The first challenge for any company is to get customers to believe in them and take the first step to subscribe to their product. Once you have a solid customer base, then starts the next challenge — customer retention.
Customer retention is the scale on which your customers’ value for your products and services is measured. To tip the scale in your favor, measuring this metric should be one of the bedrocks for your business to succeed.
Before we discuss the advantages of paying attention to customer retention rates, it is essential to understand when to focus on retention. If you’re an established company – having garnered many successes with the right processes and automation in place – retaining existing customers should be your priority. On the other hand, if you’re just starting, acquiring new customers is the way to go. Once sales start increasing, you can mix in retention efforts along with acquisition efforts.
As your business grows, so should your precedence for retention. Based on your company’s stage in its life cycle, you can decide how to balance customer acquisition and customer retention.
Why Customer Retention Strategies are Important
Customer retention strategies enable you to provide more utility and desirability for your products and services to your customers. You end up extracting a lot more value from them. These strategies are key in maximizing the profitability of your customer base. Here are the reasons why:
Let’s compare costs
Saving expenses is an evident motive to focus on customer retention. Acquiring a new customer can cost five times more than retaining an existing customer. Besides, the success rate of selling to a customer you already have is 60-70%, while the success rate of selling to a new customer is 5-20%.
Loyal customers are repeat customers
The customer grapevine
Word-of-mouth runs a long way in spreading useful information. A lot of brand buzz and brand discovery is possible because we hear about it from someone we know. 60% of customers will tell friends and family about a brand they’re loyal to. Moreover, word-of-mouth promotion is the most trusted of all forms of marketing – 86% of customers trust word-of-mouth reviews and recommendations, and 74% of consumers identify word-of-mouth as a key influencer in their purchasing decision.
Retention in subscription businesses
Unlike other industries, retention proves to be a bit more challenging for subscription businesses. In the traditional product one-time sale model, the focus is on the product’s lifetime value. In the subscription model, the focus shifts to the customer’s lifetime value as they use the service month-on-month sometimes, allowing them to pause or cancel their subscriptions with every billing cycle.
For these reasons, you do need to go that extra mile to retain customers in a subscription business.
Here are some great customer retention strategies that will help you delight and retain your customers in both subscription businesses:
Retention through Engagement
Using contextual emails and personalized in-app notifications for different customer segments can increase their willingness to continue with your product.
Retention through Follow-ups
This caters to payment recovery using smart dunning and follow-ups optimized for particular customer segments and their response times.
Retention through Payment Options
Make paying as convenient as possible by offering multiple payment options (credit cards, direct debit, wallets, etc.), an option to process advance payments, and flexible payment terms such as Net D.
Retention through Custom Subscription Management
For a detailed read on subscription oriented retention strategies, check out our article:
The Best Customer Retention Strategies that work
1. Optimize Product Pricing
Pricing is an important factor based on which customers perceive the value of your product or service. For that reason, a mismatch between the price and the value you offer will not bode well in terms of customer retention.
- Either extremes of pricing – too high or too low – can lead to churn. Value-based pricing is the way to go about this. But ask yourself what is valuable for each customer. If you have a customer willing to pay the full price, don’t offer a discount. Instead, incentivize the transaction with free shipping. For another customer at the lower-priced tier, free shipping might suffice as an incentive to take an extra feature or make a long-term prepaid commitment. The services offered or product features that are valuable for one customer are not for another. Understanding this difference in needs and personalizing your services can help you price accurately.
- It is essential to compare prices with your competition, but it’s not the only factor. If you’ve got a loyal customer base, know that they are willing to pay more for your services, especially if you know that you are offering them more value than the company you’re competing with. In such a case, increasing your offering’s price increases its perceived value, further boosts customer loyalty, makes you more profitable, and helps you allocate more resources to serve your customers better. And if your competitor is giving more for less, what are you waiting for? Amp up your value; remember that value does not speak only in terms of the product but the entire customer experience itself.
2. Ensure Excellent Customer Engagement
I cannot stress enough the importance of engaging your customers. Let’s say you purchased the most amazing product ever, but the customer experience is less than that. Most customers, including me, would instead go to the vendor who can offer a more wholesome experience. Without meaningful and real-time customer engagement, focusing on retention is moot.
Here’s an example of a company that harnesses data to deliver excellent customer service:
a. Amazing Customer Service
Naked wines is an online wine retailer that delivers unique wines to its customers through subscription. Using live reporting data, their customer support team tracks call volume in real-time. This means they can see how many customer calls they’re receiving, how many are on hold, how many are in queues, and how many support agents are available. These numbers help the company make better staffing decisions, so customers don’t have to wait – leading to better customer service.
b. Seamless Customer Onboarding
Have you ever purchased software and just sat there confused because you didn’t know how to use it? I have. For first-time users, the lack of know-how on the product is expected, and if that leads to frustration, it might lead to customer churn. This can be easily avoided with a smooth onboarding program and personalized support. By communicating the needed information to your customers, they can better utilize your offering to reach their goals, which increases the chances of their retention
c. Creating a Customer Knowledge Base
In-kind, you can go the extra mile and create a knowledge base for your customers so they can locate solutions for their problems before reaching out to your support team. Zendesk’s Customer Experience Trends Report shows that customers would prefer to help themselves. Yet, only a third of companies meet customer expectations when it comes to self-service. Through self-service, customers end up deriving more value from your company.
Moreover, the knowledge base need not be only about your offering and can extend beyond that. For example, HubSpot Academy is a vast knowledge base that covers a lot more than customer service topics.
The cycle to better retention and subsequent profitability is a simple one: engage your customers well, increase customer satisfaction, create happy and loyal customers.
3. Align Employee Goals with Retention Strategies
A company is its employees. Despite whatever goals the senior management may have, if the employees don’t embody them, they won’t be going anywhere. At least, not anywhere it really matters.
Here’s an example of a company that’s (literally) all hands on deck when it comes to their customers: Zapier strongly believes that every employee – including executives – spends some portion of their day, week, or month talking directly to customers and solving problems for them. When the CEO of Zapier posed this question to his Twitter followers, surprisingly, a lot of hands shot up – Stripe, Slack, Wistia, and more. Not only does effective all-hands support focus on making life better for your customers, but it can also cause a shift in how you and your team think about building your company.
You made the sale to a new customer. That’s great! But… what now?
The new sale will never amount to anything more until you sell to the same customer again. Repeat customers mean an increase in Customer Lifetime Value (CLV), and in retention. And the way to achieve this is by upselling.
Research shows that
- CAC (customer acquisition cost) on upsells is about 19% of the CAC for new customers.
- Upselling was a significant contributor to the average contract value of high-growth companies.
- Similarly, the fastest-growing companies relied more on upselling than their slower-growing competitors.
Upselling is one of the most cost-effective and efficient ways of increasing your profitability. Upselling, and cross-selling, are also easy to do; the solution isn’t promotional or sales-y pitches, but to bridge the gap between what your customer already has and what you want to sell. Once the customer sees the value addition, he will be more likely to go for it.
5. Automation for Advanced Processes
In a world of instant gratification and a never-ending supply of information, customers are knowledgeable, they know what they want, and they want it done yesterday. Manual intervention isn’t going to cut it to keep up with your fast-paced customers. What businesses need is automation.
Engagement tools, such as live chat, can significantly enhance the customer experience. Another popular engagement strategy is automated emails. Trigger-based emails tend to have five times more open rates and fifteen times more click-through rates.
For instance, at Chargebee, we use HubSpot for all our CRM (Customer Relationship Management), Sales, and Marketing activities. It is also where we derive useful insights from our customers’ data. Another subscription analytics tool we use is RevenueStory, which gives us the subscription analytics we need to discover and align our organization to grow. It helps us delve deep into many important metrics like Churn and MRR.
6. Diversify Offerings
Based on a Forbes Agency Council Post, one of the strategic methods mentioned to increase retention is diversifying your services. Meredith Xavier, Principal & Founder at The Ligné Group, says, “I learned a long time ago that strictly being a public relations or marketing firm alone wasn’t enough to grow and keep clients around for the long term. Our agency has diversified tremendously over the past ten years to include a range of services that help clients at every stage of their business – and allow them to flow between service options, depending on their immediate business needs.”
This holds for every business out there. Every day is an opportunity to figure out more ways to serve your clients through additional product upgrades, new features, new products, and most importantly, new and better ways to make them smile.
7. Focused Customer Feedback
I have about a thousand plus unread promotional emails in my inbox. I’m pretty sure that you would find even more if you opened your inbox now. These emails have been accumulated over time, years for that matter, and are now collecting dust.
So, if you’re currently bombarding your customers asking for feedback, think again. In an era where attention span is becoming a scarce resource, no customer would be willing to answer an email or fill out a lengthy survey unless it’s focused and relevant.
Despite the difficulty of garnering open and click rates, email is the best-performing channel to leverage if you do it right. It has a reported $44 ROI for every $1 spent. The key to receiving feedback via email or even other channels is to be consistent and to get personal. 79% of customers are willing to share relevant information about themselves in exchange for contextualized interactions in which they’re immediately known and understood. Personalization is, hence, a vital retention strategy. Tailoring an email to the right customer at the right time is better than sending an email blast to your entire customer base.
8. Referral and Loyalty Programs
Apple is known for its cult following. Many other well-known brands like Starbucks, Zappos, Southwest Airlines, SNL, and so on share the commonality of having a raving fanbase. It would be a waste for such brands and any other brand with a loyal customer base to not capitalize on such a resource. Here’s how you can make use of it:
We know that word-of-mouth is vital in spreading credibility about your product. So, as an added benefit for the customer, what if you throw in an incentive? That’s precisely what referral programs do. Not only do they help achieve a higher CLV, but they also help reduce closing time and increase conversion rates.
The incentive could be in the form of gift cards, coupons, extra trial period, and even memory, as in the case of Dropbox:
Similarly, loyalty and rewards programs are also very important for increasing revenue, inspiring loyalty, and of course, improving retention. For brands they are loyal to, consumers are willing to join not only a loyalty program but also spend more:
Dropbox saw a massive 3900% growth in 15 months with its referral program!
9. Reduce Involuntary Churn
Customer Churn and Revenue Churn are the most commonly addressed metrics that businesses look at–day in and day out. However, when your subscribers churn without actually intending to stop using the service, it becomes Involuntary Churn. Involuntary churn occurs when a customer undergoes a payment failure, leading to their subscription being canceled. Not only do you lose your customers, but a part of the monthly recurring revenue is lost, too.
What are the factors that could have caused this? Forrester Consulting asked this question to 204 organizations. Here’s what they found:
Another upsetting statistic: About 20-40% of churn is involuntary.
Not to worry, though. Because involuntary churn can be avoided.
By following tactics like sending pre-dunning emails, in-app notifications, optimizing the checkout page, and the like, involuntary churn can be kept at bay. For more information, you can read our blog: 23 Ways to Reduce Involuntary Churn.
To give you an example, Whiteboard (one of our customers) reduced involuntary churn using Chargebee and increased their MRR by 35%.
10. Leverage the Power of Subscriptions to Enhance Customer Experience
For a commodity-only business, implementing a subscription model is quite unusual. But that’s precisely what the e-commerce giant, Amazon, achieved. When Amazon created Prime, it was initially to ensure faster delivery. Once it quickly gained popularity, Amazon launched an added feature – Prime Video.
And it’s not just Amazon. Surprisingly, industries like gaming, health and wellness, in-home fitness, aviation, and many more are embracing subscription business models. And this trend is only going to keep rising as the benefits for both businesses and customers are highly appealing.
Subscription models can be used to deliver great customer experience without spending a lot or charging a hefty fee. Moreover, customers will be willing to spend the same or more by way of subscriptions since it’s a sum of small payments over time, increasing the number of product trials as well.
Subscriptions are a great way to boost business growth and customer loyalty.
Other Retention Strategies to Keep Your Current Customers Happy
Use Social Media
Social media continually engages your customers and creates a better connection with them.
Build a Community
At Chargebee, we realized that our customers aren’t coming to us with subscription billing problems; they are coming to us with issues caused by change. For example: Now that I want to scale, how do I support multiple payment systems? How can I better streamline my billing processes?
And so, we hosted a summit called the Champions of Change for all those who want to be, and are, disruptors of change. Through this summit, we inspire our customers and our employees to take charge of change rather than fear it.
What was the idea behind it? – Communities lead to collaborations with your customers. It isn’t you and them. Rather, it’s both of you working together as a unit to build success for each other.
Don’t wait for your customer to give you a brief. Study customer behavior, analyze the insights, and surprise your customer before they can ask you.
Of all the strategies we discussed, neither one is good on its own. The strategies have to be implemented together, in harmony, for you to get the best out of your customer retention program. It will set you on the right path, and you are free to experiment with them and add more objectives as you see fit.
Finally, retention goes beyond the product. Of course, the product plays the main lead, but it won’t have the spotlight to shine without great customer success initiatives. Apart from delivering value, you have to build trust. Garner your customers’ trust, and you will have retained them for life.