In a recurring revenue business, customer retention is an important growth strategy. I know that might sound counter-intuitive – the term retention implies keeping what you have, not growing something new. We tend to focus on customer acquisition when we talk about growth, but ideally a third or more of your revenue growth should come from existing customers.
Think about how recurring revenue works. You bring a customer on board, build a relationship and brand loyalty through personalized service(s), and provide cross-sell and up-sell opportunities throughout the relationship. It’s easier to sell to an existing customer already familiar with your brand than to acquire a new one, and the longer you retain a customer, the more opportunities you’ll have to engage and generate those cross- and up-sell opportunities.
Successful recurring revenue companies employ a variety of strategies to boost customer retention. A Google search returns an almost endless stream of suggestions. Some of these will be obvious, like targeting emails and maintaining service quality. Other retention strategies might be less obvious but just as effective. Check out the three ideas below.
OK, I admit this sounds obvious, but you wouldn’t know it from the way the average marketing department behaves. It costs 6 times more to acquire a new customer than to retain an existing one. Since it takes time to break even on a customer relationship, most companies will see 100% of their profits come from existing customers. And since the profitability of each customer relationship is directly tied to the length of the relationship, a small increase in retention rates can equate to a large increase on your bottom line.
So ask yourself about the return on investment (ROI) on your marketing and advertising spend. Are you getting best value on that investment? Think about diverting some of your customer acquisition dollars into customer retention with advertising and promotions that reinforce the value existing customers receive from your service. Expand win-back strategies to proactively target customers showing churn risk behaviors (like declining or paused usage) before they leave instead of after they’re gone. It’s easier to keep a customer from leaving than to reacquire them, so target retention.
Again, this might sound obvious because a customer’s experience should be personalized. What isn’t so obvious is that you can begin personalization as early as their first visit to your web site and can continue for every visit afterwards. Try personalizing the initial experience – page content, service offerings, promotional offers, and pricing – based on how they landed on your site. For example – if someone clicks in from a partner site, provide a images and offerings directly relevant to customers of that partner vs. providing a more generic offering to someone clicking in from Google or Bing. You only have one chance to make a first impression and that initial visit sets the tone for the course of your relationship. Do whatever you can to be relevant on that first visit.
Stay relevant beyond the initial visit by capturing personal preferences. Ask a customer what they prefer and most will be happy to tell you. Additionally, track clicks, page visits, and usage to gain more data on user behaviors. You can’t collect too much information (think Amazon and Netflix). Use that data to tap into each customer’s ‘inner ego’. People like things that resemble them in some way and you can leverage that by segmenting and micro-segmenting your customers based on preferences, and providing offers and user experiences that cater to the specific needs of each segment. Use A/B testing at the segment level to determine what works best, and adjust over time to stay relevant.
Provide Proactive Support
It’s better to correct a problem before it occurs. Proactively reach out to customers when you see usage slipping. Enable technology to detect activity on your web site that might indicate a problem (taking too long to complete a form, jumping from page to page looking for something, etc.) and proactively open a chat session to ask if the user needs help.
When something does go wrong, own it. Consider each customer complaint to be a gift. Most customers with a problem won’t tell you about it – but many of them will leave, often taking their business to a competitor. This effect will be amplified if customer service is difficult to obtain, so make it ridiculously easy (i.e. a single click) for customers to reach you when they have a problem. Listen to their issues, empathize, apologize, and resolve. Then follow up on every interaction to stay proactive.
Boosting customer retention is the fastest way to grow profits in a recurring revenue business. Work with all the departments (marketing, customer support, customer success, etc.) to ensure that customer retention is a priority. Losing existing customers hurts your business more than failing to acquire new ones.