Customer Retention

8 Important Factors to Consider for Customer Retention

Discover the importance of customer retention for your business and why it's essential to focus on retaining customers

Is your marketing spending only based on expanding your customer base? You may be losing out on repeat customers. Your marketing spending must find a balance between customer acquisition and retention. Maintaining this balance and effectively transitioning new customers into loyal customers is an important process to build a sustainable business.

In this article, we will learn the importance of customer retention.

What is the Importance of Customer Retention?

Although nurturing existing customers into loyal ones is a difficult process, more often than not, it is worth it. Here are some reasons why customer retention is important:

#1. Affordable marketing

Acquiring new customers often requires significant investment in marketing and advertising efforts, which can be costly. In contrast, retaining existing customers often requires less investment as the customers are already aware of the brand and may be more likely to make repeat purchases. According to research, marketing to a current customer costs roughly $7, whereas marketing to a completely new customer costs around $34 – more than four times as much. 

#2. Increased repeat purchases and revenue

A study by Bain & Company found that “Repeat purchasers spend more and generate larger transactions. In our study, the longer their relationship with an online retailer, the more customers spent in a given period of time.”

When customers are happy with their experiences with a business, they are more likely to return for additional products or services, resulting in repeat purchases. Additionally, satisfied customers are more likely to spend more over their lifetime, resulting in increased revenue for the business.

In a recent study by Echo for American Express, researchers found that “customers will spend more with companies that provide excellent customer service.” 

#3. Decreased churn rates

Another reason why it is important to focus on customer retention is that it helps to reduce customer churn. Decreased churn rates refer to the reduction in the rate at which customers stop doing business with a company. A lower churn rate means that more customers are continuing to do business with a company over time, rather than leaving for a competitor. By decreasing the churn rate, businesses can retain more customers and see a corresponding increase in revenue and growth.

#4. Word-of-mouth marketing 

Word-of-mouth marketing (WOMM) is a powerful tool that businesses can leverage to increase brand awareness and drive new business. WOMM is when satisfied customers share their positive experiences with a business, product, or service with their friends, family, and other personal networks. WOMM is a direct benefit of customer retention, as satisfied customers are more likely to spread the word about a business. By focusing on customer retention strategies, businesses can create a positive customer experience that will lead to increased WOMM, which can help to drive new business and increase revenue. Additionally, WOMM can also help to reduce the cost of acquiring new customers, as satisfied customers will refer their friends and family to the business, who in turn will also become customers.

Mark Zuckerberg in an interview pointed out “People influence people. Nothing influences people more than a recommendation from a trusted friend. A trusted referral influences people more than the best broadcast message.”

#5. Premium pricing for premium customers

Premium pricing is a pricing strategy where businesses charge a higher price for a product or service that is considered to be of higher quality or value. One way businesses can use premium pricing is by offering it to their premium customers as a way to retain them. Premium customers have a higher lifetime value, spend more, and are more likely to make repeat purchases.

Premium pricing can create a perception of higher quality or exclusivity, which can make customers feel like they are getting a better deal. In addition, premium customers are more likely to make repeat purchases and spend more over their lifetime, which can help to offset the costs of acquiring new customers.

It's important to keep in mind that a premium pricing strategy should be used in conjunction with other retention strategies, such as providing excellent customer service, personalization, and quality products or services. It's also important to segmentation and targeting  to offer premium pricing to customers who have consistently shown a high lifetime value.

#6. Better return on investment

Customer retention can lead to a better return on investment (ROI) for a business in several ways as retained customers are more likely to make repeat purchases, which can generate additional revenue without the need for additional investment in acquiring new customers.

In addition, satisfied customers are more likely to refer others to a business, which can help increase customer acquisition at a lower cost.

By understanding customer's preferences and behavior, businesses can personalize their marketing efforts and target the right audience with the right message, which can increase the effectiveness of their marketing campaigns, and lower costs.

#7. Increased customer lifetime value

Increased customer lifetime value (CLV) is a key benefit in the importance of customer retention. CLV refers to the total amount of money a customer will spend on a business over their lifetime. When a business is able to retain customers, they are more likely to make repeat purchases, which can increase CLV. Additionally, customer retention strategies can help to increase CLV by encouraging upselling and cross-selling of related products or services, and by offering customer loyalty programs that incentivize repeat purchases and encourage customers to spend more over time. 

In the RJ Metrics study, one of the key findings was that “the top 1% of eCommerce customers spends 30x more than the average customer. The lifetime value of these customers isn’t just a little better, it’s dramatically better.”

Personalizing the customer experience based on their preferences and behavior further helps in increasing CLV. When businesses understand and address customer needs and concerns, it can create a positive customer experience that leads to increased CLV. This, in turn, can help to offset the costs of acquiring new customers and generate more revenue for the business over time.

#8. Value added feedbacks

Valuable feedbacks play a crucial role in customer retention. Feedback from customers can provide valuable insights into what they like or dislike about a business, product, or service, and can help a business to identify areas for improvement. By actively seeking and listening to feedback from customers, businesses can make changes that will improve the customer experience and increase satisfaction.

One way to gather valuable feedback is through surveys, interviews, or online reviews. These methods can provide an objective view of customers' experiences and help identify specific areas for improvement. Additionally, by responding to feedback and addressing customer concerns, businesses can demonstrate that they value their customer's opinions and are committed to making improvements.

Another way to gather valuable feedback is by monitoring customers' behavior, such as their purchase history, browsing history, and website interactions. This data can provide valuable insights into customer preferences and behavior, which can help to personalize the customer experience and increase satisfaction.


In conclusion, customer retention is crucial for the success of any business. By retaining existing customers, companies can save on the costs associated with acquiring new customers and rely on a steady stream of repeat business.

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