Why revenue growth alone isn’t enough.
The importance of customer retention
In the fast paced modern business world, growth is king. With good reason. Fast growth can rocket a company into the spotlight, attract investors & generate media attention, all of which can lead to new growth. And bigger is better, right? But what good is that growth if you can’t keep your customers? In the quest for new customers, it’s easy to forget about retaining the ones you have. You’ve done the hard work to get them, now make sure you keep them.
Winning customers is expensive
It can cost up to 5 times more to get a new customer than it does to keep an existing one. Churn is not only a growth killer it also dents your profits. Especially for SaaS vendors managing churn is mission critical. A recent survey by Pacific Crest Securities evidenced a median customer acquisition cost (CAC) to acquire $1 annual contract value (ACV) of $1,18 (n= 300), i.e. to efficiently scale your business, you must keep your SaaS churn rate low.
Why spend the time and money slowly optimizing each lead funnel, carefully closing up the leaks in each, only to pour them all into a leaky bucket? Customer retention helps you close up those leaks. In a world of low loyalty, low exit barriers and fickle customers, it’s more important than ever to focus on customer retention to ensure your customers stay with you. The good news is that it’s comparatively cost effective to do. It does however require focus, awareness and the right mindset.
Taking the relationship from survive to thrive
If acquisition is seduction, then retention is relationship.
Once the honeymoon period is over and the initial thrill is gone, it’s important to deepen that relationship between you and your customers. Strengthening that bond is key to customer retention. Delivering on your promises is now a bare minimum. Competition is everywhere and if you don’t show your customers you care, they will go elsewhere. Simply keeping the relationship alive by doing the minimum leaves them teetering on the edge, ready to be snapped up by a more seductive competitor. Loyalty still exists, but it must be earned. It’s one thing to keep the relationship with your customers alive, but making it thrive is another. Customer retention begins with great customer service, but that’s not where it should end. Minimizing negative experiences is absolutely important, but it won’t make people love you.
Turning your customers into raving fans takes insight, work and most importantly a human touch.
Get personal with customers
People have relationships with people, not companies. Long lasting retention depends on building real connections throughout all touch points in your business. Unexpected human responses and personal touches can have a profound effect on your customers and improve your retention. Think about ways you can surprise and delight your customers. Consider how you could humanize aspects of your business. Take the time to add a personal touch to your communication. It may not be realistic to go over and above for every one of your customers, but by focusing on adding value to your ideal customers, you encourage loyalty with the right people. As in most areas of business, applying the 80/20 principle is a good rule of thumb. Small gestures and thoughtful actions can have a big impact. They are unexpected, positively surprising and make you stand out.
Something as simple as receiving a handwritten note does exactly that. In a world of digital communication, an unexpected handwritten note can be very powerful. It demonstrates a personal touch often in mountains of emails, tweets and status updates. Recognizing this opportunity, fashion tech start-up, Hex, sent 13,000 customers a handwritten thank you note. Such a gesture was positively surprising and lead to customers sharing their experience on social media. In this way, the power of word of mouth can quickly turn retention into an acquisition channel.
In the #digital age, the #loyalty game is all about making emotional connections at scale (McKinsey)
You think something as old fashioned as something “handwritten” is only “amazing” for an elitarian small group of (may be also romantic) people?
Well, a recent study revealed that 80% of Germans love to find something handwritten in their (snail) mailbox. Especially digital natives are amazed by something handwritten.
The better your business can deliver personal, human experiences, the greater bond you will form with your customers. By closing up those leaks in your bucket, you ensure that the customers you get — you keep.
Just as a side note: PENSAKI customers achieve response rates of up to 90%and conversion rates of 10% — 40%, obviously depending on the relevance of the content of the handwritten message. But in any case the recipients always remember the mailing.
More articles about the importance of retention can be found here:
Fred Wilson “Growth vs Retention — AVC”
Christoph Janz: Why (most) SaaS startups should aim for negative MRR churn
The Value of Keeping the Right Customers (HBR.org)
E-Loyalty: Your Secret Weapon on the Web (HBR.org)
Dave Kellogg: The Ultimate SaaS Metric: CLTV/CAC
2015 Pacific Crest SaaS Survey