Stop me if this sounds familiar. You host a party. It comes alive when everyone’s gathered together, dancing, singing, and laughing. Everything is loud and lit, but then you notice the “cool kids” are leaving.
Apparently, someone else is throwing a party nearby – with an open bar. The not-so-cool kids start to exit, followed by the definitely-not-cool kids. Every time someone says goodnight, you feel the thrill leaving your body till it’s just you and Phil from R&D. It’s a gut punch, and it’s exactly what brands go through when customers churn.
Think of a business as a party and your customers as guests. When a customer leaves, you lose business, and that leaves a void.
Customer retention fills this void, and if you do it right, there won’t be a gap in the first place. Before we learn how let’s take a step back and root out the source of the problem.
Customer retention describes a company’s ability to turn one-time customers into repeat buyers and keep them from going to a competitor.
Customer retention is multidimensional. It involves boosting a customer’s lifetime value (CLV), engaging leads, and turning them into advocates. Ultimately, the goal of customer retention centers on building a community of brand ambassadors who not only stick to your brand, but also defend it against competitors and doubters.
Having said that, let’s understand why it’s a big deal and why brands are benefiting from customer retention to save money on marketing.
Source: WebEngage
At the start of a year, a business has 1,000 customers; at the end, they have 800. During the year, the business acquires 500 new customers. The customer retention rate for that year would be:
2,000 – 500 / 1,000 x 100 = 30%
This means that 30% of the customers from the beginning of the year were still customers at the end of the year.
Beyond brand value and loyalty, the ultimate yardstick of retention comes in the form of profits. Profits keep companies alive and kicking.
80% of profits stem from 20% of your existing customers. However, to retain customers, you must first acquire them, which businesses typically do on day zero.
Customer acquisition is the other side of customer retention’s coin and they share the same objective of generating client revenue.
Most new businesses fight tooth and nail to acquire new customers. But they go wrong when they rely solely on acquisition to go all the way. When you squander capital on acquiring customers and use little or nothing to keep them, your cash flow suffers, and your business takes a hit. Probably more than one hit.
Just like acquisition, retention is a day 0 problem. By focusing on retention, businesses can maintain healthy cash flow that results in profitability. But this is a long-term solution. You have to have the patience to wait for the tides to turn in your favor.
Revenue springs from user spending, but – more importantly – it comes from repeat users. You lose potential revenue without them. Customer acquisition, while effective, cuts into a company’s contribution margin.
Just do the math. Would you rather have five customers spend $500 once, or one customer spend $500 every month?
Creating the conditions for repeat customers offers a host of benefits.
Retention works regardless of industry. Here’s how marketers can implement a range of use cases to engage users across verticals.
Source: WebEngage
Get familiar with these beginner customer retention tactics to control your returning client rates.
Make a list of optimizable metrics to track and measure the performance of your marketing. These metrics are unique to each business, but some basic ones are as follows.
Engagement and retention are two sides of the same coin. More engagement retains users and retained users drive more site visits, opens, clicks, and conversions. Users can be engaged across the top, middle, and bottom of a marketing funnel.
And this is just the tip of the iceberg.
We live in a user’s world where books are very much judged by their covers. Attention comes and goes without warning, brands jockey for attention, and potential customers have near-limitless options for whatever they need.
Some notable ways to enrich CX are described here.
The human need to belong comes in handy when you’re building a brand community. A tightly-knit group of members with like-minded interests and problems will create meaningful connections and deepen ties.
You can do this by hosting events, meetups, mixers, and workshops to bring people together.
Here's a mathematical experiment to help you understand the economics of retention and how it can save money on marketing. Our calculation is simplified. It doesn’t take into account certain externalities and is broadly indicative of its incremental impact.
Let’s build a hypothesis for XYZ company.
If a company spends $10,000 on marketing to acquire new customers, they can acquire 100 new customers. These 100 new customers will generate a total revenue of:
Total revenue = 100 x 500 = $50,000
XYZ spends $6,000 on acquiring 60 new customers and $4,000 on retaining 200 existing ones. Since the retention efforts increase the $500 of average customer lifetime value by 1 year, the results are: 200 x 500 = $100,000
The total revenue from this strategy is = (60 x 500) + 100,000 = $130,000
Cost comparison:
To get started with retention, you’re going to need the resources listed here.
Source: WebEngage
CDP software aggregates and unifies customer data from various sources to provide a 360° view of users. This singular view, powered by first-party data, uses an easy-to-read dashboard to show you every decision-making parameter you could think of such as user attributes, website behavior, personal taste, geographical location, channel reachability, and psychological tendencies.
The success of your segmentation strategies depends on how you choose to create user segments and cohorts. A segmentation engine lets marketers develop and manage static segments, dynamic segments, and advanced machine learning segmentation like recency frequency monetary (RFM) analysis and predictive segmentation.
No two users will have the same experience if you get personalization right. This engine lets you create bespoke experiences at scale.
This lets you design, activate, and automate your marketing campaigns with the help of recommendation engines, user journeys, control groups, and A/B-test campaigns. Having a marketing automation platform to complement your CDP can work wonders for your business.
Once you’ve activated and automated your campaigns, you need a robust analytics tool to rate their performance. With this engine, you can monitor cohorts, optimize funnels, and visualize how users interact with your brand.
At this particular moment, AI is a top priority for brands. They use AI to cull content, identify the best channels and times to engage users, and predict user behavior.
Before you plan your next marketing budget, you must make room for retention because it’s not just a buzzword anymore.
Consider your negotiables and nonnegotiables. Identify your north-star metrics and track them to define and measure success because chasing the wrong metrics can do more harm than good.
User’s preferences are volatile and subject to constant change. What works today might not work tomorrow. Whether it’s emails, copies, or your target keyword, always A/B test your campaigns to know which parts to optimize to yield better outcomes.
Your MarTech stack is your company’s backbone and is a long-term investment. Identify the components to add to your MarTech stack and choose each component carefully after doing your homework and asking the right questions. Building a fail-proof MarTech stack that can power your customer retention efforts without any technical hiccups.
It goes without saying that by gravitating towards retention, businesses can put more money on the table without necessarily increasing the total marketing spend.
Retention is cheaper, sustainable, and, thankfully, it just works.
Curious about how to hold onto more customers? Explore actionable tips to minimize churn with retention marketing.
Edited by Aisha West and Shanti S Nair
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