While this sounds like a simple question it should provoke a number of thoughts which will help you get your arms around this concept, which is critical to long term growth of a business.
Lets start with Wikipedia. It defines customer retention as the activity a company undertakes to reduce defections. Sounds good except that it is not activity, it is activities. And the objective is not to just keep the customer but to have the customer want to continue to do business with your company and to actively promote your company anytime she has an opportunity.
For example, signing a customer to a five year contract then bragging about how no one ever broke the contract then delivering minimal value which leaves the customer disgusted but locked in (i.e., retained) in not a good outcome. Handcuffing a customer is a bad retention strategy since they will make it their business to tell as many people as they know or come into contact with (think Twitter and Facebook) – you may win the battle but you will lose the war.
This means that retention is very closely aligned with loyalty; both focus on excited customers who will continue to do business with you and tell others. The difference is that loyalty is about intent (likely to recommend) and retention is about action (purchase again and actually recommend). Loyalty is about maybe, retention is about did!
As you look forward to growing your business, it is critical that you make customer retention a top priority and have a KPI (key performance indicator) measuring the % of customers defecting (churn) and the % of revenue coming from existing customers. Check both over time and benchmark both against like businesses to make sure you are not driving your customers away. To read more about the topic continue here>>
And remember that without customer retention you have an uphill battle to grow your business – new customers must be acquired solely to replace those that depart.