Retention marketing is something that every business should aspire to. It only makes sense that once you have put in time and effort to acquire a customer, you should make every effort to retain them. After all, a customer who is already purchasing or working with you is a far easier customer to encourage to make another purchase than one who has yet to purchase from you.
It is, therefore, surprising that most marketing teams allow customer retention to slip in favor of finding new customers. Closing new clients feels better, but retained clients make for happy balance sheets.
What is retention marketing?
Retention marketing is the art and technique of retaining customers who have already purchased from you. They’ve taken the first big step and have committed some of the valuable cash to your product or service. Now it only makes sense to see if they’ll go further with you, rather than wander elsewhere. Returning customers almost always make more purchases from companies over time, this leads to reduced operating costs and, importantly, satisfied repeat customers are the ones most likely to refer you to others.
On paper this all sounds like a no brainer, in figures it does too. “A 5% increase in customer retention produces more than a 25% increase in profit,” says Fred Reichland in Bain’s Prescription for Cutting Costs report. The reality is that there are instances where this increase in profit can rise to 95%. Companies that work to retain their customers massively benefit from the process.
“Chick-fil-A has so effectively mastered the economics of loyalty it can afford to pay store operators double or triple its industryís average compensation and still give 10% of profits to charity” Fred Reichland
It only makes sense to have a retention strategy, but few companies do. The reasoning is almost always down to taking customers for granted. These businesses feel that what they offer is priced right and is the right product for the customer (after all they already purchased it once) but fail to realise that the experience the customer has with the company actually has a higher rate of retention than either price or product.
Finding out how many retained users you have, how you are retaining them, and whether your strategies in retention marketing are working comes down to the metrics that you track and then how you act on them. We’ll investigate the metrics best suited to retention marketing shortly, but a good place to start is with the AARRR metrics or Pirate metrics. These metrics are the blueprint ones to track for businesses looking for growth opportunities. Businesses that ignore them do so at their own expense.
6 Benefits of Retention Marketing
One could simply say more clients or customers retained equals more revenue which equals no profit, and then leave it there. That might be enough for some people but there’s more to the benefits behind retention marketing than straight up revenue generated.
Keep customers, make more money.
Of course, there are other benefits but this has to be number one for the aforementioned reasons. Keeping your paying customers on board means more money coming into the company.
Your current customer base is easier to sell to than new ones.
In their book Customer Loyalty, Jill Griffin found that, “the probability of selling something to a prospect is only about 5-20%, while the probability of selling something to an existing customer is 60-70%.” Businesses are far more likely to be successful when selling to their existing customers.
Retained Customers Keep Coming Back
The more a customer purchases from you, the more likely they are that they’ll come back again.
Once a customer has purchased from you there’s a chance that they’ll return again. If they do return (and therefore become a retained customer) then they are even more likely to purchase a third, fourth etc time again in the future.
Costs are lower working with current customers.
Spending is considerably lower, things like advertising, cold outreach etc aren’t applicable with retention marketing. During the financial crisis of 2008 Alan Webber found that it costs five times more to acquire a new customer than it does to keep a current one.
Retained Customers Spend More
People who have bought before are more likely to spend more next time.
These customers have, essentially, tested the water with you and when it comes to subsequent purchases they are less likely to have the sort of hang ups that new customers experience.
Retained Customers Get You More Customers
When happy customers keep purchasing from you they’re the most likely group to refer new customers to you.
Creating a base of loyal customers leads to a successful referral system that will, in turn, naturally generate a larger customer base.
7 Retention Marketing Strategies for Your Startup
We’re all agreed that retention marketing makes sense, so now it is time to strategize. Take the time to consider each individual strategy, how they would impact your business and, most importantly, how they would benefit your customer.
When someone interacts with your business they want to have the feeling that they are doing so on a personalized level. They want to feel that they’re being spoken to on an individual basis, by a real person, and that they are valued by your business. Nobody wants to feel like they’re just a number in your accounts book.
Encourage people to return to your business by creating short term, individualized, personal deals. Not only do these act as incentives (even if just to visit and browse your site) they will often end up making impulsive purchases. In a study conducted by Coupons.com and Claremont Graduate University, it was found that when customers receive coupons it genuinely triggers an oxytocin reaction (the happiness drug that the body naturally creates).
Amazon is a well known user of personalized deals, sending emails that follow up on recent browsing history, product deals based on purchase history and suggested products.
Everyone likes to be part of the in-crowd, and therefore feel important. Exclusivity plays on that exact emotion by offering deals, discounts or offers in a way that only allows certain customers (specially selected customers) to take part in them. Many companies nurture this emotion by creating loyalty programs or a membership platform. When customers take part in these schemes they are many times more likely to return and purchase from you again.
Looking at exclusivity from a B2B standpoint, a business might consider offering wholesale prices on their products in exchange for larger scale discounts or even allow specially selected “partners” to participate in an early stage exclusive product before it goes to mass market. By making these deals limited in their volume, or for a limited time, businesses can also leverage the scarcity principle. The scarcity principle (another of Dr Cialdini’s Principles of Persuasion) plays on the human desire to not miss out on opportunities, otherwise known as FOMO (fear of missing out).
Email marketing is a tricky strategy to master in modern day marketing as most inboxes are inundated with marketing emails on a daily basis, many of which can be deemed to be spam. That said, if you are able to position yourself as a company or brand that people genuinely want to hear from then you’ll have a far higher open rate and interaction rate.
As always, it’s all about providing value. Sending an email full of sales talk and product/service descriptions goes nowhere, whereas letting them know you’ve published a recent article that would be really beneficial for them to read, that provides value.
The very design of referral marketing is to encourage people to come back to your business so that they can refer new prospects to you. When a current customer is actively participating in a referral scheme they are a retained customer. The chances of them purchasing a different product from the one that they are sending referrals to is extremely low.
By creating a solid referral program your business will not only have a program that encourages new customers to purchase your products and services, but also retains your current customers. The trick is to have the program set up as soon as possible (to maximize potential participation) and to ensure that the system in place is robust enough to scale alongside your growth. It’s certainly worth investing in a professional system such as the referral software offered by GrowSurf.
Exceptional Customer Service
Treat your customers well and they’ll return to you time and time again. It’s why TGI Fridays greets you professionally and aggressively sings you Happy Birthday, that’s their version of great customer service in the hope you’ll return in the future.
When working with other businesses this comes in many forms, in the physical realm it might be wining and dining them in a decent restaurant, sending them thank you notes and gifts, or genuinely just checking in with them without the pushing of sales. In the digital sphere, support and help pages come into their own.
Customers need to be able to feel that they can answer their own questions, and that someone will be there to support them if they can’t. That could be through a phone line, a physical presence or via live chat. There are myriad ways of delivering customer service, but it takes dedication to provide exceptional customer service.
Reprioritize and Restructure
Your retention marketing strategy might be as simple as prioritizing and restructuring your business so that it has more focus on retaining clients. As mentioned in the introduction to this article, many businesses simply don’t prioritize retaining customers. By upping retention in the hierarchy of marketing focus, there’s a chance that you’ll be able to increase your numbers automatically.
Restructuring the business can be a more drastic approach but if you feel that retaining clients will drastically increase your revenue generated then it may well be a worthwhile process. This might include the literal restructuring of job roles in the business with more focus on account management and customer success rather than straight up sales people.
Redefine How You Measure Customer Value
This comes down to the metrics that you’re tracking and how you’re going about reporting on them. Simple acquisition is a straightforward metric to measure, new customers arrive and have revenue attributed to them. Instead, it’s worth focusing on the lifetime value of your customers vs how much it might cost to acquire a new one. Customers no longer are focused entirely on price, yes, it is still a major factor in decisions but so are loyalty, customer service, and all of the above.
Judging lifetime customer value isn’t easy, you’re normally having to forecast and make some educated predictions on what that value might look like. Being realistic with these figures is important. Once the values are in place appropriately this metric is a far better measure of projected revenue earned rather than predicting one off sales.
The 4 Types of Retention Marketing Campaigns
We’ve covered what retention marketing is, why you should consider it and typical strategies that could be implemented. Now it’s time to investigate the actual campaigns that could be launched in order to retain customers. In order to be most successful, you’ll want to divide your customers into smaller groups through a process of user segmentation.
Onboarding Campaigns : First impressions count, and, as they say, you only get to make them once. It’s incredibly important that you take the opportunity to make your mark and stand out from the crowd. The time when new customers are getting to know you is important and sets the tone for the entire rest of the relationship.
Active Customer Campaigns : These are the customers who are actively interacting and purchasing from your company. It’s easy to forget them because they are doing what you want them to do. It’s because of this, and your desire for them to continue doing so, that a campaign should be launched to interact and connect with them on a personal level.
Lapsing Customer Campaigns : The customers who were active but are now, apparently, coming to the end of their buyer journey. If you’re a business that offers free trials or 3/6/12 month subscriptions, these are your customers coming to the end of the cycle. Left to their own devices, many may lapse and therefore no longer be a customer. Campaigns should be launched with the aim of reminding them of your services and educating them on the benefits of continued use.
Re-Engagement Campaigns : Just because a customer hasn’t engaged with you or purchased in the last 12 months or so doesn't mean that they are completely lost. This type of campaign aims to bring them back into the fold. Once again, don’t be tempted to blast them with unsolicited sales calls or emails, instead reach out to them, offer value and attempt to get them re-engaged with your brand.
How to Measure Customer Retention Efforts
Launching retention marketing campaigns with solid strategies only makes sense if you’re making the effort to properly track the results. Otherwise you have no idea if the campaigns were successful or not. The following KPIs are the basics that should be tracked but when applied to individual campaigns and businesses it’s likely that other KPIs will prove more useful.
Customer Churn : Here we track how many customers are dropping off from subscriptions that otherwise would have renewed, or were customers regularly paying that have ceased services. It’s perfectly normal to have a small churn rate due to circumstances out of your control but if it’s climbing towards 10% then it is worth seeing why that might be.
Calculation for annual churn: (Customers at start of the year - customers at the end of the year) divided by Number of customers at the end of the year
Revenue Churn : Following the same concept as above but rather than focusing on numbers of customers, we focus on revenue that has been lost over a certain period. It’s a metric that should lead to active management of each individual customer, especially when they’re looking like they’re disengaging with the platform that you offer. This should be considered on a monthly basis so that actions can be taken quickly when issues arise. Only include revenue from existing customers.
Calculation of monthly churn: [(Monthly Recurring Revenue at Start of Month - Monthly Recurring Revenue at End of Month) - Monthly Recurring Revenue in Upgrades during Month] divided by Monthly Recurring Revenue at Start of Month
Existing Customer Revenue Growth Rate : This growth rate is important as it’s an important indicator of the success your retention marketing campaign is having. If the campaign is successful this rate grows as existing customers spend more with you. Once again, only take into consideration existing customers.
Calculation of monthly revenue growth: (Monthly Recurring Revenue at the End of Month - Monthly Recurring Revenue at the Start of Month) / Monthly Recurring Revenue at the Start of Month
Repeat Purchase Ratio : The ratio of customers who come back and purchase from you again versus your total number of customers. This is a great indicator of how loyal your customers are to your brand. The metric is especially useful when used alongside specific customer segmentation.
Calculation of repeat purchase ratio: Number of Returning Customers / Number of Total Customers
Product Return Rate : Generally speaking this is only for those companies that sell physical products. In the B2B sector this is a vitally important metric to track and it can make or break your business. It is usually an indicator of issues within customer service.
Calculation of product return rate: Number of Units Sold That Were Later Returned / Total Number of Units Sold
Days Sales Outstanding: How fast are your customers paying you after they receive an invoice. A lengthy or rather an increasing period of time between invoice and payment received can be an indicator of unhappy customers. Look to keep this as low as possible and track on an individual basis, especially with accounts that carry a large amount of revenue.
Calculation of annual days sales outstanding: (Accounts Receivable / Annual Revenue) × 365 Days
Net Promoter Score® (NPS) : This metric measures the level of satisfaction within your users. It is generally scored using the results of a customer survey or questionnaire that typically asks questions such as “ Would you recommend our services to a friend or colleague?” The answers are scored in bands 0-6, 7-8 and 9-10. These bands are categorized as detractors, passive and promoters. If the larger group features promoters one can surmise that people are positively recommending your company, the opposite for more users scoring 0-6.
Calculation of net promoter score: % of Promoters - % of Detractors
Loyal Customer Rate: A calculation based on how many customers have bought from you again within a certain time frame (usually months, quarters or years). These loyal customers are the ones that are worth investing in, they’ll likely be the ones who are part of your referral programs, acting as brand advocates and generally driving revenue towards your company. Treat them like royalty.
Calculation of loyal customer rate: Number of Repeat Customers / Total Customers
Customer Lifetime Value : The golden metric, this is the one that is worth focusing on when it comes to retention marketing. A retained customer will have a considerably higher CLV (sometimes also referred to as lifetime value or LTV) than a single purchase customer. If this metric is decreasing there could be two issues; you’re only converting low value customers or you’re losing customers at an increasing rate.
Calculation of customer lifetime value: Average amount of revenue a customer would likely create over a year X average lifespan of the customer within your business.
Retaining customers is often overlooked but is an area that every aspiring growth business should consider and evaluate. Rather than favouring the more expensive new acquisitions it is certainly worth nurturing retained, loyal customers who will pay you back in dividends.
- The benefits of retaining customers goes beyond simply increased revenue
- There are various strategies to employ, pick the ones best suited to your business
- Run retention campaigns at various stages of the customer lifecycle
- Ensure that retention metrics are tracked, then use these figures to evaluate and inform your future campaigns.