A Customer Retention Strategy to Accelerate Revenue Growth
Highlights
- For many companies, retaining their customers is their business growth strategy.
- A customer retention strategy only works if it delivers a measurable profit to the company. There are two tiers of metrics that support this measurement.
- A sustainable customer retention strategy is built on a clear customer strategy and backed with a 3-step execution that includes dedicated resources, streamlined business processes and four primary key performance metrics.
We all know the customer profit statistics.
- It costs 5-10 times more to acquire a new customer than to sell more to a current customer.
- Sales win probability is 4 times higher when selling to an existing customer compared to a new prospect.
- Discounts to existing customers are far lower than to new prospects.
- Existing customers buy higher margin products and services compared to new customers.
Yet the most recent Johnny Grow research report, Customer Service Excellence; What Best-in-Class Leaders Do Differently Than Their Peers, found that 80 percent of companies focus their limited resources almost entirely on new customer acquisitions. For these companies, growing customer share and lowering customer churn are not on the priority list.
But the research also revealed how this issue is managed differently by the Best-in-Class companies (the top 15 percent as measured by factors that include revenue growth, retention and profitability).
The research shows that Best-in-Class leaders allocate more than twice as much as their peers in resources and programs aimed at growing existing accounts.
Research shows that 80% of companies focus their resources almost entirely on acquiring new customers. However, Best-in-Class leaders allocated more than twice as much as their peers in programs aimed at growing existing accounts.
Click to TweetFew companies admit they favor new over existing customers but investments measure business priorities much more so than words.
The research also found that the Best-in-Class customer service leaders increase customer longevity using the three building blocks of strategy, execution and measurement.
Customer Retention Strategy
Execution without strategy is aimless.
At the risk of being redundant, a customer growth strategy starts with a strategy. I repeat the obvious because over 30 years I've witnessed many companies discover the measurable revenue impact of customer growth and retention and follow up with piecemeal, random or un-orchestrated programs that delay progress, consume excessive cost and leave results to chance.
Any strategy must be backed with ROI to be sustainable.
My experience has been that securing the necessary investment, especially when that means taking funds away from competing priorities such as new customer acquisitions, is no easy task.
However, my experience also reveals that showing the financial impact of repeat purchases over the life of the customer relationship makes the decision a no brainer. For most business to business companies, the data will reveal that existing customers deliver smaller total revenues compared to new customer acquisitions, however, the cost of sales will be dramatically lower, and the profitability will be significantly higher. Plotting the necessary investments and the profitability of customer repeat purchases will steer investments to support a growth retention strategy and not just acquiring new customers.
Once the business justification is complete, a customer strategy can be adopted. This is also an error prone area. Customer strategies should be systemic, prescriptive and measurable. Top customer strategies include Customer Experience Management (CXM), customer engagement and Customer Relationship Management (CRM). We've written about these strategies elsewhere so won't repeat that here.
Systemic Execution
Strategy without execution is pointless.
Simply declaring support for existing customers doesn't make it a strategy. It takes dedicated resources, processes back with technology and measurement.
Most B2B companies either bifurcate the sales organization among hunters and farmers or dedicate customer success teams to onboard, grow and retain customers.
The number of post customer acquisition resources or total resource investment is based on the financial value they deliver as measured by increased customer share, customer lifetime value and retention.
Even with the right investment, executive sponsorship is needed. It's been my experience that too many customer success teams are reactive, essentially waiting for customers to call them with problems or new orders. That doesn't work well and will eventually render the program a failure.
What's needed are success managers who use the onboarding experience to surface each customers top objectives, map the customer journey, maintain a customer cadence, manage the customers vitals (i.e., key performance indicators), jointly measure value and ROI with the customer, and continuously expand the company's product or solution footprint throughout the customer's company. More mature customer success programs will allocate staffing and investment by customer segment. That means more staffing for high-touch customer relationships with high value customers.
Farmers or success managers know their accounts well. They know the stakeholders, decision makers, users and influencers. They know how their solution should be used at the client but most of all they know why their customers use their product and do business with their company.
They don't build customer relationships based on pleasantries. Customers don't have time for that. They deliver value in terms of product expertise, industry insights and the experiences of other customers. They are thereby viewed as somebody the customer needs to succeed.
This level of customer engagement shows you care, eliminates the oft cited feeling of indifference, and allows success managers to naturally offer new promotions, pitch cross-selling and up-selling opportunities, and ensure Voice of the Customer (VOC), Net Promoter Score (NPS) or other customer feedback is acquired.
Business processes must also be adapted to support a customer retention growth strategy. For example, the opportunity funnel and sales forecast must extend beyond customer acquisition, as shown in the below diagram.
Measure and Refine
A customer retention growth strategy is only sustainable if it makes a profit for the company. Therefore, each of the sales funnel layers below the purchase must be tracked, managed and reported. The best tool for this job is a customer service retention dashboard.
The top retention metrics include revenues from existing accounts, customer share, customer lifetime value (CLV) and customer retention rates. Each should show period to period changes and trends by customer segment.
Tier two metrics include NPS score, customer satisfaction score (i.e., CSAT, customer effort, customer experience) and other factors that directly correlate to customer churn. Consumer companies will also want to track RFM (Recency Frequency Monetary) and loyalty program measures such as reward rate and break rate.