Customer Retention for Small Businesses

Ten simple, yet effective retention strategies for your small business.

Whiteboard with the words RETENTION > ACQUISITION
May 31, 2022
Chloe Mulliner
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Reading time about 10 min

As a small business owner, the stress of attracting new customers can keep you up at night. After all, it can be a full-time job figuring out how to target customers and persuade them to buy your products or retain your services. But, what if we told you your current customers are far more valuable to your company than potential future consumers?

You see, customer retention, which focuses on building stronger relationships with your existing customers, actually produces a higher ROI than customer acquisition, the process of bringing in new customers. But don’t just take our word for it — the stats speak for themselves!

Sales Success Rates Bar Graph

According to an Invesp Consulting1 survey, attracting a new customer is five times more expensive than keeping an existing one. Not to mention, selling to a new customer is actually much more difficult than selling to a current one. According to the book, Marketing Metrics2, the success rate of selling to an existing customer is 60 to 70%, but only 5 to 20% for a new customer, meaning an existing customer is far more likely to make a purchase than a new one.

What does this mean for you? If you scale back on your customer acquisition efforts and focus more on your customer retention initiatives, you could see a significant boost in business. In fact, Harvard Business Review3 revealed that increasing customer retention rates by just 5% could increase your profits by a whopping 25% to 95%.

So, how does a small business retain customers? The good news is, there are a lot of simple yet effective ways for small businesses to bolster customer retention – from creating customer loyalty programs to improving customer engagement.

To help you nurture and retain your existing customers, we’ve outlined 10 easy tips for implementing customer retention strategies.

10 Key Customer Retention Strategies for Small Businesses

Image of individual figuring out/calculating

 

1. Determine Your Customer Retention Rate

Before making any changes to your current strategy, it’s a good idea to figure out what you’re working with. Begin by looking at your customer retention rate.

You can calculate this number by determining how many customers you have at the end of a certain time frame, such as a month or quarter, then subtracting that by the number of new customers you acquired during that time period, dividing it by the number of customers you had before that time, and then multiplying by 100.

Customer retention rate= (# of new customers at the end of a given time period) - (# of acquired customers during that time period) / (# of existing customers at the start of that given time period) x 100

Customer Retention Rate Formula

Now, you’re probably wondering, what is an acceptable customer retention rate? But don’t get hung up on your number. What might be considered a “poor” retention rate for one company might be a great retention rate for another, depending on your line of business — it’s all relative.

Knowing your retention rate simply provides you with a temperature check, helping you gauge where you are and where you want to go.

2. Assess Your Current Strategy

Now that you have a better idea of your customer retention rate, it’s time to take a good hard look at your business.

What’s going on with your customers? Does it seem like a lot of them are dropping off? Why are they dropping off? Maybe you’ve noticed a big dip the past three summers in a row — were you doing any promotions during that time? Or perhaps you’ve spotted spikes in customer acquisition during different times of the year. Can you pinpoint what may have attracted those customers to your business at those specific time periods?

Identifying these areas can help you better understand your customers, determine areas where you can improve, and recognize what you’re already doing that’s working in your favor.

Small Business Owner accessing

3. Request & Respond to Customer Feedback

Sample Text Message

After looking at your metrics and drawing your own conclusions, it’s time to actually hear from your customers. Give your customers an opportunity to engage with your brand and let you know what they think about your business.

You can ask customers to fill out feedback surveys, leave reviews, join a customer phone interview, respond to follow-up emails, or even participate in focus groups.

Encourage your customers to voice their opinions so that you can learn and grow from their experiences and interactions with your small business. But keep in mind, this isn’t just a one-and-done exercise. Requesting and evaluating customer feedback should be an ongoing process, affording your customers various outlets and opportunities to engage with your business.

After eliciting feedback, be sure to respond to your customers. Address their concerns, embrace their opinions, and thank them for their input. And remember, don’t just ignore negative feedback or complaints, as this could actually hurt your business and make you lose even more customers. This is a learning opportunity for you to find ways to positively and productively engage with customers who may have had a poor experience with your brand.

Requesting and responding to feedback is one easy customer retention strategy that can help you build and maintain relationships. After all, your customers are more likely to stick around when they feel like they’re being heard and that you care whether their needs are being met.

4. Boost Customer Loyalty

Sample Message

Now that your customers know you’re taking their thoughts and concerns into account, how else can you encourage loyalty to your brand and keep them around? Reward them and make them feel special!

One simple way to do this is to create a customer loyalty program or VIP initiative. For instance, if you run a local coffee shop, create a punch card program in which your customers receive a stamp for every coffee they purchase. Once they fill up their punch card, their next coffee is free: “Buy 5 coffees, and your next one’s on us!”

Or perhaps you own a cosmetics company. Develop a special VIP membership program that rewards members with extra points every time they buy one of your products. Once they hit a certain number of points, they can redeem their points for a free gift.

The beauty of these customer retention strategies is that it’s actually two-fold. For one, it encourages your customers to purchase your products because they know they’ll get perks in return. Why would your customers go to that other coffee shop when they’re one coffee away from a freebie? Or, perhaps they’ll buy one more product from your beauty shop because that’ll get them 100 points closer to their VIP reward.

Secondly, these types of customer retention strategies inherently boost your sales. The more loyal your customers are to your brand, the more likely they are to make additional purchases. Not to mention, if they already know they love your products and trust your brand, why bother straying elsewhere?

5. Encourage Aftersales

Sample MMS Message

If you think your job’s over as soon as a customer makes a purchase, think again. In fact, that’s just the beginning. You’ve managed to hook a customer, so how do you keep them?

Aftersales is a solid strategy for customer retention. Consider the ways in which you can encourage your customers to come back for more. Is there an add-on product that can help their routine? Or can you follow-up with an aftercare or maintenance plan?

Let’s say you offer dog grooming services in your town, and a new client just came in with their poodle puppy for his very first nail trim. You took care of his nails, but what about all that fluffy fur that’s bound to need grooming and cleaning every month?

This is a prime opportunity to get that pup on the books for monthly nail trim, but also for additional grooming services. To seize this opportunity, you could follow up by offering a first-time spa day deal, providing discounted rates on monthly services, or even inviting them to join a VIP program.

When you feature aftersales, it helps keep your business top of mind as your consumers see the benefits of continuing business with you for the long run.

6. Create a Customer Communication Calendar

A big part of customer retention is keeping your customers engaged. No, you don’t want to bombard them with sales messaging every day, but you don’t want them to forget about you either.

Creating a customer communication calendar can help you strike the perfect balance. Take a step back and look at the entire year, pinpointing specific times when it’s appropriate to contact your customers. Of course, you’ll send out your promos in December around your holiday sales and again in March during your annual product launch, but what other opportunities are you missing out on?

You might decide to wish your customers a happy birthday with greeting cards and a free gift like a sample size of your latest product. Or maybe you could send out Valentine’s Day messages with a special discount code to further sweeten the holiday. And what about National Donut Day? That’s the perfect opportunity to offer one free pastry for every customer who visits your bakery on that day.

Not only will these perks be a welcome surprise for your customers, but they’ll come to look forward to them each year, meaning they’re more likely to stick around.

What’s more, if you build out a calendar, you can take some of the guesswork out of communicating with your customers, knowing you have a schedule to follow. Not to mention, you won’t have to worry about crafting a message or creating a topic on the fly because you’ll already have it planned out in advance.

June Calendar with Daily National Holidays

7. Build Trust

These days, you can’t just rely on the quality of your product to keep your customer base loyal. Your customers also need to trust and believe in your brand, and trust must be earned. So, although this customer retention strategy isn’t one you can develop overnight, and it’s certainly not one you can forget about either.

Building trust involves a multitude of things, like sticking to your principles, working with reputable brands or ingredients, maintaining honest initiatives, and being truthful and forthcoming with your customers.

For example, if your small business prides itself on animal-friendly practices, don’t use products that aren’t cruelty-free. Or, if your company is a strong advocate for other small local businesses, steer clear of relationships with corporate big-box stores. And above all, if your company makes a mistake, own up to it, apologize, and promise to do better in the future.

The more transparent you are, the more trustworthy you’ll appear in the eyes of your customers, encouraging them to stay with your brand through thick and thin.

Local storefront window with sign that reads Fresh Eggs from OCHS Farm

8. Outshine Your Competitors

To be honest, this is a tactic you should already be employing, regardless of customer retention. When you understand who your competitors are, what they’re selling, and how they’re selling it, you can find ways to improve your own small business. You will also, subsequently discover how to offer value that distinguishes you from your competition.

Perhaps your competitor is already offering a loyalty program; how can you make yours even better? Or maybe the business down the street is offering the exact same services as you. How can you make your services unique? Look for gaps in services and ways to make your customer experience stand out from the rest.

When you do this, your customers will take notice. They’ll be more inclined to choose your small business over your competition because they know you’ll go above and beyond to meet their needs.

Homepage Screenshot for Legit Pizza

9. Use SMS to Your Advantage

Real Estate Message

With SMS messaging, you can use texting as a retention tool because it lets you send text messages directly to your existing customers’ mobile phones. This opens up a whole world of direct communication between you and your customers. With its unrivaled 98% open rate, text marketing continues to deliver phenomenal results, for both businesses and consumers. Because no other marketing channel can boast open-rates that can compete with text, and no other channel is faster, it is the perfect tool to leverage for your retention strategies.

Essentially, an SMS platform provides you with many of the customer retention tools you need to implement the strategies listed above. You can even interact with your customers one-on-one through 2-way texting,which allows you to answer questions, clarify information, and address concerns in real-time, providing the ultimate customer service experience.

10. Monitor Your Metrics

Finally, you’re not going to change your customer retention rate if you’re not keeping an eye on your data. You need to consistently and constantly define—and redefine—your retention rate on a weekly, monthly, and quarterly basis to see what direction you’re moving in.

If you’re not getting your desired results, dig a little deeper. What do your customer engagement numbers look like? Have you checked Google Analytics to see how your website is performing? What messages are your customers opening, and which ones are they ignoring? Check out your social media presence, too. What posts are generating interest and shares, and which messages are falling flat? Also, review the data on your SMS platform and track your SEO analytics—these mobile marketing and SEO stats can help you see the bigger picture.

Once you know what’s working and what’s not, you can regroup, assess your goals, and pivot your strategy to get the customer retention results you want.

Google Analytics Screenshot

How EZ Texting Can Improve Your Customer Retention Strategy

When it comes down to it, many of these customer retention tactics involve a strong communication platform, and that’s where EZ Texting can help.

With EZ Texting, you can develop a small business SMS marketing strategy to cultivate customer retention, from promoting your loyalty programs to encouraging customer engagement with your brand. Our SMS tool lets you interact with your customers in a way that can help build and strengthen your relationships. Start your free trial with us today to see how text can help your small business.

  1. https://www.invespcro.com/blog/customer-acquisition-retention/
  2. Bendle, Neil T., Paul Farris, Phillip Edward Pfeifer, and David J. Reibstein. Marketing Metrics: The Manager's Guide to Measuring Marketing Performance. Upper Saddle River: Pearson, 2021.
  3. Frederick F. Reichheld, Phil Schefter. The Economics of Loyalty. Harvard Business Review: https://hbswk.hbs.edu/archive/the-economics-of-e-loyalty
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