20% Customers ---> 80% Profit!

"Do what you do so well that they will want to see it again and bring their friends."

- Walt Disney

That is a perfect saying from this great iconic Walt Disney to freeze how customers mean so much to all the businesses doing people in this world.

No Top successful companies fail to maintain the strengths of their customer sets.

But sadly, the top companies are only "7" in numbers where the rest of the companies maintains very low customer sets :(

For most industries, average eight-week retention is below 20 percent.

For products in the media or finance industry, an eight-week retention rate over 25 percent is considered elite.

For the SaaS and e-commerce industries, over 35 percent of retention is considered elite.

I thank CXL Institute to offer various perspectives on how Customer Retention is working in industries.

What is Customer Retention???

The Number of Customers who stay still in your company after a certain period of time.

For Example,

Let's take an X customer who is signing up for minimovies.com!

X later starts to subscribe for your website,

watch his favorite movies,

buys seasonal collection,

and maintains a good relationship with the website :)

This X customer is now a loyal customer for your website which you must keep in track of long-term analysis.

Now let me brief you on the reverse scenario and bring you a new term...

The X customer after signing up the newsletter to minimovies.com

leaves the website after the subscription process due to unknown reasons in this case.

there may be a variety of reasons for customers to leave the website.

Well, it can be due to,

• The poor performance of the website
• No great stuff to surf more items on the website
• Pricing and discounts(Psychological touch)
• Having one bad experience on the website
• Failing to serve a good customer experience, making the customer lose their track to your site.

The Number of Customers who leave your company after a certain period of time is the "Churn Rate".

To put in simple terms...

A company which maintains a huge customer sets will make profits,

whereas a company that maintains a less customer set will fail to make a profit and loose out of the market.

80-20 Rule !

We all know what "Pareto Principle" tells,

The Pareto principle (also known as the 80/20 rule, the law of the vital few, or the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes.

(Source - Wikipedia)

• 20 percent of customers of a given company is the source of 80 percent of the company’s profits.

• Businesses lose $1.6 trillion per year when customers move away from them.

• The average global value of a lost customer is $243.

Note that customers are our only way to make profits.

Even the company aims to billion-dollar in sales, customer loyalty is the only way to pay for it!

Factors influencing Customer Retention

2 Main factors to influence Customer Retention,

1. Customer Engagement

A lot of people say that it is when people are using your product.

( Photo by Cytonn Photography on Unsplash )

And while using the product is certainly a really valuable metric for engagement, it doesn't take a look at if your customers are getting value from your product, and that's ultimately what we need for long-term retention.

Because of that, Lincoln Murphy defined customer engagement a little bit differently...

"Engagement is when your customer" is realizing value from your SaaS."

that is what customer engagement is.

What he means is, if you encourage real engage net from your best customers you build customer loyalty, which helps reduce turn.

So, customer engagement goes beyond that acquisition the moment they become a customer. You have to establish a pattern. You have to create a habit.

2. Customer Lifetime Value

It's also important that you know your customer lifetime value. So, the Cost of Acquisition is not greater than, should not exceed the Lifetime Value of your Customer.

So, CAC is the cost to acquire customers, and it should not exceed your LTV, the long term value of your customers.

Customer Acquisition Cost < Customer Life Time Value

As a rough rule of guidance that might be helpful to you, LTV should be about three times CAC for viable SaaS or other forms of recurring revenue model.

Most public companies like Salesforce and HubSpot have returns that more like five times their acquisition cost.

Keeping all this in mind, let me tell you about how to measure Customer Retention Rate!

Cohort Analysis is one best to analyze your customer retention rate.

Cohort Analysis

Here is the definition from Wikipedia,

It is a subset of behavioral analytics that takes the data from a given data set (e.g. an EMRS, an e-commerce platform, web application, or online game), and rather than looking at all users as one unit, it breaks them into related groups for analysis. These related groups, or cohorts, usually share common characteristics or experiences within a defined time-span.

No need to startle at the definition, let me tell in two lines :)

Cohorts are groups of concerns who engaged in a particular activity for a particular period of time!

Example,

• Free sign-ups in August
• Sample trial demo's in October
• Active membership count in December

With cohort analysis, we can find relationships between the characteristics of a population and that population’s behavior.

Here, Smokers are one set of groups and Non-Smokers are another set of groups. So, there is a commonality existing in each of the sets.

Top 3 Companies to have high Customer Retention Rate

1. Netflix

Netflix is a popular subscription streaming movie service. Till now, Non of the stream services couldn't win the hands-down of Netflix's strategy of sustaining its customer.

Netflix's best of having this lowest Churn Rate is due to its fresh collection and large libraries with licensed content.

Netflix has minuscule details of each and every metric which the user does on its website.

• How many users watched a particular episode
• How many users watched an entire series
• How much of a gap was there between when the user watched one episode and the next?

2. Disney

Who else in this world would tell "I Hate Disney"

None of the others couldn't stop Walt Disney's Creation. Ever since the creation of Mickey Mouse was born in "1928" they still stay in our hearts as characters,

followed by Pluto, Goofy, Donald Duck, and the rest of the Disney gang.

Disney has created a culture where going the extra mile for customers comes naturally!

Such devotion to customer service pays handsome dividends.

Disney's way of creating stories has still magic evolved in it. The way how Disney created its movie or character portion still binds every one of us,

where we can't take our eyes off from a single shot in the movie.

Walt Disney recognized that, above everything else, brand loyalty begins with an authentic relationship.

With a 70% return rate of first-time visitors, Disney Resorts truly exemplify an emotionally-connected culture. 

3. Apple

Apple doesn't alone serve to greatest innovation all the time. But it also beats Samsung over its Customer Retention Rate to be 92%.

Analyst Horace Dediu from Merrill Lynch expects that around 20% of Android brand users will switch to an iPhone. 

Many companies fail to pay patience to listen to the customer's concern over the product, this tends to become big anxiety to the customers.

 Apple neutralizes this anxiety through its customer service, letting clients know that for any product they buy, they'll receive the support they need to its fullest.

Finally, to summarize, great companies succeed in spending an 20% extra rupee for maintaining customers alone. so they acquire profit and their brand stays deep and relentless.

Try to resolve what your customer needs and get them what they want from you.

P.S. Try not to avoid testing, Testing matters most in refining and maintaining customers!

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