How AI is Revolutionizing Customer Retention Strategies

Keeping existing customers hooked to your brand is a topmost priority for brands globally. This shift towards increased focus on customer retention is largely due to rising competition from other companies, the cost of new customer acquisition, and rapidly changing customer expectations. But companies can expect to find customer loyalty only if they make a lifelong commitment to personalization, predictive analytics of customer behavior, and customer support automation—all made possible by advances in AI.

What is customer retention?

Customer retention rate, a key metric that determines the health of a business, is the number of customers who stay on for a specified period. If a SaaS company gets 100 new customers in a year and 70 of them renew their subscriptions at the end of the year, then the firm has a retention rate of 70%. Also, from the example the company has a churn/ attrition rate of 30%, which represents the number of customers who have opted out in a specific period. Companies with a low rate of churn are said to have a base of highly loyal customers who bring in consistent and predictable cash flow.

The Importance of Customer Retention

A steadfast focus on customer retention is the need of the hour for every company since it is vastly more difficult to gain new customers. New customer acquisition can oftentimes be 5 to 7 times costlier than keeping your existing customers happy and making them come back. Aside from that, loyal customers are repeat buyers, which makes them a valuable source of predictable cash flow for the business. It is further quite easy to upsell or cross-sell to people already invested in your brand, maximizing your return on investment. When customers are happy with your brand, they make it a point to not just return to spend more money with you, but they also refer your brand to everyone they know, serving as evangelists with a credibility that no ad can bring you.

How does AI boost customer retention and engagement?

Marketing and customer support operations have seen major improvements in recent years, thanks to the personalization of the customer experience that AI can provide. Brands can utilize the transformative power of artificial intelligence to predict customer behavior, offer personalized services and loyalty benefits, and deliver stellar support throughout the product life cycle.

Suggested Read: AI Agent copilot for Customer Service Agents Support

Four Effective Strategies for AI-Driven Customer Experience

Chatbots, voice assistants, and predictive and sentiment analysis are all technologies that have been making waves in recent years. These technologies have empowered marketers and customer support professionals to approach customer engagement and retention in a whole new, more results-driven way to keep clients and prospects interested and invested in the brand over the long term. Let’s explore the four major drivers of the revolution in customer retention that are allowing brands to foster long-lasting relationships with customers.

  • AI-Powered Hyper-Personalization: Customizing the Customer Experience

Customers flock to brands that treat them as special, acknowledging their preferences with personalized offerings and experiences. Using artificial intelligence and machine learning, companies can create and build customized profiles for each customer or segment and target them with products and services that are most likely to resonate with them. Netflix has employed this technique to bring in hundreds of millions of dollars in revenue; the company uses sophisticated algorithms to curate content for each user in a way that they keep on watching and renewing their subscription. Employing hyper personalization driven by AI in your customer support efforts is also vital to keep your client base engaged. Companies like Uber Eats can quickly diffuse the frustration of upset customers by offering up a personalized coupon for ordering food when they contact the support team.

  • Chatbots: Deliver Instant Customer Support 24/7

There’s no telling when a customer will have an issue with your company. It could be in the middle of the night when someone decides to go on a social media rampage against your company, complaining about a bad experience or the inability to reach customer support. Multiple airline companies, food delivery apps, banks, and e-commerce giants have been on the receiving end of negative publicity from unhappy customers who couldn’t get on the phone with customer support. This is where chatbots come in; using AI, they can interact with your customers and solve about 90% of the repetitive queries, leaving your human agents free to handle complex cases. AI-powered chatbots can provide your customers with 24x7 support and even act as tireless marketers. People who visit your site at any point in the day can be met with personalized offers or welcome messages via a chatbot, which could lead to a lifelong customer.

  • Predictive Analytics: Predicting Customer Needs and Preferences

The sophisticated AI systems of today can take in large volumes of customer data, including demographic information, payment history, social media activity, past orders, etc., to make predictions of customer buying habits and the possibility of attrition. Using this information, the marketing and customer support teams of companies can customize products, discounts, and sales strategies to get repeat buyers. Airlines and travel companies are notorious for using predictive analytics to gauge how much a customer is willing to pay for a trip, the recommendations to make, including inflight meals, Wi-Fi options, travel insurance, and the best seats to offer for generating the most revenue.

  • Voice Assistance: Boosting Customer Experience with Voice-Based Support

Customers are nowadays highly reliant on voice assistants, including Siri, Google Assistant, and Alexa, meaning it is mission-critical for your brand to have a presence in that channel. Companies can delight customers with the ability to access hands-free support with the help of AI voice assistants. Firms, including banks, healthcare providers, and e-commerce stores can allow customers to hear their account information, payment status, etc., without complicated logins or handheld devices. Companies like Domino’s and Amazon are already letting customers place orders via their voice assistants, which is guaranteed to win repeat business due to the convenience and pain-free payment method. The accessibility benefits of AI voice assistants also can’t be overstated. Users with disabilities can reliably access customer support and purchase options without the need for much effort.

Various metrics for measuring customer retention

Customer retention metrics provide valuable insights into the likelihood of your brand being able to keep existing customers coming back for more purchases and bring in fresh buyers as well. Identifying these metrics will further provide you with a definitive picture of your business’s health and long-term prospects. Here are the most crucial metrics you need to track to ensure that your operations, including marketing, customer support, and sales are performing optimally.

Customer Retention Rate

Essentially, this metric tells you how many of your customers are loyal to you in the period of measurement. To get this value, you need to identify how many customers you had at the time of beginning the measurement, how many new ones you gained in the measurement period, and how many of these stuck with you till the end of the measurement period. You can proceed to identify your customer retention rate by subtracting the number of customers at the end of the measurement period from the number of new additions and dividing the result by the number of customers you started with.

Customer Churn

The number of customers who are no longer in business with you represents the churn. Typically, a churn rate of 5 to 7% is healthy depending on your industry. You can arrive at the number of customers who have abandoned you by taking the difference between the number of customers you started with at the beginning of the year and the customers you have left at year-end. Dividing this value by the number of customers you had at the start of the year gives you your churn rate.

Revenue Churn

You can end up with lost revenue from existing customers if an order gets canceled, a customer ends their subscription, or downgrades a plan. The metric needs to be measured every month by using the following formula: The monthly rate of revenue churn = {(Monthly recurring revenue at the start of the month – Monthly recurring revenue at the end of the month) – Monthly recurring revenue due to upgrades}/ Monthly recurring revenue from the start of the month.

Existing Customer Growth Rate

A high customer revenue growth rate means you are doing great in terms of retention and optimizing your upselling efforts. You can arrive at the number by subtracting the monthly recurring revenue (MRR) at the month's end and the start of the month and dividing the result by the MRR at the onset of the month.

Repeat Purchase Ratio

How often do customers return to buy from you? You can estimate the repeat purchase ratio by dividing the number of returning customers by the total number of customers.

Product Return Rate

B2C brands, including e-commerce companies, need to maintain a healthy product return rate of around 9%. The number can be arrived at by dividing the total items returned by the total number of items that were sold. A high rate of product return likely means your customers are switching over to the competition and that they won’t return to you. Worryingly, customers who return products may end up writing negative reviews and causing new business to dry out.

Days Sales Outstanding

Using this metric, brands can determine how healthy their relationship is with a client because the Days Sales Outstanding refers to the days it takes your accounts team to collect payment from a sale. To get to this number, you need to figure out your total accounts receivable and annual revenue and divide the same before multiplying the result by 365 days. If you have a high DSO, it likely means your customer is dissatisfied with your offering or that you are onboarding clients with bad financials, which can both be major red flags when your focus is customer retention.

Net Promoter Score (NPS)

The NPS is a reflection of how likely your existing customers are to recommend your product or service to others they know. When you take a customer satisfaction survey, you will end up with a certain percentage of detractors and promoters. Subtracting the two yields your brand’s NPS rating.

Time Between Purchases

Knowing how long it will take for a customer to buy again from you is essential, given that it indicates how happy your clients are with your product or service. To determine this number, you first need to identify at what rate each customer is buying from you. If a customer renews your software monthly, it means their purchase rate is 30 days. To get to the average time between purchases, you need to add up the individual purchase rates of all your customers and divide them by the number of repeat customers.

Loyal Customer Rate

The customers who make multiple purchases with you over a specific period are the loyal ones who keep your business in positive cash flow. Crucially, you need to be aware of the loyal customer rate by taking the ratio of the number of loyal or repeat buyers to the total number of customers you have in a quarter, year, or month.

Customer lifetime value

Retaining a customer for life is about five to seven times more cost-effective than acquiring a new one, so it is essential to be aware of each of your customer’s lifetime values by multiplying their average purchase value with the average number of purchases.

Strategies for Enhancing Customer Retention

Once you have figured out the relevant customer retention metrics you need to track, you have to begin the process of constantly improving them with the following strategies.

Improve your relevance

As a brand, you have to make it a point to have a presence and provide customer support across all channels. Omni channel support across email, apps, web browsers, and phones is a surefire way to always be relevant and engage better with your customers. This is because you are reducing the effort it takes for a customer to learn about you, make a purchase, and contact the support staff. Your customer will also have a seamless experience across all the platforms. Case in point, a customer may see an ad on a social media site, proceed to inquire by clicking on the link to your website or product page on Amazon, Flipkart, etc., get their order and payment confirmation via mail, and keep track of their shipment or order through SMS.

Address customer feedback

Collecting accounts of customers’ experiences with your brand is a potent way to ensure they stick around. You can leverage customer satisfaction surveys that are as simple as a thumbs up or down for your service to something as comprehensive as a questionnaire to gain a holistic view of their experience. You can get a wealth of information from these surveys and interactions with your customer support staff, which you must employ to improve customer experience at all points of the buyer’s journey. For instance, your customer may want more self-service options, a preferred mode of communication, etc., so knowing these needs and catering to them will prevent customer attrition.

Incentivize your customers

Brands must strive to build customer loyalty and retention by providing incentives for them to stick around. You can show your appreciation for your customers with special offers, discounts, and loyalty programs. These incentives will go a long way in giving customers a personalized and memorable shopping experience, which in turn will bolster retention.


Undoubtedly, AI implementation can take your customer retention game to the next level. You can offer hyper-personalization to your customers in every aspect of the buyer journey from marketing and purchasing to customer support requirements. Along the way, you can leverage technology, such as voice assistants, chatbots, and predictive analytics to know exactly what your customer wants in terms of products, how much they are willing to pay, and what improvements they want in your offering. Utilizing AI to acquire these details can go a long way in helping you create a lasting impact on the buyer to create a loyal customer who ends up as a promoter of your brand. One of the first steps you can take as a brand to supercharge your customer retention efforts with AI is the implementation of a solution like AnswerGPT™ that allows you to personalize your customer support conversations to yield higher issue resolutions, improved customer experience, and consequently lower customer churn. To know more, feel free to schedule a demo.

Frequently Asked Questions:

1. What is customer retention?

Customer retention refers to the practice of maintaining existing customers and encouraging them to continue doing business with a company over an extended period. It involves building strong relationships, offering personalized experiences, and ensuring customer satisfaction to promote loyalty.

2. How can AI improve customer retention?

AI can enhance customer retention by enabling hyper-personalization, predicting customer behavior, providing instant support through chatbots, analyzing customer feedback, and offering tailored incentives. These AI-driven strategies enhance customer engagement and satisfaction.

3. What are the metrics used for measuring customer retention?

Metrics for measuring customer retention include Customer Retention Rate, Customer Churn Rate, Revenue Churn, Existing Customer Growth Rate, Repeat Purchase Ratio, Product Return Rate, Days Sales Outstanding, Net Promoter Score (NPS), Time Between Purchases, Loyal Customer Rate, and Customer Lifetime Value.

Get Going Today!

AptEdge is easy to use, works out of the box, and ready to go in minutes.