Sometimes, it’s so easy to get caught up in the process of converting new customers that you forget about keeping your existing ones. But your best customers may be sitting right in front of you. After all, you’ve already won them over with your products or services. And if you focus on retaining them, you can reap a wealth of benefits.

Keeping existing customers is as important – if not more important – than obtaining new ones for your business. Below, we dive into the importance of customer retention, as well as the six ways to increase your customer lifetime value.

Reasons to focus on customer retention

The case for prioritizing your existing customers is strong. Not only is it easier to gain a sale from someone already buying your product than someone who’s never done so before, a loyal customers is also more likely to refer their friends. With the right incentive, a loyal customer can become your most powerful advocate and bring new customers your way. And that’s not all – we put together four other reasons to focus on customer retention.

1. Higher retention leads to higher profits 

Retention rate is the percentage of customers who have remained with your company over a period of time. (The opposite of retention rate is churn rate, which shows the percentage of customers you have lost over a given time).

For example, if you started the year with 1,000 customers, and then found out that 800 of those customers remained at the end of the year, your customer retention rate for the year is 80% and your churn rate is 20%.

Higher retention rates are directly connected with higher profits. In fact, as the Harvard Business Review explains, “you don’t have to spend time and resources going out and finding a new client – you just have to keep the one you have happy.”

According to Destination CRM, increasing your customer retention rate by just 2% has the same effect on profits as cutting costs by 10%. Customer Thermometer also reports, increasing your customer retention rate by 5% can increase your company profits by 25–125%.

2. Existing customers are likely to spend more on your products

Keeping customers satisfied helps to continue building a customer base for your business. And when your existing customers are satisfied, they’re more likely to buy from you again. It’s far more cost-effective to persuade existing customers to make a repeat purchase than it is to acquire a new customer – just think of the money and time you don’t have to spend on ads to attract new people.

These compelling stats drive home the importance of customer retention to your bottom line:

  • 80% of your future profits will come from just 20% of your existing customers.
  • Your existing customers will be responsible for 65% of your sales. 
  • According to Neil Patel, repeat customers spend an average of 31% more than first-time customers.
  • Businesses are at least 40% more likely to convince an existing customer to buy from them again than they are to convert a prospective customer.
  • The probability of getting a prospective customer to make their first purchase is only 5–20%, while the probability of selling to an existing customer is 60-70%.
  • Existing customers are 50% more likely to try out your new products, as compared to new, prospective customers.

probability of selling to a new vs an existing customer


3. Satisfied existing customers will refer others to your business

Your existing customers are your greatest advocates. If they’re happy with your products and pleased with your service, they’ll refer others to your business, authentically and naturally.

As Inmoment reports, 75% of loyal customers will refer their friends and family to your brand. Loyal existing customers’ referrals come in a variety of forms, including:

These recommendations are powerful tools that should never be underestimated. People naturally trust referrals from those they know over generic messaging that comes directly from your brand. It’s one of the many reasons why you need a referral program. Here are a few other reasons.

  • Nielsen survey reports 90% of people trust recommendations from friends, family, and peers they know over other sources.
  • According to a Referral Rock survey, 83% of Americans say that word-of-mouth recommendations from friends or family members make them more likely to purchase a product or service.
  • 72% of consumers will take some sort of action after reading a positive review.
  • 88% of people trust online reviews written by other consumers as much as they trust recommendations from people they know.

Your existing customers’ recommendations can reduce your marketing costs even further. After all, their referrals come naturally, at absolutely no cost to your business!

  • Prioritize your existing customer’s experience, and new customers will end up rolling in for free. You won’t need to spend nearly as much money on new customer acquisition!

Most crucially, referred customers already have a positive impression of your brand, since their trusted friend, family member or peer gave your brand the thumbs up.

  • Referred customers are more likely to become loyal, lasting customers: their average lifetime value amounts to 16% more than the value of non-referred customers.
  • And best of all? Referred customers are more likely to keep the cycle going, and refer their friends to you. This could create a cycle of viral growth.

4. Retaining existing customers increases their lifetime value

Customer lifetime value measures the total profits that a given customer has brought to your business. The longer someone remains your loyal customer, the greater their lifetime value. Customers with high lifetime value are extremely important to your success because their purchases aren’t offset by customer acquisition costs (CAC).

In other words, a new customer who spends the same amount of money on products as your average existing customer brings less profit than the existing customer. Why? You have to account for the one-time cost it took to acquire that new customer.

To figure out whether your business is sustainable, you have to measure your customer lifetime value versus CAC. The more customers you retain, the higher your average customer lifetime value becomes, which means more profit. A high customer lifetime value means you’ve sustained growth.

On the flip side, if your CAC are higher than your average customer’s lifetime value, you could be losing money. It also indicates you have trouble retaining customers and may need to rethink your marketing strategy. These statistics show the importance of customer lifetime value in practice:

Use this basic formula to measure your customer lifetime value:

average annual profit from customer x number of years someone is a customer = customer lifetime value

For example, say your average length of customer retention is three years, customers spend an average of $500 a year on your products, and it costs you $800 to acquire a new customer. Your average customer’s lifetime value is $100 less than your acquisition costs, which means you could be losing money.

CLV example

But if your average length of customer retention becomes four years (assuming all other figures stay the same), then the value is $400 more than the costs to acquire each new customer. As you can see, increasing your average customer lifetime value makes all the difference!

second CLV calculation

6 ways to increase customer lifetime value

Now that you’ve seen the power of customer lifetime value, how do you increase it? How do you get existing customers coming back for more?

The answer lies in a blend of social engagement and savvy sales practices. You have to discover what matters most to your customers and appeal to their motivations.  In the next section, we’ll cover six ways to increase customer lifetime value.

1. Show your customer appreciation

This is a great way to appeal to the right-brained segment of your existing customers. Those who have done business with you like to know their actions are appreciated. Take the time to send a thank you email, highlight a long-term customer in a blog post, or even give out a freebie that shows your gratitude.

Customers remember these types of interactions and are more likely to show their loyalty. Measure these tactics by seeing which customers make additional purchases based on these acknowledgments. You can also use a CRM system with social listening tools (find great recommendations here) to see what they are saying about you on social media.

thank you, 3 million pairs donated

2. Have excellent customer service

This may sound obvious, but having exemplary customer service is critical to customer retention and increasing customer lifetime value. You might not have the most impressive website, social media presence, or engaging slogans. But if you treat customers with respect, they will come back.

According to a report by American Express, 69% of customers would spend more with companies who have excellent service. On the other side, 41% of consumers said they have switched to another company due to poor customer service.

Make sure your customer service reps are polite and helpful, keep response times low, and always handle customer grievances in a way that shows how much your company cares.

3. Give customers an incentive to join an annual billing cycle

If you offer a continued service to your clients, moving them from a monthly billing plan to an annual plan automatically keeps them as a long-term customer (and makes projecting revenue for the next year a lot easier). To successfully encourage this, it’s best to give customers an incentive to transition to a long-term commitment.

Offer a discount that saves customers money over the long-term if they sign-up for an annual billing cycle. While this involves a lot of planning, tracking, and preparation, providing them an annual billing option may be just what they need to become long-term customers.

annual billing cycle advantages


4. Remind customers to renew or replenish their stock

Keep in mind that your customers are busy with work and daily routines. While they may love your products and services, it’s common to forget when a renewal or upgrade is required. Make a point to send them a friendly reminder about any approaching end of the service or an item running low on inventory. Also be sure to include what steps are needed for a renewal or repurchase.

5. Be responsible with your customers’ information

According to SAP Hybris, 79% of customers will leave a brand if their personal data is used without their knowledge. This is a significant breach of trust that would understandably send any customer running to a competitor. Your company should ensure all data is encrypted, housed on secure servers, and not share with  any other company without explicit permission from customers.

It’s also a good idea to notify customers of the safety and security measures you are taking to protect their data. Always be transparent, and if something does go awry, notify your customers immediately about what you are doing to fix the problem. This shows customers they can trust you with their information in the long-term.

6. Master the art of upselling and cross-selling

Upselling is the practice of getting customers to purchase a more expensive version of an item, while cross-selling convinces customers to buy a related item that compliments the product. These practices can be very useful, but for them to work, companies have to build trust with customers.

When upselling always be sure to only recommend items that help buyers. For example, is there a more advanced software package perfect for the customer’s needs? Point this out, as well as the benefits one product may have over the other.

For cross-selling, suggest products that will enhance the customer’s current purchase. A set of headphones with a mobile phone, a pair of socks with sneakers. Then, look at how often customers are adding these suggestions to their shopping carts and continue refining your suggestions.

upselling and cross selling

Review of customer retention

Now that you know the reasons and ways to increase customer retention, the next step is to integrate the select tactics into your business. The following are some to keep in mind in order to ensure your customers stick with you in the long run:

Content in this article was contributed  by Chanell Alexander, a writer for TechnologyAdvice. She is a freelance writer and digital marketing strategist. She has over seven years of experience in the nonprofit field and enjoys blending innovative technology solutions with communications. When she is not writing, Chanell enjoys traveling, contributing to video game blogs, and embracing her inner foodie.