Gaining a new customer can cost a lot more than retaining an existing one, making customer retention necessary for businesses that are seeking sustainable growth. While initial customer acquisitions can boost revenue, loyal customers often become the most valuable asset, driving repeat purchases and word-of-mouth referrals. For example, studies show that a 5% increase in customer retention can increase a company's profitability by 25% to 95% over time.

As industries evolve and market preferences shift, companies must pivot their strategies to attract and retain a dedicated customer base. Below, we'll describe sector-specific tactics that businesses can use to build more effective retention strategies. Here's what you need to know to cultivate lasting customer relationships, from the earliest days of your business through to each stage of growth.

What's in this article?

• What is customer retention?
  
• Why does customer retention matter for businesses?
  
• Customer-retention strategies for businesses
  

What is customer retention?

Customer retention refers to keeping your current customers actively engaged with your business for as long as possible. Depending on the nature of your business, retention can look different and be measured differently. For example, if you have a subscription-based software-as-a-service (SaaS) company, then you're probably working to ensure that subscribers don't cancel their service. If you run a freelance design business, your retention strategy might be to entice your clients to hire you for more work.

Why does customer retention matter for businesses?

Customer retention is a top priority for most businesses. Here's why retention is so important:

• Cost efficiency
  Retaining customers is often less expensive than acquiring new ones. For instance, marketing and outreach to acquire new customers in the e-commerce and retail sectors typically cost more than it would to retain existing customers.

• Consistent revenue stream
  Subscription and SaaS businesses rely heavily on retained customers for predictable recurring income, which sustain operations and business growth.

• Trust and brand loyalty
  In the creator economy, a loyal audience base signifies trust in the creator's content, increasing engagement and purchases.

• Platform credibility and growth
  Platforms and marketplaces with a steady customer base can draw in additional stakeholders, such as sellers or advertisers. This solidifies the platform's credibility and sets it up for expansion.

• Feedback for improvement
  Businesses benefit immensely from feedback, especially those in the on-demand service sector. Established customers are more likely to share their experiences, identifying areas for improvement.

• Community building
  Retained customers – whether on a marketplace, creator page or other platforms – often form tight-knit communities. These communities can amplify positive brand messages and provide guidance to newcomers.

• Reduced price sensitivity
  Loyal customers – commonly found in the e-commerce, retail and subscription sectors – are less sensitive to minor price adjustments, due to their dedication to the brand.

• Stability amid change
  In rapidly evolving industries, such as SaaS or on-demand services, a loyal customer base offers a buffer against volatile market shifts.

• Increased lifetime value
  A retained customer usually brings more value over time. Their regular engagement – whether through interactions, purchases or subscriptions – boosts the company's revenue.

Customer retention is about building relationships that benefit both the company and the customer over time. It increases revenue, fosters customer trust, protects against destabilising forces and facilitates long-term growth.

Customer-retention strategies for businesses

E-commerce and retail

Businesses in the e-commerce and retail sectors depend heavily on customer retention. Implementing effective strategies can increase revenue, customer loyalty and brand recognition. Here are some customer-retention tactics for these sectors:

• Loyalty programmes: retail shops such as Sephora have loyalty programmes where customers can earn points with every purchase. They can redeem these points for products, encouraging repeat purchases.

• Personalised recommendations: online platforms such as Amazon, provide personalised shopping suggestions based on browsing history and previous purchases. This customises the shopping experience to individual preferences.

• Engaging email campaigns: brands such as ASOS send out curated email campaigns announcing sales and suggesting items based on past shopping behaviours.

• Easy return policies: Zappos is known for its hassle-free return policy, making customers more confident in their purchase decisions.

• Exclusive offers for repeat customers: many e-commerce websites offer special discounts or early-access sales to customers who have previously purchased from them, giving them an incentive to continue shopping.

• Responsive customer service: retailers such as Nordstrom prioritise customer service and address any questions or concerns promptly, which creates a positive post-purchase experience.

• User-friendly website design: websites such as Shopify provide templates for online businesses that are visually appealing and easy to navigate, enhancing the shopping experience.

• Product bundling: retailers often bundle products together at a discounted rate. For instance, Bath & Body Works often has deals where you get three additional products for free when you purchase three products.

• Feedback solicitation and action: after making a purchase on websites such as Etsy, customers are often prompted to leave feedback. Businesses can then use this feedback to improve products and services.

• Regular product updates: e-commerce platforms, especially those in the tech or fashion sectors, update their product lineup on a regular basis. Apple, for example, routinely launches new versions of its products, enticing customers to come back for the latest gadgets.

Incorporating these strategies can have significant benefits for e-commerce and retail businesses. Businesses should craft strategies that cater to customer behaviours and preferences, while also adding value to the shopping experience.

SaaS and subscription businesses

Customer retention is fundamental for SaaS (software-as-a-service) and subscription-based businesses. For these enterprises, continued revenue and business growth often depends on maintaining a loyal customer base. Here are several retention tactics specific to these businesses:

• Tiered pricing and packages: companies such as Dropbox provide various pricing levels, allowing customers to select the package that best fits their needs and potentially upgrade as those needs evolve.

• Onboarding and training: software platforms such as HubSpot offer comprehensive onboarding sessions and tutorials. This familiarises customers with the platform, making them more likely to continue using it.

• Regular feature updates: Adobe's Creative Cloud rolls out updates and new features for its suite of products constantly, giving subscribers added value over time.

• Customer support and service: Slack is known for its responsive customer support, resolving issues quickly and enhancing customer satisfaction.

• Feedback loops and product improvement: platforms such as Trello actively seek feedback and make visible changes based on customer suggestions, demonstrating that they value customer input.

• Exclusive content and webinars: software platforms often provide webinars, tutorials and exclusive content to subscribers. For example, Semrush hosts webinars on digital marketing topics for its customers on a regular basis.

• Flexible contracts: some SaaS businesses, such as Mailchimp, provide monthly subscription options instead of binding annual contracts, giving customers flexibility and reducing the barrier to entry.

• Integration capabilities: platforms such as Zapier allow customers to integrate multiple apps, improving the customer experience by creating efficient workflows with tools that they already use.

• Referral programmes: Evernote rewards customers with bonus storage space when they refer new customers. This encourages existing customers to promote the platform and remain engaged.

• Drip email campaigns: many subscription services use email campaigns to keep customers engaged, notify them of new features and give tips for optimal use. Grammarly, which sends weekly writing insights and tips to its customers, is a good example of this practice.

• Engagement analytics and usage reports: platforms such as Google Analytics offer customers insights into their website performance, enabling them to see the value and results derived from the platform.

SaaS and subscription businesses should focus on consistently adding value, understanding customer needs and adapting to those needs over time. By implementing these strategies, businesses can increase customer loyalty and, in turn, their bottom line.

Platforms and marketplaces

Customer retention is a priority for platforms and marketplaces. These ecosystems thrive on both the demand (buyers) and supply (sellers) sides of the market, and it's important to maintain a balanced, engaged and loyal customer base. Here are several retention tactics that are tailored to these sectors:

• Trust and safety measures: many platforms, such as Airbnb, have invested heavily in trust-building mechanisms – for example, verified customer profiles and secure payment gateways – which signal to customers that they'll have a safe experience.

• User-friendly interface: Etsy's intuitive user interface helps both sellers and buyers interact easily, creating a more satisfying customer experience.

• Community-building initiatives: certain platforms, such as Reddit, have built their reputation on communities. They facilitate user-generated content and discussions, creating a sense of belonging among their communities.

• Responsive support systems: Amazon provides dedicated support to sellers on its marketplace, promptly addressing concerns and providing assistance.

• Customised recommendations: Spotify offers personalised music playlists, such as "Discover weekly", to keep listeners engaged and returning for more.

• Flexible fee structures: eBay has promotional days where listing fees are reduced or waived, encouraging more sellers to list items.

• Feedback and review mechanisms: Uber allows both drivers and riders to review each other after each trip. This feedback system encourages quality control and trustworthiness within the platform.

• Partnerships and integrations: Postmates partners with various restaurants and shops, expanding its options and appealing to a wider range of customers.

• Regular engagements and updates: certain platforms, such as X (formerly Twitter), roll out feature updates and hold events to keep the customer base engaged and informed – for example, Q&A sessions with prominent personalities.

• Incentivised referral programmes: Dropbox grew its customer base exponentially with its referral programme, where customers could earn additional storage space by inviting friends to join the platform.

• Education and resources: Shopify provides plenty of resources, blogs and tutorials for businesses, helping them to get the most out of the platform.

Platforms and marketplaces face the challenge of retaining both service providers and customers. By adopting these strategies, they can cultivate loyalty, drive growth and cement their position in the market.

Creator economy

Customer retention in the creator economy is based on engagement, authenticity and consistent value delivery. Creators – whether they are on YouTube, Patreon, Substack or TikTok – need to genuinely connect with their audience. Here are retention tactics for creators:

• Engaging content creation: YouTubers, such as MKBHD, produce content that resonates with tech enthusiasts by providing detailed product reviews. This regular and engaging content keeps subscribers coming back for more.

• Interactive community building: Twitch streamers often engage with their audience in real time to create a tight-knit community feeling, reading out comments, answering questions and conducting polls.

• Exclusive perks for supporters: many creators on Patreon offer exclusive content, early access or special merchandise for their top-tier supporters, giving fans an incentive to keep up their subscription.

• Consistent posting schedule: newsletters on platforms such as Substack – for example, Sinocism, which focuses on information regarding China – maintain a consistent publishing schedule, making it easier for subscribers to incorporate them into their routines.

• Collaborations with other creators: collaborative content can attract and retain wider audiences. For instance, two podcasters might appear as guests on each other's shows, bringing their audiences into contact with another creator.

• Feedback loops: creators often solicit feedback on platforms such as Discord or through community polls on YouTube, making fans feel involved in the content-creation process.

• Behind-the-scenes content: sharing the process or the "making of" behind certain content pieces can offer fans a deeper connection. TikTok creators, for example, might share bloopers or the process of setting up a particular shot.

• Diversifying content channels: a creator who primarily uses Instagram might also start a podcast or a blog, giving their audience different ways to engage and catering to diverse consumption preferences.

• Personal stories and authenticity: creators such as Humans of New York share personal stories, connecting with their followers on a deeper emotional level.

• Special events or challenges: fitness creators might host 30-day challenges to keep their community engaged and motivated, providing daily content and interactive check-ins.

In the creator economy, the relationship between creator and audience is intimate and direct. For creators, understanding their audience, interacting with them authentically and delivering value consistently are the keys to long-lasting loyalty.