Customer retention: Increase your profits by 95%

Jul 13, 2014

In average it costs 5 times more to acquire new customers than it does to keep current customers (Lee Resource Inc.). The most interesting stat that can been seen in the past 3 years is that existing customers tend to spend much more than new ones and if that isn’t enough to get you ‘wowing’ then a recent study by Harvard business school study showed that increasing customer retention rates by 5% increases profits by 25% to 95%.

Similar to the upper part of our funnel, the retention process needs constant optimization and there are many ways in which you can work on customer retention optimization. The retention process is so important that a customer is 4 times more likely to buy from a competitor if the problem is service related vs. price or product related. (Bain & Co.)

 customer retention

Retention conversion optimization  - where to start?

Now before rushing ahead and starting all sorts of customer retention campaigns and efforts, the first thing you need to do is measure your customer lifetime value. Basically you need to understand how much value each customer brings into your business to be able to determine how much you should be spending on each client. If you’re not sure how to calculate it, Kissmetrics has a fantastic infographic tutorial.

The next part of customer retention optimization is defining your goals – what do you want your current customers to do? Share your product? become a monthly paying user? purchase your products or service? there are many different ways you may want to work on your retention and it is extremely important to define your goals before setting out.

3 ways to optimize retention conversion

The largest tool you will be using to optimize your retention process will be email marketing. There are many important ways in which you can increase email marketing conversion and you should definitely go over a few email marketing rules before setting out.

1. Live Chat & Tap to Call – Just before digging into email marketing there are a few steps you must take within your product itself. 45% of companies offering web or mobile self-service reported an increase in site traffic and reduced phone inquiries.(CRM Magazine) This is crucial information for products or services that can offer live chat and tap to call. Live chat or tap to call can help customers get around without adding too many additional costs on your end and reduce friction with your product.

2. The personalized experience – As I wrote in my previous emotional targeting posts, people don’t buy a product because of its features or pricing, they buy products because of what they make them feel. We don’t remember where we buy the product or the service, we remember the experience and it’s up to you to keep reminding them of this experience, show them that you know them and know what they need. Analyzing their online behavior on your site, their purchase history, demographic information and other metrics can help you personalize your messaging. Consider using heatmaps to understand what your customers do on your site and react to that. The more you know about your customers the more you can be personal and even more important the you can offer them additional products they actually want and will be willing to pay for.

This example by Coursera is a very very simple demonstration of making users feel the content is personalized, there are many more ways to personalize newsletters:

Coursera newsletter

3. Email Marketing – the king of customer success and retention. Email marketing n average produces 24% of a company’s business. From thank you emails to personalized recommendation emails, over 86% of customers say they find these emails useful if they include recommendations or good deals. Society6 sends weekly personalized emails with sales and coupons to their customer base:

4. Royalties (more email marketing!) – It’s time to treat your customers as royalty and offer discounts or special sales for registered customers. Two great things about loyal customers is that they keep buying and they have the potential to bring in new customers for you if you pay your cards right. There’s no need to create entire loyalty plans if you don’t have the funding for it, creating a simple coupon can be sufficient. All these and many more can attract new clients and increase sales from registered customers:

  • Invite a friend coupon – Get people to invite their friends by introducing a simple coupon or an added value that usually costs money.
  • Share coupon – Get people to share your content or product
  • Discounts for loyal friends – send specific sales and promotions to your existing users that will enhance their self importance and your revenue. Even free shipping can be an added value for customers.

The psychology behind customer retention

While working on your email marketing, live chat and other technical elements, it is important to understand user psychology and use different cognitive biases to your advantage. Here’s why you should be using cognitive biases to increase customer retention:

  1. Using the right emotional triggers / cognitive biases can create more loyal customers
  2. Once you’ve created these loyal customers they will enhance sales and bring in new customers that will cost you less

The Basics of Cognitive Biases

Cognitive biases are tendencies of our brains to think in specific patterns. Strong and amazing as our brains are, our brains tend to have specific thinking patterns that have an impact on our decision making. Basically cognitive biases are “unconscious” triggers that make different connections in our brain to help us make decisions in certain ways. We’ve written many posts on how to use these cognitive biases to tap into the emotional triggers of users and increase your revenue, but as I mentioned another way of using cognitive biases is in optimizing your customer retention process. Checkout these 2 cognitive biases that will enhance retention and grow your customer base:

  1. Hyperbolic discounting – This cognitive bias means that when we’re offered two similar choices of awards, one more immediate which is worth less and the other which is further away but worth more, we prefer the more immediate award. People tend to favor more instant awards than waiting for “illusive” ones. This means that it is better to offer many small awards to users for spreading the word about your product or for inviting friends to join than promising far fetched awards.

Dropbox allows you to invite friends to join dropbox and get 250MB for every friend that joins. Instead of offering a large amount of space for adding “x” amount of friends, you can gain something immediately. This way people may get less space in the whole but they’re more motivated to share immediately than wait until “x” people join. Additionally, dropbox gets people to sign up for their additional service Mailbox by promising additional space. Fact: Dropbox attributes 35% of their daily signups to the friend referral program.

dropbox customer retention


  1. Post-Purchase Rationalization – The bias also known as Stockholm Syndrome is a way of subconsciously justifying our purchases. Basically when we purchase an expensive product or service we overlook its faults or defects in order to justify buying it. So even if all evidence shows differently after our purchase, we find “rational” reasons to our purchase. This bias also works hand in hand with the Status Quo bias which means that we like to stick to our routines. We stick to the same services, shampoo and the same meals at a restaurant.

These two biases can have a huge impact on both your potential customers and current ones.  Using the advantage of post-purchase rationalization you can ask your current customers to give their input on your product or service. By offering them special coupons or just your recognition to them being special clients you can get people to suggest ideas, write detailed reviews on your site and comment on new product ideas. You can keep your customers engaged, feeling important and satisfied all while using them to attract new clients.

Don’t stop here. Customer retention is an ongoing process, and can be used to bring back unsatisfied customers, increase new clients and increase sales from already purchasing customers. How much time do you devote to customer retention optimization?


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Talia helps businesses build and execute their conversion optimization strategies, using emotional targeting, consumer psychology and behavioral data to generate more revenues, leads, engagement and sales . Tweet to her at @taliagw