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Customer Retention: What Is Customer Retention?

Improving customer retention helps you drive revenue, cut the cost of customer acquisition, and boost your overall customer experience. For businesses serious about growth, it should be a no-brainer. Yet, you’d be surprised.

Research we conducted for our The State of B2B Account Experience report has shown that many businesses, we’re talking 44%, don’t know their retention rates.

That’s almost half that can’t tell you how many customers churn — or why.

It suggests many B2B brands don’t fully understand the opportunities customer retention offers. In fact, our research shows that 70% of businesses don’t have their customer experience (CX) program linked to any financial data at all. And this is seriously hampering their potential.

In this guide, we introduce you to customer retention, a key part of your customer experience program and your strategy for growth.

We’ll show you why retention matters so much and how you can make it drive revenue.

But first, let’s define customer retention.

Fine Art of Surveying

Customer Retention Definition

Customer retention refers to the proportion of your customers that stay with your business over a given period of time.

Simply, they’re the customers that don’t churn. Instead, they stick with your brand, buy your new products, and continue to spend.

In this way, customer retention is a measure of customer loyalty. Retained customers are those you can rely on for continued revenue. Keep them satisfied for long enough and they may even recommend your brand to others, or refer their colleagues or friends to you.

This makes customer retention an essential part of your strategy for revenue growth.

Why Customer Retention Is Important

Customer retention is more than just another metric or key performance indicator (KPI).

Rather, the process of retaining customers (and keeping them satisfied) has a direct impact on your business’s bottom line.

So, while many businesses are not tracking their retention or churn rate, you really shouldn’t follow their lead.

  • Customer retention has an exponential impact on revenue. It’s said that a 5% growth in retention can boost your revenue by 25-95%. That means modest improvements can have massive impacts, which typically come through reselling and upselling opportunities.

  • Retention cuts customer acquisition costs. It makes sense that the fewer customers you lose, the fewer new customers you have to find to achieve growth. This keeps customer acquisition costs down. (You may have heard it costs somewhere between 5 and 25 times as much to sell to a new customer than to an existing one.)

  • Retention directly correlates with customer satisfaction. Satisfied customers stay longer (and spend more). And the efforts you make to improve your retention will boost your customer satisfaction overall, too. Find out more: How Customer Satisfaction and Retention Correlate in 2022

  • It drives customer lifetime value. In B2B contexts, customer lifetime value is typically much higher than in direct-to-consumer (DTC). But not if customers are churning early. Discover the relationship between retention and CLV here.

These days, brands are now beginning to prioritize customer retention over simple revenue gains.

We think that’s a smart move. Because by putting loyal, satisfied customers at the heart of your business, you’ll be building a sustainable ground for growth long into the future.

Measuring Customer Retention: Metrics You Need

What actually is customer retention? How can you put your finger on it? Before we get into strategies to improve retention, let’s clarify how you can calculate your retention rate.

You only need two central metrics: customer retention rate and revenue retention.

Customer Retention Rate

Customer retention rate (CRR) is the simplest metric for you to understand how many customers stay with your business.

To find your retention rate, you’ll need the following formula:

CRR

Now, that’s not as complex as it might look. CS is the number of customers at the start of any given period, while CE is the number of those customers remaining at the end. What you don’t need to worry about in this calculation is any new customers.

So, imagine you had 100 customers at the beginning of a year, but only had 80 of those customers left at the end. You’ll have an annual customer retention rate of 80%.

It really is that simple! See how you’re performing by benchmarking your rate against the average customer retention rate by industry.

Revenue Retention Rate

A calculation of the number of customers you retain doesn’t always show you the whole story. Often enough, businesses want to know how much revenue they’re retaining or losing to churn.

How do you find that out? With another similar formula:

RRR

Here, you need the revenue you have at the start of a given period (RS) as well as the revenue you have at the end of the period (RE).

So, say your RS was $1,500, made up of five customers respectively worth $500, $400, $300, $200, and $100. But during the period you lost the two customers worth $500 and $400.

In this case, your CRR would be 60%. However, your RRR would be 40%. It’s a big difference — and one you should know.

Other Customer Retention Metrics?

While CRR and RRR are your central metrics for calculating your retention rate, they’re not the only numbers you might need.

To get a complete view of your retention and customer satisfaction, you’ll want to monitor these further metrics, too:

  • Net Promoter Score (NPS). NPS is the most widely used metric to understand the factors driving your customer retention. We explore it in detail below, but if you really want to understand why your customers churn (and how to get them to stay), you’ll need NPS.

  • CES and CSAT. As we found in our The State of B2B Account Experience report, Customer Effort Score (CES) and Customer Satisfaction (CSAT) are not used quite as much as NPS to gauge B2B customer sentiment. But they can be useful nonetheless. Both investigate your customers’ feelings about a particular touchpoint, transaction, or interaction. Explore them in more detail: NPS vs CES vs CSAT

  • Engagement. If they intend to churn, customers won’t always tell you that’s what they’re going to do. In fact, most of them won’t. That’s why tracking engagement, such as engagement with your product or your customer service staff, will be an important part of your customer retention program.

Choosing the Right Customer Retention Software

You don’t need to track these retention metrics all by yourself. To get the most from your retention efforts, you need tools you can rely on to support you.

CustomerGauge’s Account Experience (AX) is exactly that.

AX can handle much of your B2B customer retention program for you. Alongside the tools to help you run customer experience surveys such as NPS, our 360 Customer Tracking can help you monitor engagement, customer service interactions, and more.

“CustomerGauge helps companies scale great relationships by measuring all these dynamic metrics. Companies can then prioritize where to spend their resources in order to build trust and improve the relationship,” says CustomerGauge's VP for Education and Program, Cary T. Self.

“The reality is this: any relationship is difficult. But when you think of a B2B relationship, it already becomes more difficult because you’re dealing with multiple relationships in that single relationship. You have to multiply all the points of contact, conversations, and interactions in order to begin to see the health of that relationship.

“Our data shows over and over again, the better the relationship, the better the growth!”.

The Basics of a Customer Retention Program

So, how to get started with customer retention? In this section, we look at the factors you need to consider in your customer retention strategy, from the drivers of customer retention through to the ways to use NPS surveys to cut churn.

To begin, let’s dive into the basic principles customers expect from your brand and what would make them stay for longer.

What Drives Customer Retention?

  • Trust. Customers want to trust your brand. That means they want reliable, authoritative information, a product they can depend on, and support they know they can reach out to. However, they also want to trust that their feedback and perspective is listened to.

  • Contact and engagement. Similarly, customers want to know you’re there for them — in a very practical sense. If you’re leaving support tickets hanging, or your customer service isn’t up to scratch, you shouldn’t be surprised when customers churn. By the way, we found that 75% of NPS frontrunners send thank you notes after surveys.

  • Conversation. In B2B contexts, simply talking to your customers can ensure they know you care and help you identify ways to improve their experience. Your customer success managers are who you should rely on to do this — but anyone, from your C-suite to your frontline staff, should be prepared to engage.

An easy, effortless experience. CES is cited as an important metric to gauge loyalty for a good reason. That’s because the more friction in a customer experience, the less likely customers are to buy again.

5 Strategies to Increase Customer Retention

With these fundamental principles in mind, what steps can you take to fight low customer retention?

Here are 5 strategies you can start to implement right now to get customers to stay:

1. Put NPS Customer Retention Surveys at the Heart of Your Program

The single most important thing you can do to improve your retention is to build a customer experience program around NPS surveys.

A customer experience program refers to the way that you engage your customers, ask for feedback, and act on that feedback.

By starting a CX program, you can boost your retention by an average of 7%.

But why are NPS surveys the best way to do this? Well, your NPS score has been found to be the most powerful predictor of future revenue. Plus, it’s simple to implement and analyze.

NPS surveys are based on a simple question that you will ask your customers:

On a scale of 0-10, how likely are you to recommend our brand/product/service to a friend or colleague?

Based on their responses to that question, you will categorize your customers into three groups:

  • Promoters (scoring 9-10). These are your most loyal and enthusiastic customers that have the highest chance of retention (what’s more, they’re likely to refer your brand to others, too).

  • Passives (7-8). Not overly enthusiastic, but not the biggest churn risks either. Ideally, you’d nurture your passive customers to become promoters.

  • Detractors (0-6). The customers you really need to identify in your retention program. These are high churn risks and may spread negative word of mouth.

To reach your overall NPS score, you’ll subtract the number of detractors from the number of promoters to get a number between -100 and 100. You can compare your performance with other brands in our database of NPS benchmarks.

But what’s important for your customer retention survey is to find out why customers (namely, your detractors) might be at risk of churn.

2. Close the Loop on Customer Feedback

Surveying your customers to understand their perspective on retention is smart. But acting on their feedback and telling them how you’re improving is even smarter.

The trouble is most brands don’t do it.

In fact, according to Gartner, while 95% ask for feedback, only 10% act on it, and only 5% tell their customers what they’ve done.

That last step, telling your customers, is what we call closing the loop, and it’s one of the most important things you can do to boost retention. We recommend you do it within 48 hours, if you can, and involve everyone in your business — from the C-suite to the frontline.

In The State of B2B Account Experience, we found that closing the loop with all your survey respondents can increase retention by 8%.

3. Survey the Right People

In B2C contexts, choosing who to survey is reasonably straightforward: every single relevant customer. However, in B2B, customers are really multiple.

In any customer account, there isn’t just a single individual that you’re engaging with. Instead, B2B customers tend to have diverse customer journeys involving various stakeholders, from tech teams to users to the C-suite.

You need to survey as many of these as possible.

Onboarding is a good time to collect the contact details of as many people in each account as possible. This will also help minimize churn risk if an important contact moves to a different organization.

4. Tackle the Hidden Churn Indicator: Absence of Signal

We said it above: not every customer at risk of churn will tell you that they’re about to churn. Instead, in the wise words of Cary T. Self, “Churn does not come from feedback and data, it comes from a lack of feedback and data”.

That’s why we say that absence of signal is the biggest churn indicator brands have. And that makes it an important part of your customer retention management.

To fully identify any risk of churn, you need to monitor engagement and intervene where it’s lacking. And here, tracking product usage, the number of issued support tickets, and the frequency with which customers respond to surveys is an absolute must.

5. Build a Team Culture Around Customer Experience

A customer-centric culture is one of the most important parts of a customer retention strategy.

Why? Because studies show that customer satisfaction often strongly correlates with employee satisfaction. And that makes a big difference to your retention.

“One of the biggest mistakes we’ve all made is making retention a responsibility of one person or one department,” Cary explains.
“To better understand how to retain a customer you have to understand the entire customer journey. All departments need to be involved with the retention strategy, to see where each department engages with the customer and what impact each interaction has on overall loyalty.”

Improving Your B2B Customer Retention Strategy

Started with your retention program? It’s now time to refine your customer retention methodology to build a real churn-cutting machine.

What do we have in mind? It’s time we introduced you properly to Account Experience (AX), our customer retention framework designed specifically for B2B brands.

Use Account Experience as Your Customer Retention Framework

Account Experience is the methodology we designed at CustomerGauge to help B2B brands improve their customer experience, cut churn, and crucially drive revenue growth.

It works in three stages to help you boost customer retention: Measure, Act, and Grow.

Here’s what you need to know and what you can do to refine your results.

1. Measure

Any customer retention methodology, Account Experience included, should start with measurement. For us, that means reinforcing NPS with other customer experience and engagement metrics to give you the deepest possible picture of customer satisfaction.

Here are some best practices to follow:

  • Make survey response rate a key metric. The more people that respond to your customer survey, the better your results — and the greater your customer engagement.

  • Increase the signal in each account. We said it above: surveying one contact from each account isn’t enough. Instead, our research shows that reaching out to as many individuals as possible can boost your retention by 18%.

  • Survey regularly. We found that surveying customers every quarter can boost retention by as much as 51%.

  • Dig into the why. The value of customer surveys is largely in understanding the drivers of customer sentiment. By following up your NPS question with a driver question, you’ll find out which touchpoints are affecting customer satisfaction, and which are encouraging churn.

  • Never forget what customers aren’t saying. Customer surveys are truly invaluable. But, if you fall into the trap of thinking survey respondents are the only customers that matter, you may see your NPS survey improve without retention growing at all.

  • Link customer retention metrics to revenue. Without tying your CX data to your bottom line, you’ll be only seeing half the picture. Account Experience software can help.

2. Act

The second stage in Account Experience is action.

This involves three steps: analyzing customer retention, closing the loop, and setting goals for future progress.

  • Get your customer retention analysis right. Tracking your customer retention metrics is a fundamental part of your retention program. But understanding what they’re really telling you is not always that straightforward. Bringing revenue metrics into your retention analysis will be crucial.

  • Closing the loop. Alongside your analysis, address the issues that are affecting your customer experience and reach out to customers to let them know. Different levels can all play a role in this:
    • Frontline staff can determine the root cause of customer retention problems, fix open issues, and encourage referrals

    • Middle management can identify best practices and performance

    • The C-suite can work to understand structural issues, investment needs, or strategic problems

  • Set customer retention goals. Goals can help to align and motivate your team and boost performance. We found that businesses that set customer experience goals grow twice as fast as those that don’t.

3. Grow

Finally, all of your customer retention efforts should be geared towards growth.

This is where Account Experience goes beyond many other customer retention strategies. Simply, retention isn’t enough — it’s what you do with those retained customers that counts.

Here are three tips to get you growing:

  • Remember to link customer retention to revenue. We repeat it because it’s crucial. There’s only one number that matters to your C-suite and investors: revenue. By making sure you can put a dollar-and-cents figure on your retention performance, you’ll see your program gets the support it needs.

  • Identify opportunities for upselling and reselling. Boosting retention is about cutting churn. But it’s also about encouraging your customers to make further purchases. Your NPS promoters will be your prime targets for reselling campaigns.

  • Encourage referrals. NPS promoters are those people who are most likely to recommend your product to others. But your job is to encourage them to actually do it.

Customer Retention Success Stories

Account Experience has delivered some incredible results for our clients.

Here are three examples of customer retention success.

  • INAP is a data center manager that cut their churn rate in half in two years thanks to Account Experience. As INAP’s TJ Waldorf said:

Fueled by action are probably the most important words. It's one thing to just collect the data, but in my mind the crux of this program is to actually do something (with the data)."

Learn more: How INAP Reduced Churn by 50%

  • Alchemista. In 2019, the catering brand Alchemista lost its biggest client without warning. However by implementing Account Experience, it’s turned this around.

Alchemista now boasts an astonishing 100% retention rate.

“Onboarding CustomerGauge has had the highest ROI of anything I've ever done at my company," says Christine Marcus, Alchemista’s CEO.

Find out how we made it happen: How Alchemista Went From Losing Their Biggest Customer to 100% Retention

  • Until 2017, the IT brand, SmartBear, didn’t have a customer retention program to speak of. But in just 18 months of working with CustomerGauge, they were seeing incredible results:
    • They saved 60% of customers at risk of churn

    • Increased referral revenue by $6 million

    • Boosted referral close rates by over 50%.

That was thanks to NPS surveys and engaging with multiple stakeholders in each account. Learn more: How SmartBear Brought in $6 Million in Referrals

With Account Experience, you can build a customer retention program that delivers similar results. Book a demo to get started.

Discover More in Our Customer Retention Library