Why you should focus on customer retention?

"New customers cost 5 times more to recruit than the efforts to keep existing customers happy."

What is Customer Retention?

Customer retention is the effort involved in maintaining a relationship with someone who has purchased from your business so that they continue to purchase from you over time.

Setting the scene using SAAS (subscription as a service) businesses as an example.

When it comes to customer retention we can learn a lot from SAAS and e-commerce businesses, particularly start-ups that may have limited resources or require to demonstrate validation of profitability. There are a few key metrics that these businesses will analyse closely when looking at retention;

CAC (Customer acquisition cost): The cost to the business in acquiring a customer up until the point they make their first purchase.

LTV (Lifetime value): The total amount that a customer will spend with a business.

Churn: The amount of customers that drop off over time, often shown as a %.

One of the key metrics that matter for these businesses is recurring revenue. Granted, all businesses can expect a percentage of churn. However, if your churn percentage is high or constantly increasing, there is a problem with your brand or service. Your costs of acquiring customers must be justified by the lifetime value (LTV) of your customer. However, if customers do not consume your service within their anticipated LTV, then this means your CAC is larger than LTV, which means you will not realise optimal revenues from the customers.

Keeping a steady flow of customers coming into your sales funnel is important to scale, however there is a lot to be said for focusing more on retaining your existing customers. With a great retention rate, businesses are likely to generate revenues from customers that are above their optimal LTV and at the same time, get new customers organically, at lower costs.

Why should you focus your attention on customer retention?

It’s way easier to upsell to existing customers than to acquire new customers. And one of the key attributes that can lead to increased retention is a focus on continually improving the customer experience.

Users can forgive you for failing to launch a feature on time or falling short on various specifications. However, poor customer service is rarely forgiven.

Check the following statistics from SalesForce Desk:

• Companies can use up to 5x more to get new customers than keep existing ones.
• 68% of customers abandon companies because of poor customer service.
• 48% of companies think that customers leave because of high prices, while in fact, only 25% leave because of pricing.
• Depending on the industry, businesses can experience increased profits ranging from 5% to 125% when they improve their customer retention rates by 5%.

When customers leave your business, any bad press on social media etc will have a negative impact on your customer acquisition costs as conversions will become more difficult and your advertising spend will ultimately increase.

A really good place to start is gaining a good understanding of what CAC, LTV, and churn mean for your business, and a good finance director or accountant will be able to help you establish the numbers. The beauty is that once you understand them, you can begin a retention improvement plan and measure the effectiveness of your efforts. No stabbing in the dark!

It’s not all doom and gloom, we promise. See below some ways that you can begin to make a marked improvement on your retention efforts:

The feedback loop.

There’s some real human psychology at play when it comes to the fear associated with asking your customers for feedback on the service that you provide. Often when we suggest customer feedback in the form of surveys or focus groups, we receive a lot of resistance but it is counter intuitive because dissatisfied customers will vacate your business in time anyway.

An open and honest feedback loop within a business can be transformational and how you process and respond to the feedback is critical in ensuring that your customers feel ‘heard’. Some of our tips are to respond quickly and appreciatively to feedback and to develop an improvement plan as quickly as possible. Your customers do not lie, so listen to them.

Use Automation to increase touchpoints.

A sequence of automated contact touchpoints to your existing customers can be a really powerful way to stay relevant. Often we encourage this by email, however it can also be delivered effectively via a chat bot on Facebook or by uploading a customer list onto Facebook and running targeted brand engagement ads. This automation has the obvious benefit of staying relevant and adding value but can also be a really effective way of re-engaging inactive customers and encouraging them to purchase additional products or services.

The role of brand ambassadors.

Today’s consumers have more control on the marketing information that they get. Customers are no longer listening to direct selling messages from companies, but are scouring the Internet on forums, blogs and social media sites to find out what other people are saying about a service. Brand ambassadors (commonly known as brand evangelists) are those customers who have been delighted with your product or service and they can help you in your customer acquisition strategy, by advocating and educating their followers about your products and thus reducing the friction of new leads converting. For existing customers, you need to make it all about them. Show them that you care and know who they are, and connect with them on their preferred channels, be it via social media, email marketing or through your blog.

Provide your customers with an experience that they will want to share. Whether you are offering fast support response, quicker shipping, great products or services, make it easy for customers to share these experiences.

When we are doing sales workshops with businesses we often pose the question; what 10 customers are delighted with your service, and how can we ask/incentivise them to find 10 more customers.

Reward existing customers.

Creating discounts, benefits, or deals that are available exclusively to repeat customers is an easy way to increase your customer LTV and demonstrate that you appreciate their business.

Loyalty programmes can include deals and discounts, but can also be focused on added value such as gated content, webinars, events, whitepapers, educational content (anything that improves your customers experience and life).

Create a WOW budget.

Customer WOW’s are a hot topic in the Outlaw Social HQ at the moment. We have had the pleasure of working with some inspirational luxury brands over the past few months and one of the main themes that has come out of our creative storyboarding sessions has been ‘Real-Time WOWS’.

The opportunity to engage with your customers in real-time, and to give them something to talk about, is in our opinion, one of the most important things you can do for your business and brand in 2019. We recently consulted a brand to allow a monthly budget for rewarding their customers randomly without an agenda, and the results were fantastic. Read the full blog here. 

Document a Customer Delight Road Map.

All of the strategies mentioned above are great but without a clear strategy they are likely to be inconsistently applied. To reap the greatest rewards from your customer retention efforts, we recommend you do some work on documents a customer delight road map…

Think about the journey that a customer goes through when engaging with your business:

How many touch points do you have with leads before they purchase? What is the timeline?

Once a customer purchases, what is your onboarding process?

What resources help the customer to continue using your product or service?

Do you ask for feedback from customers?

What forms of communication do your customers prefer?

How do you maintain relationships up to the second, third, and further purchases?

How do you reward your customers?

Our business is focused around the development of high performing marketing strategies and frameworks and if your business is ready to accelerate its growth (or improve retention) we would love to hear from you. Click this link to arrange a consultation.