What is The Importance of Customer Retention

Published on November 17, 2020
4 min read
Icon Saphyte Team
4 min read

Customer retention refers to the capability of a business to keep their customers over a given period of time. Customer defections, on the other hand, refers to the abandonment of a product or service in favor of a competitor. These terms are important for businesses because they affect the sales and income of companies, both small scale, and large scale. This is why businesses do their best to avoid customer defections and instead make efforts to increase customer retention. 

To determine customer retention, companies usually use the formula: [(CE-CN) /CS) x 100]. CE is the number of customers at the end of the period. CN is the number of customers acquired during the period. And finally, CS is the number of customers at the start of the period. This formula is the simplest way of determining customer retention. 

But the question is, why do business persons go through lengths in using this formula to calculate Customer retention. How important is it in the business world? In this article, we will explore and know the importance of customer retention and how to increase this percentage. 

So what is the importance of customer retention?

High Customer Retention Equals Increase in Sales

No matter what business industry you are in, the only way to generate revenue is through your customers. This is why businesses make efforts in making phone calls to contact potential customers. And, create marketing campaigns and strategies just so they can convince them to buy your product or service. 

These efforts are much more difficult if you are trying to convince a new customer compared to convincing a loyal customer. According to a PwC survey, this is definitely true. The probability of selling to an existing customer is 40% more probable than converting someone who has never bought from you before.

Thus, if you have a high customer retention rate, you have a higher probability of sales increase. According to statistics, by merely increasing 5% of your retention rate, you have the probability of increasing your profits from 25% to even 95%. 

Another amazing thing about having loyal customers is that you would have repeat purchases. It is proven in the business world that loyal customers tend to use your business regularly and are more likely to spend more money on your product or service. The more they feel satisfied with your brand, the more they will be emotionally attached to it leading them to subscribe more to your service.

Thus, having good customer retention also means that you have a steady cash flow in your sales from your loyal customers and their repeat purchases. 

Savings on Marketing

According to a recommendation by the US Small Business Administration, a business should spend 7 to 8 percent of the gross revenue on marketing. Furthermore, if the business is making less than $5 Million a year, marketing costs should be around 10 to 12 percent. These values show that many businesses spend a lot of money on marketing. Especially nowadays, there are a lot of platforms for advertisement already, thus companies tend to spend more money and effort to increase social media presence. 

But with good customer retention strategies, you do not have to spend so much to acquire new customers. Looking at some statistics, 49% of US consumers say that their top sources of brand awareness are friends and family. This means that as long as you have a good customer retention percentage, customer acquisition is not so much of a big deal. 

This is because having good customer retention avails you of the most cost-effective marketing strategy, Word-of-mouth advertising. This is based on the principle that potential customers trust the opinions and feedback of their family and friends. And as long as your repeat customers are happy, they will share and tell others how awesome your products and services are. 

How to Improve Customer Retention

Based on pieces of evidence and facts, we already know that customer retention is important. Now the big question is how do businesses improve customer retention? If you search the internet, there are a lot of recommendations available for you.  And most of the suggestions tell you to spend more time and effort in taking care of your customers.

This is the most ideal thing to do in every business, but the problem is that most businesses do not have time or they lack the manpower to do it. Thus, one of the best customer retention strategies that successful business people would recommend is to have a Customer Relationship Management or CRM solution. Allow me to share with you why this is possible.

CRM Systems Create Good Customer Experience

CRM systems like Saphyte allow you to automate repetitive tasks so that you can focus on more important things such as providing a good customer experience. Your employees will not be stuck on manual inputting of contact information, but instead, they can spend more time to increase custome interaction. On the other hand, your sales team wouldn’t be stuck analyzing the sales process, sales cycle, and trends because CRM tools can do that for you. 

CRM software has built-in contact management, sales management tools, and many more that could help you give compassion and concern towards your customers. The more they feel good about your product or service, the more chances of them becoming loyal customers.

CRM Tools Allow Easy Acquisition of Customer Feedback 

Integration is one of the most beneficial things a CRM system can do. It allows you to gather all of your social media and communication channels in a single platform. 

This means that your email marketing efforts, your customer questions in social media, and all other means your customer can reach you is integrated within your CRM. Thus, on a day-to-day basis, you can easily check customer feedback in real-time. 

You will be able to learn so many things from your customers about how you can improve your service. By improving your service and customer experience, your customer retention rate will increase because they feel like they have been heard. 

CRM Helps Develop Good Customer Service

Customer service or support is one of the most important aspects a business should have. This certain aspect is the key ingredient in making your business develop a reputation for taking care of your customers. Without this, your business will just be engaging in plain selling without listening to your customers.

Luckily, CRM systems enable businesses to implement and execute proper customer service and support. As mentioned earlier, CRMs enable you to connect to your potential and existing clients and immediately acquire customer feedback. With this, you can immediately deploy your customer service team to address the needs of all of your customers.

Your team’s function will not also be limited to a single sales channel but to every sales platform that you have. Since CRM can integrate all of your platforms, customer reps can efficiently resolve issues and address concerns in any of your sales channels by only using your CRM.

Furthermore, with the help of CRM, your customer service team will have a lighter workload that will allow them to be more focused on building customer relationships for your business. By having a lighter workload, they will find joy in their jobs and become more productive in it. 

Because without the help of CRM, they might become irritable and won’t be able to do their job effectively — which will affect the reputation of your business. This will greatly affect you because nearly 64% of those surveyed stated that a bad employee attitude would greatly influence the customer’s decision to stop buying from a brand. 

But with the help of CRM, teams will develop a good working attitude towards your business and your customers — one that will improve their work ethics and your brand’s reputation.


Indeed, customer retention is something businesses should focus on improving. Although this is impossible to improve overnight, with the help of CRM you are moving close to achieving this goal. 

So to help you increase your customer retention rate, invest in a proven and reliable CRM system, like Saphyte. Whether you are planning to create loyalty programs, improve customer support, or do other initiatives, Saphyte can help you seamlessly implement all of them. 

Our customer service team is always available for you 24 hours a day, 7 days a week. Contact us today and take advantage of all the tools and services Saphyte has to offer. 

November 17, 2020