Importance of Customer Retention in Business


Meaning of Customer Retention

Customer retention is the ability of an organisation to withhold its customers for a long time. It encompasses all those activities which reduce the customer’s defection rates of business. Higher customer retention rates means that companies are able to retain their customers for a long time. It increases the overall profitability of the business by making less effort.

Customer retention rate is calculated as the percentage of customers company is able to keep till the end in relation to the number of customers it had at starting of specific business period.

The main aim of customer retention programs and activities is to ensure that customers may continue to buy the company products and services for the long term. It focuses on improving the loyalty of customers towards the business so that long term relationship can be established.

It pays attention to the needs of existing customers of the business to serve them better. Customer retention process starts with the moment the customer first interacts with business and continues throughout the lifetime of his relationship with business. It also reduces the promotional expenses as if the company is able to retain the sufficient number of customers then it will not target much on new customers. 

Importances of customer retention in business are given below

Importance of Customer Retention in Business

Importance of Customer Retention
Importance of Customer Retention in Business


Customer retention has a direct influence on increasing the revenue of the business. It enables the business to retain its customers for the long term and develop a sense of loyalty in them.

Customers become loyal to the business and make repetitive purchases with business. They will explore and use different products and services of the company. Loyal customers are even ready to pay premium prices for the company’s product. This increases the overall profitability of the business.

Reduce Promotional Expenses

It is one of the important advantages of customer retention process. Customer retention cuts down the advertisement and marketing cost of companies. If companies are able to retain sufficient customers for the long term then it is required to focus less on targeting new customers.

Cost of acquiring new customers is much more than the cost of retaining the present customers. Company should focus on the needs of its present customers to serve them better and make them loyal ones.

Reduces Competition

Competition from rival companies is one of the major challenge faced by every company. Customer retention helps in lowering the competition effect in market on business. Businesses are able to develop more loyal customers through their customer retention programs.

These loyal customers do not switch to other brands easily no matter what offers the rivalries are providing to their customers. Loyal customers are even ready to pay premium prices for brand products. This reduces the overall competition effect on the business.

Provides More Referrals

Customer retention increases the customer’s base by providing more and more word of mouth referrals. It develops more number of loyal and happy customers for the business. These customers refer the brand products to their relatives, friends and other ones and explains all features and benefits over others in the market.

People have strong influencing effect on their mind when their known ones recommend them some brand. They are forced to try brand products at least once. This way the company gets more and more referrals from its existing customers.

Valuable Feedback From Customers

It helps the companies in acquiring valuable feedback from its customers. Through customer retention programs business are able to connect with their customers in a better way. They develop a better level of understanding with their customers. Customers also develops a sense of belongingness with them and provide them with valuable suggestion and feedback. They suggest ways how they can improve their services to improve their customer’s satisfaction.

Boost Employee’s Confidence

Customer retention will also affect the morale and confidence level of your employees. If customers remain with the business for the long term, employees feel confident that they are serving better and performing well.

On the other hand, if the business is losing its customers then its employees will also get demoralized. They will feel that they lack abilities and skills required thereby bring down their confidence and enthusiasm to work. It will affect the efficiency of the business.

Enhances Brand Image

It enhances the overall business in the market and creates its goodwill. Customer retention helps in serving customers better and holds them for the long term. It focuses on the specific needs of customers and attempts to make them happy and feel satisfied.

Best customer services companies have more chances of acquiring new customers. New customers easily get attracted to such businesses seeing their goodwill and customer loyalty programs. By serving their customers in a better way companies are enhancing their brand images.

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