Retention means:
1. the continuous use, existence or possession of something or someone or
2. the action of absorbing and continuing to hold a substance
3. to keep something in one´s memory
These are the general definitions in the Cambridge Dictionary.
As we talk about retention in business, possession and absorbing of a substance are not quite the correct wording.
However, when we do not take these words literally, we get an idea of what the topic will be.
Retention in business is the ongoing ownership of a certain idea, concept, service, or product.
Business retention can be subdivided in
- customer retention and
- employee retention
Customer retention means that customers return to purchase or continue using a product or service. The customer retention rate (CRR) is the most fundamental metric to determine customer satisfaction. You calculate the CRR by dividing the number of customers at the end of a period by the number of customers at the beginning of the period, then multiplying by 100 to get a percentage. When now you have 100 customers, then next year you have 90 of the same customers, your customer retention rate is 90%. This number does not include the new customers you have acquired, it is simply based on your existing returning client base. A high customer retention rate indicates a great product or service. A low rate indicates the business needs to change something about their product or service so that customers are satisfied enough with what they bought to buy it again. The churn rate is the inverse customer retention. It calculates the percentage of customers lost during a specific period.
There are different rates to measure customer engagement and retention as:
• Retention rate
• Churn rate and churn reasons
• Repeat Purchase rate - customers who buy more than once.
• Customer lifetime value (CLV)
• Net Promoter Score (NPS) - measures customer loyalty
• Customer satisfaction Score (CSAT)
• Customer effort score (CES) - measures with which ease customers can complete tasks or transactions with your company. Usually the higher it is, the higher is the retention rate.
• Purchase frequency
• Referral rate
• Customer engagement metrics – checking social media and website, communication with company.
Employee retention is the concept of keeping your current employees and providing opportunities for them to reach their goals. It means to satisfy their needs and wishes so that they do not have to look outside the company for other positions. Keeping your employees happy and engaged is essential. Employee retention allows for low turnover and an effective workplace.
Let us have a close look at how to retain customers and employees nowadays, in a rapidly changing and very agile world. In a world determined by consumption and by generation y and z whose main purpose is not to stay forever in a company but rather to find purpose and culture without hesitating to switch employer.
A retention strategy is a plan or set of tactics designed to keep existing customers engaged with and loyal to a business or brand over an extended period. The primary goal is to reduce customer churn – the rate at which a customer may stop doing business with a company – and maximize customer lifetime value – the total revenue a customer generates over their relationship with the company.
Retention strategies typically involve various activities and approaches as personalized communication, loyalty programs, excellent customer service, ongoing engagement, and data analysis to identify at-risk customers. The specific elements can vary depending on the nature of the business, its industry. And the characteristics of its customer base. Ultimately, a well-executed retention strategy can lead to increased customer satisfaction, repeat purchases, and long-term profitability for a company.
Employer retention is as important as customer retention, even though different. Your employees, your workforce is the base of your company. Without employees who produce and sell your products, there is no company. Managing employer retention means to make them satisfied and happy with their job. You should know who your employees are, what they want, what is important to them. You need a company culture they relate to.
To measure and evaluate the employee retention rate there are several metrics:
• Employee turnover rate (corresponding customer retention rate, dividing number of employees who left by the average number of employees during the same period multiplied by 100 to get percentage)
• Voluntary vs. involuntary turnover (helps find areas of improvement)
• Average tenure
• Retention rate (opposite of turnover rate)
• New hire retention rate
• Cost of turnover (recruitment, training, lost productivity)
• Employee engagement surveys
• Promotion from within
• Exit interview data (Analyse data from exit interviews)
• Manager-specific turnover (turnover rates for different managers or departments pinpoint areas that may require attention)
• Employee net promoter score (eNPS) – measures employee engagement and loyalty towards a business. Directly correlated to short- and medium-term intentions of an employee. Calculated by subtracting the percentage of detractors from the percentage of promoters within a month. The score is a number between -100 and +100. 10 to 30 is a good score, 50 is excellent.
• Employer satisfaction index (ESI) – three questions. Often combined with other indicators
• Employee retention goals (set specific goals and track, for example decrease employee turnover)
• Time-to-fill vacancies
• Employee feedback
By tracking these employee retention metrics, you can better understand the factors influencing turnover and identify areas for improvement. They help you implement the correct strategy.
Now, how can retention of customers and employees be improved? What are the factors that influence and what strategies do I apply?
As for customers the product or service you offer is crucial. If product or service are not corresponding your customers needs and requirements and you do not adapt to change you will hardly retain any customer. Given a successful required service or product, you can work on retention by:
1. Personalization – tailor your products and services to individual customer preferences. Use data and insights to provide personalized experience.
2. Customer care and support – offer exceptional customer service, address inquiries, concerns, and issues promptly and courteously.
3. Loyalty programs – reward customers and encourage to stay engaged.
4. Communication – stay in regular contact with customers through e-mail, marketing, newsletters, social media, and other channels. Keep them informed about new products, promotions, and company updates.
5. Feedback collection – gather feedback from customers through surveys, reviews, conversations. Use for improvement and show that you value the input.
6. Quality assurance – quality and consistency of products or services
7. Onboarding and training – offer training and educational resources to support ongoing usage.
8. Community building – create a sense of community, encourage them to connect with each other through forums, social media groups, events related to brand.
9. Surprise and delight
10. Proactive problem solving - identify potential issues or challenges and address them proactively. Anticipating most likely prevents dissatisfaction.
11. Re-engagement campaigns – offer incentives to return and try again.
12. Cross-selling and upselling – suggest complementary products or services to enhance customer experience and meet additional needs.
13. Competitive pricing - ensure pricing remains competitive in the market and offer discounts for price sensitive customers or the contrary
14. Long-term contracts – plans to lock in customers for an extended period. On the long run this may not work so well however
15. Social responsibility – show what you are doing regarding the actual development in businesses and society, that you are aware and care of certain topics.
Remember that these strategies must be assessed continually, based on the feedback and on changing market dynamics.
To retain employees there are similar strategies, factors that are important to attract employees, make them happy so that they are loyal, and fluctuation remains low:
1. Competitive compensation
2. Benefits and perks – offer a package that includes health insurance, retirement plans and perks like flexible work hours, remote work options, wellness programs.
3. Career development – provide opportunities for skill development, create career paths and plans, support employees in achieving their goals
4. Employee engagement – foster a positive work environment where employees feel valued, engaged, and connected to company´s mission and values. Seek employees input and involve in decision making.
5. Work-life balance – flexible scheduling, paid time off and resources for managing stress and burnout, physical and psychological well-being.
6. Recognition and rewards – bonuses, promotions, and recognition
7. Management training – train and support managers to be effective leaders who can communicate well and create positive team culture.
8. Inclusivity and diversity – foster a culture of respect and tolerance.
9. Feedback and communication – open and transparent communication, constructive feedback helps to improve.
10. Employee assistance programs – offer resources like counselling.
11. Exit interviews -understand why employees leave, go deep into these interviews.
12. Company culture and purpose – employees should approve the culture and share the purpose.
13. Retention goals – set specific goals and regularly assess.
Retention does not only depend on company intrinsic factors, but also on factors influencing from outside. It is important to analyse properly to understand why fluctuation may be high and where exactly the problems are.
Collecting data is essential.
Discovering weaknesses – of managers and leaders, in specific departments – gives the chance to improve, avoid fluctuation and maintain retention high.
“If your retention is poor nothing else matters”
Brian Balfour, founder Reforge, former VP growth Hubspot
Did you like the article? Do you agree that if retention is poor, nothing else matters?
Let us know your thoughts!