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While acquiring new customers is important, retaining earlier customers is also equally vital for any business. In fact, it’s a more cost-efficient way to scale. Hence, most brands of today are focusing to improve their customer retention rate.

Such customers know the service they receive from your business better than the newer customers. Moreover, their trust and experience with you make them potential advocates of your business. Therefore, your chances of gaining new loyal customers accelerate!

But before moving forward further, let’s define customer retention and how you can improve it. You can also visit our D2C centre of excellence, D2Scale for more info.

What is Customer Retention Rate?

Customer retention rate helps a business understand the percentage of existing customers that a brand was able to retain over a given period of time. A good retention rate is one of the initial aspects that help a business maintain long-term growth!

While there are multiple factors that affect the customer retention rate of a company, Research Gate highlights some of the prime ones: Service quality, satisfaction, trust, and commitment. These are the major aspects to check from the customer’s perspective. Once aced, the chances of improving the retention rate increase by a massive difference!

Why is Customer Retention so Important?

Analysis of the rate at which a company retains its customers is not just limited to determining its ability to consistently provide value to them. In fact, it helps boost the company’s Return on Investment (ROI), improves trust and loyalty and thereby fetches new customers. It mainly prepares the company for long-term growth by maintaining healthy relationships with its buyers.

Let’s have a deeper look at why customer retention rate is so important for a business.

More Cost-Effective

The cost of retention is extremely lower than acquiring new buyers. Experts say that finding a new customer is at least 6 times more expensive than retaining an existing one. Generally, the existing customers are deep into the funnel and are already familiar with the brand’s products/services. Hence, you don’t have to reach them through awareness campaigns and the like. So, brands can look into ways to enhance the four factors that affect their customer retention rate.

Increase in Return on Investment (ROI)

Generally, return customers tend to transact more with a brand they know over time. And as they buy more, that company’s operating costs to maintain or serve those customers decrease. Hence, as Bain’s Research tells us, a 5% improvement in retention rate generates around a 25% boost in profit!

Improves Trust and Loyalty

Return customers generally pay more or upgrade their payment plans over time rather than choose your competitor who they aren’t acquainted with. Once they understand the value of your products/services and your deep commitment to them, they would find it comfortable. This will lead them to come back again to transact even more.

Customers turn into Advocates of your brand

If customers are satisfied, they become advocates of your brand naturally. They would refer your services to a friend or family as they highlight to them the major resolutions they found while doing business with you! The new potential customers collect feedback about the services from people they trust to seriously consider. So, with a low cost of retention, you welcome new customers for absolutely free!

Customer Retention Rate Formula

Before jumping straight into any retention strategy, let’s first understand where your current customer retention rate stands. First, take a time period, let’s say quarterly or yearly. And then consider the fundamental customer retention rate formula:

[(No. of Customers at the End of Period – No. of Customers Acquired During the Period)/ No. of Customers at the Start of the Period] x 100.

So, let’s consider a scenario. At the start of the time period, you had 40 customers, acquired 5 new customers within that time and the 2 customers drop off from doing business with you. Using the customer retention rate formula, the retention rate would stand as:

[(43 – 5) / 40] x 100 = 95% retention

Now that you understand where your customer retention rate stands, you can assess the reasons for the attrition rate. This would help you understand the potential scope of improvement and thereby reduce the attrition rate further.

Also read our guide on : Customer Lifecycle Value vs Cost of Acquisition in Ecommerce

4 Ways on How to Improve your Customer Retention Rate

Using a few strategic customer engagements, you can retain more customers within a given time frame. Here are some ways to improve customer retention for any company. You can try and test out any of the following to see the results.

1. Adjust Prices for Return Customers

You can look into adjusting the charges in a way that’s not hurting your profit but also shows your appreciation towards your customers. For eg, if you have an e-commerce business, you can make adjustments like allowing free delivery or other coupon options. Or, you can provide a cost-effective and smart subscription that helps them cut down costs as they buy more from you.

2. Design a Roadmap for the Future Relationship

It’s a thoughtful practice to show the customers where their relationship with the company is heading. If it’s just the regular transactions and nothing more to it, it will appear as nothing special. This makes customers fall off as they start considering other better options.

Hence, a clear next step in the relationship can provide them with a sense of being a priority or valuable customer. A regular revisiting of the roadmap helps develop new initiatives that serve the goals of both parties mutually. Thus, you can boost your customer retention rate with this future roadmap strategy.

3. Feedback and Action

Asking for feedback doesn’t stop things just there. The answers from both leaving customers and existing customers provide clear scopes of improvement! If you don’t understand the reasons why customers leave, you will never act upon the problems. Once you receive feedback, your team can look into the issues that customers highlight and take proactive measures to bring the problem under control.

If customers see visible differences regarding those issues in a short span of time, they are more likely to continue with you.

4. Create a Customer Loyalty Program

Design a program that rewards your existing customers because of their loyalty. This strategic customer engagement would work as a consistent incentive program for them to come back to your brand for more. You can consider adding points to their profile as and when they refer your business to their family or friends. Or, you can try sending out an appreciation email with 8-10% off on their next purchase!

Moreover, it’s important to keep things simple in conveying the incentive message and actions. It’s imperative that the customer understands the program’s value easily and at once!

Now that you can define customer retention and have a fundamental understanding of it, you can run an audit and tweak the areas to fine-tune your business and the brand! Better yet, you can Download Our Retention Marketing Playbook for D2C Brands or visit D2Scale to gain a thorough understanding!

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Brands who advertise on Google will now have a campaign type that allows them to access the entire Google Ads inventory for a single campaign.

Google announced late last year that Performance Max will replace Smart Shopping and Local campaigns in the later half of 2022.

This announcement was parallel to Google introducing this new service in November 2021 as a beta launch to allow brands to get a good grip of it without disrupting their existing campaigns.

Marketers overall welcomed the new experience and will rely only on Performance Max to run their ad campaigns, replacing the tried-and-tested Smart Shopping.

But, what is Performance Max and what impact does it have for brands? Do also check out our D2C Centre of Excellence, D2Scale for more info.

About Performance Max Campaigns

The easiest way to describe what Performance Max is this: It’s like Smart Shopping but with greater access to Google Inventory across all channels.

Earlier, brands that used Smart Shopping had to create separate campaigns and creatives to advertise across Search, YouTube, Display Network, and Gmail. However, with the introduction of this new service brands no longer need to put in as much effort to advertise across the board.

Performance Max campaigns extend Smart Shopping’s capability by enabling brands to also access Google’s Discover Feed and Maps, in addition to the aforementioned assets, in one single campaign. So, Google has created this new service to simplify a brand’s efforts to reach their target audience.

So, what kind of impact can brands expect to have using Performance Max? Let us look at some of the benefits of Performance Max.

1. New Audiences

Performance Max allows brands to personalise their campaign goals that will better help their conversion numbers. This campaign type enables brands to interact with customers across a wider variety of Google channels, as mentioned earlier.

This would allow them to leverage Google’s AI capabilities towards understanding consumer behaviour, which could help them unlock new audiences.

2. Improved performance

This is an extension of the previous benefit as Performance Max takes data into consideration while targeting the right audience. This could help push the audience further down the funnel into conversion. Thanks to its AI capabilities, Performance Max can make accurate predictions for brands regarding which ads resonate with their target audience.

3. Better Insights

Performance Max insights give brands a better understanding of how their campaigns are being handled by the Google algorithm. Insights on audience segments, their reaction towards the creatives/images, video marketing, and more allows brands to further optimise their current and subsequent campaigns.

It is integrated with GA4’s Insights Page, thereby giving companies the clarity on what is trending to ensure the campaigns are freshened up as and when required.

4. Budget optimisation

When brands use Performance Max, it optimises their budget across the different channels the campaign is live on.

Based on the specific goals and conversion metrics that brands input, Google’s machine learning capabilities will accordingly optimise the campaigns to help achieve the goals more efficiently.

5. Simplified campaign management

Performance Max makes life simpler for brands since it enables launching multiple ads across the Google inventory without having to create different campaigns. Google says this helps boost ad performance without having to input multiple goals and criteria. This reduces time and stress for the campaign owner, since they don’t have to regularly tweak the multiple ads in a campaign thanks to its marketing automation.

Best Practises

Brands need to conduct a few hygiene checks to extract the most out of their Performance Max campaigns. Some of the guidelines include:

1) Choose the right conversion goals

Brands should select the right goals in their performance max campaign to better define what success means to them. If it is acquiring new customers then brands can easily define that by choosing the particular option in the Tools and Settings tab.

Picking the right conversion goals helps better optimise campaigns at a faster rate and more importantly find new audiences.

2) Choose the right budget and bid strategy

While Google Machine Learning will help optimise a brand’s campaign budget, brands should look at choosing the right strategy that will go a long way towards achieving those goals.

Google uses Smart Bidding to optimise a brand’s conversion in real time, which allows their campaigns to improve conversions, conversion values, CPA and ROAS.

3) Optimise the creative Asset Group

When brands add creative assets to their different assets groups, Performance Max will automatically categorise them according to themes. These assets will then accordingly be allocated to different channels based on the relevant theme of the asset.

This ensures a brand’s ads are more meaningful to their relevant audience, which could help drive conversions or any other specific campaign goal.

The trick is to add as many iterations of the assets as possible to your group. This is because the more assets are available, Performance Max can create more ads across the different channels.

Check out Google’s full list of best practices for a Performance Max campaign.

42% increase in sales for a B2C brand – A Case Study

Social Beat deployed Performance Max for a D2C client, which is an online marketplace that wanted to scale up their order numbers outside of the search network. The approach for this goal was simple:

Audience Signals: The strategy was all about targeting the right lower funnel audience signals such as Remarketing lists, Converters, Similar to Converters, Add2cart Audience, Customer Match Audiences and Custom Intent.

Budget and Bid Strategy: We learnt from Google’s Machine Learning insights and accordingly used the maximise conversions bidding strategy to increase the conversion signals

Features: We used URL expansion to redirect users to the most relevant landing page, which improved CTR and reach

Asset Groups: We created theme-based asset groups based on offers (medicine, healthcare, Christmas, New Year) and products (covid essentials, immunity boosters, sanitizers).

Creatives Optimisation: We then refreshed the assets based on their performance that allowed the asset to maintain its strength.

On the back of the above strategy, this D2C brand experienced tangible positive results such as:

42% Increase in sales
29% Lower Cost per sale
20% Increase in ROI

Brands will have to embrace the fact that Performance Max campaigns are going to be the new normal in the world of programmatic advertising. It will be quite the paradigm shift from the campaign types that brands are currently using.

However, there is no reason for brands to fear since this new offering has so many benefits that will help them rise to the impossible. Google takes the tried and tested Smart Shopping’s formula and multiplies the capabilities in Performance Max to ensure that brands get the best out of their campaigns; all this while reducing time and efforts.

So, while some brands might fear that automation would translate to lesser control, Google’s Machine Learning module is intelligent enough to work alongside them, not against.

4 Effective Ways to Improve Customer Retention Rate in 2022