Oct 10, 2022
Why Customer Retention Matters: The Key to Success 🔑
Why is retention important? The answer can be found from two perspectives: cost efficiency and continued growth in services.
Are you worried that your customers don’t remain? Retention is a top priority for all businesses. Why is retention important? The answer can be found from two perspectives: cost efficiency and continued growth in services.
... Acquiring a new customer is anywherefrom five to 25 times more expensivethan retaining an existing one.
According to the Harvard Business Review, making existing customers repurchase is 5 to 25 times more efficient than attracting new customers. The reason is simple. This is because existing customers should pass less funnels to purchase than new customers.
What is AARRR?
The framework explained by Dave McClure of 500 STARTSUPS, an American startup accelerator, which consists of five stages: Acquisition, Activation, Retention, Revenue and Referral.
To attract new customers, you must let them pass the first funnel of AARRR. It costs a lot, such as running ads on various channels. However, since existing users already know about our service, it relatively costs less to attract them to repurchase.
Retention also affects the first stage of AARRR. The more customers remain, the faster you can recoup your money and invest in another customer acquisition, creating better ads and bidding higher to gain an edge in the competition. The high retention rate creates a virtuous cycle where many customers who entered remain.
How could retention affect growth of your service? Here's a simple example. Company A earns 2 million new customers per month and Company B earns 3 million. A's retention rate is 85% per month and that of B is 70% per month. So, which of the two companies will have more customers in two years?
The number of new customers per month of B is 1.5 times bigger than A, while the difference gets smaller in 6 months. In addition, in two years, A has more customers. This difference is due to the 15%p difference in retention rate.
This case is consistent with the idea of Carrying Capacity, which has become famous from TOSS' PO Session. The key point of Carrying Capacity is that if retention doesn't improve, the inherent customer capacity of the service never increases even if you attract new customers through ads and marketing strategies. In other words, increasing retention is the key to service growth.
“Retention is the single most important thing for growth.“- Alex Schultzs( CMO of Meta ) -
So what should you do to get the repurchase of our existing customers to increase? We need to find the reason why they buy it again without leaving. The answer lies in the myriad of data left by them. It's important to analyze the data in a scientific way to get accurate insights.Another important thing is to run quick action based on the analysis. Analyzing vast amounts of customer data can lead to numerous strategies, but our customer's buying cycle has already reached golden time. You need tools to communicate before they leave. Features such as Retentics's AI recommendation can be an answer. It analyzes all existing customer's transaction data and recommends the best product for them.
In the next article, we'll look at how you can figure out why customers remain by analyzing existing customers' data.
Written by: Jason Jeong
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