When does customer retention start?

Spoiler alert - it’s not “post sale”.? Retention is an important area for businesses. Why? As Forbes shared existing customers are +x3 more likely to buy again versus net new customers and repeat customers spend 67% more (BIA Advisory Service).? Often articles focusing on retention talk about retention as something that is distinct from acquisition or product.? There’s companies where sales teams acquire the customer and then pass the baton over to the “customer retention” team to be the guardian to ensure that the customer continues to make repeat purchases.? Let's unpack why that will only solve for a small part of retention.

First, what is the core retention metric??

Churn is the core metric. What is churn? Churn is easier to explain when thinking of a subscription business, imagine you sign up to a service and then your service ends (I.e. you churn off the product). ? In non-subscription based industries typically arbitrary standardised dates are concocted to define an active versus inactive customer, e.g. normally 30 days of no interaction.? Within subscription businesses there’s typically 2 types of churn.

1. Voluntary. A customer actively cancelled their service prior to the end of the subscription period
2. Involuntary. ?Upon renewal of a service and attempted billing there was no successful payment received.??

A quick Google search will have you finding the average churn rates for each industry, however a big watch out for this, is it’s typically done on US markets which do not behave the same way as the rest of the world.? Just as you wouldn’t compare your NPS benchmark directly across countries the same applies to churn.

Three types of retention strategies?

There are three core retention strategies - preventative, proactive and reactive and key sub-areas that impact retention rates shared.?

1. Preventative.? Meet the ever evolving goals of the customer and eliminate the causes of dissatisfaction or friction (pain-points).

Product.? What job is your customer trying to achieve through your product?? Do customers find the product lives up to their needs?? What available alternatives does the customer have to complete the “jobs to be done” that your product or service is offering? Are you evolving your product over time? Take the famous example of Kodak, whilst the quality of the product was good an alternative came into the market which meant purchasing Kodak was no longer needed.? It’s essential to keep up to date with alternatives in the market - their? benefits, pricing and experience to ensure you’re still relevant and focusing marketing on the key target market.?

Brand & Marketing. Keeping salient in the mind of the customer and creating emotional connections with customers, ensuring you establish your key differentiators so when alternatives are available you still remain the top choice. ? Loyal customers can be the most profitable, where 35% of the business revenue can be generated from 5% of the customers (Smile io).? Your channel of acquisition can also be traced through to churn, with organic acquisition often having stronger retention rates.??

Discounts.? Offering a discounted rate or giving it away for free for trialling a product or service will be great for sampling, however when you follow that customer through versus those who came on the standard price often you’ll see large discrepancies in the churn rates and repeat order rates.? Often retention managers are spending significant amounts of their time creating further offers to “soften the blow”, ultimately eating further into the profitability of the customer.? The double hit on discounting comes from alienating your existing loyal base who paid full price.?

Packages.? For subscription businesses offering longer term bundles can de-risk the chance of the monthly churn, customers in return get preferential pricing for committing to the longer durations.? Based on Google Play Store research Monthly and Annual plans are the most popular durations, however companies sometimes add in additional 6 month plans mainly to make the annual plan look more attractive. ? In my experience, annual plan subscribers not only have the lowest churn rate and interestingly their engagement levels are higher.

2. Proactive.? Identifying customers who might be at risk of churning and putting in place measures to proactive encourage loyalty.

Usage. Ultimately, if a customer doesn’t use your product or service they are likely not to see value and less likely to be sticky customers.? Frequency and recency of interactions can be useful guides to predict churn rates.? Across different industries marketeers try to get customers to either use or order again a golden number (normally around 5 times) within the early lifecycle of a customer to be seen as low churn risk.? Whilst it’s important to have focused programmes on net new customers, larger volumes and more revenue is from your loyal base - personalising communications to these customers can further increase engagement and reduce churn.

Upsell/cross-sell.? The more depth and breadth a customer has typically the stickier they are, so cross-selling into other product lines or encouraging customers to upgrade their plan can proactively improve your customer retention.

Loyalty.? Encouraging customers to stay with your brand by giving additional perks including loyalty points, early access, exclusive offers, money can’t buy experience, premium features through additional “add on” premium subscription. ? According to Bonds Brand Loyalty, 81% of customers are more likely to continue doing business with a brand if they offer a loyalty programme and Forbes found those who enrol in a loyalty programme spend +12% more.?

3. Reactive.? Attempting to retain a customer once they have churned or informed you that they no longer want to continue their service.?

Customer service. ?Hopefully, not all your customer base will contact the customer service team, but for those who do, organisations providing better customer service had a 53% better retention rate than those with a more inferior basic customer service as shown by research by Havaldar and team.? Tracking both your transactional NPS (Net Promoter Score) post contact, measuring overall contact rate as a proportion of your customer base and repeat contacts are top metrics to keep an eye over time.

Payment methods. In subscription businesses, the payment method you acquired the customer on and therefore used for future payments can have one of the biggest swings in retention rates in certain markets around the world.? For example, iIn South East Asia, credit card penetration can be as low as 7% so offering credit card payment only will limit your accessibility.? The alternatives include Apple Pay, Google Pay, e-wallets/virtual cards,? internet banking or BNPL (buy now pay later schemes). ? In my experience, those using Credit Card payment methods have the best retention rate, followed by Apple, then Google.? Google tends to be lower than Apple due to the integration with more e-wallets but can boost in certain markets higher sales.? Internet banking and typically e-wallets are not enabled for recurring subscriptions, so at the point of renewal will “involuntary churn” - yes that’s a 100% churn rate.? Depending on your payment mix and country operating in, over 90% of your churn could be involuntary.?

Pending/active cancel.? One for subscription industries, customers submit a request to cancel their auto-renewal prior to the end of the subscription.? For a monthly subscription, typically you’ll see a spike in the first few days and then another ramp up starting from day 27 of their subscription.? Reaching out proactively to these customers before the end of their service can be effective in “saving” the customer.

Winback.? Once a customer has churned marketers attempt to winback customers, it is essential to track your net new customers from your winback as they will need different treatments.? Depending on the type of churn i.e. voluntary or involuntary different strategies will need to be adopted.? For involuntary, grace periods and optimised billing retries are essential.? For voluntary, you’ll need to understand why customers are churning through research as a first step and then retarget customers with relevant messaging.

To conclude

Customer retention starts before you go to market with your product and is an output of all areas across the funnel.? To have strong retention companies need to look holistically at the market, product, customer experience, pricing and ways customers are acquired and implement more tactical solutions proactively or reactively to retain their customer base.?