

Having a support team requires manpower. If you’re a solopreneur, that means your time.

If you’re a small or medium business with employees, you need either need to hire a support team, or someone on your team needs to handle this.

However, as you grow your customer base, service demands spike. And you only have a fixed bandwidth to handle that. Hiring is expensive and it might not make sense.

Introducing chatbots.

They are working all the time to answer your customers’ most pressing questions. When you’re short on resources, the last thing you need is to spend your time handling these things. Let the bot direct people to the relevant channels.

According to new research published on HubSpot, 82% of consumers look for an immediate response from brands. After 10min, their patience starts to wear out. 

90% of businesses also experience quicker complaint resolution after using chatbots. (MIT Technology Review).

With highly interactive front-end service, you can have ridiculously fast response times, feedback collection, engagement, hyper-personalization and increase customer retention.

3. Capitalize on Social Proof

Sometimes, the greatest form of advertising isn’t your own. In fact, customers are more likely to trust opinions from family, friends and other consumers like them. 

That’s where social proof comes in. Testimonials, customer stories and reviews are a big driver for brands like Codeacademy to drive sales and develop customer loyalty.

How often do you book a hotel without checking out the reviews? Or buy a car without hitting the forums?

Use real-life stories to attract new customers and convince existing customers to stay and upgrade their products. Highlight loyal customers on your website or your social media channels and you’ll find them not only feeling like a part of your family (it’s embarrassing for them to use your competitor with their logo on your site), but other customers like them will be attracted to you too.

4. Loyalty & Referral Programs

We, humans of the new age, are suckers for incentives. Loyalty programs are so popular and effective because it hooks people just like that. 

But before you jump into creating a new program, be sure to assess the costs closely with your executive team. Measure metrics like customer lifetime value, time to convert a new sale, cost of customer service, platform costs to track loyalty points etc. 

Check out some of the best loyalty programs by big names like Nike and Starbucks. 

What if you’re a subscription service or a B2B business? It still works!

Sometimes, current customers want an incentive to keep using your product. They may love your product but might not be all that compelled to commit to your brand long term. This is where referral programs are a good match to develop that loyalty for customers to your business. 

A typical referral program gives the customer benefits like discounts on their products for meeting certain criteria or points and freebies for bringing a new referral in using their affiliate code.

5. Educate Your Customers

Just because your customer has purchased from you doesn’t mean your job is done. There’s always room to improve the strengthen the customer relationship and develop stronger brand loyalty.

In a hyper-capitalistic world, your customers have more options at their fingertips than ever before. Competitors with cheaper products, more features, more exciting programs… you could lose them any time. 

Education, therefore, is one of the most valuable things you can offer your customers. Remember, you are an expert and they’re coming to you to solve their problem.

With training, certifications, how-to videos, blogs, infographics etc, your customers can learn and grow their skills with you. Helping them improve is a solid way to make them like you more and trust that you are THE ONE for them.

6. Surprise and Delight

People would do anything for their pets these days. Pet supply company Chewy knows how much their customers love their pets.

So they used the principle of surprise reciprocity to delight its customers with spur-of-the-moment gifts and cards for their pets. 

These surprises don’t need to be expensive, but they’re memorable. They pull on their heartstrings so customers can’t help but appreciate the hand-written note and the beautiful drawing. 

Here, you see how simple it can be. You could even throw in free samples to get customers to entice customers to try products they’ve never bought before. 

How to Measure Customer Loyalty and Retention

1. Net Promoter Score

It’s time to ditch the traditional customer satisfaction surveys. Gauge your customer loyalty with a Net Promoter Score (NPS), which revolves around one question: How likely are you to refer our product/service?

Customers will answer, giving you values between 1 to 10, which you can then segment into the following categories:

Promoters – Customers giving a score of 9 or 10. They are your biggest fans and are not only more likely to buy from you again, but also recommend you to others.

Passives – A score of 7 to 8 may be satisfactory, but they lack the oomph. These customers probably aren’t enthusiastic enough about your brand to tell their associates. Don’t be surprised if they hop over to your competitors either.

Detractors – If a customer rates you with a score of 6 or lower, they are considered ‘detractors’. These are dissatisfied customers who have had a poor experience with your brand and might damage your reputation. 

It’s best to follow up with detractors to understand why their experience was unpleasant. Then implement some form of service recovery to help improve their results and even convert them into promoters.

NPS = Percentage of Promoters – Percentage of Detractors

2. Customer Lifetime Value

This metric will give you an understanding of the total revenue the average customer brings in for your business (including future purchases). 

It not only helps you identify high-value customers, but it also helps determine 1) which customer segments to focus on, 2) how much you can afford to spend on marketing for one particular customer and 3) time needed to regain that investment.

Having a higher customer lifetime value is better, of course. Calculating the CLV is simple.

Customer Lifetime Value = Average Order Value x Average frequency of purchases per year x No. of years customer stays with the business

3. Repurchase Ratio

The repurchase ratio gives you the number of customers who come back to your business multiple times, compared to those who buy only once. 

Why measure this?

The idea is to bring your acquisition costs down and your revenue up. Insights into who your repeat customers are will allow you to alter your marketing strategy to target more customers like them.

There isn’t a ratio that is ‘good’ nor ‘bad’ per se. It depends on your business model and industry. For subscription businesses, you divide the number of customers who continue the subscription, by the number of customers who cancel after the minimum contract period.

Repurchase ratio = Customers who buy two or more times / Customers who only buy once

4. Upsell Ratio

Another indication of customer loyalty is when they buy new products. Spending more money is a symbol they trust you. Don’t confuse this with the Repurchase Ratio. The up-sell ratio tracks existing customers who buy a NEW, MORE EXPENSIVE product. 

The terms up-selling and cross-selling are frequently used interchangeably, but you should note the difference. Cross-selling is buying more related products in your catalogue, than the intended product. Up-selling is about buying a higher value option.

For this Upsell ratio, we’ll take both into account because they’re both vital components in a customer-centric relationship strategy. 

Upsell Ratio = (Customers upsold + Customers cross-sold) / Customers who buy intended product

How to Increase Revenue from Existing Customers

Ultimately, we develop customer loyalty to improve the company’s bottom line. We’ve done a good job managing existing customers and improving their experience. Now it’s time to monetize that: