Highlights
- Gartner advises that 80% of your company's future revenue will come from just 20% of your existing customers. That makes keeping customers a critical success factor in achieving revenue goals.
- There is a wide body of knowledge showing that it can cost five times more to attract a new customer, than to retain an existing one. This datum makes retaining customers a C-suite imperative and critical success factor to achieve profit goals.
- The best way to reduce customer attrition is to prevent it from happening in the first place. There are some essential customer retention best practices to aid this goal.
For many companies, retaining their customers is the new business growth model. Consider several compelling research findings.
- Research by Frederick Reichheld of Bain & Company, inventor of the net promoter score, shows increasing retention rates by 5% increases profits by 25% to 95%.
- A 2 percent increase in retention can decrease overall company costs by up to 10 percent.
- Existing customers are more willing to try new products and services. Current customers are 50 percent more likely to try new products and spend 31 percent more, on average, when compared to new customers. This bodes well for cross-sells, upsells, bundles and new product introductions.
- The sales probability of selling to a new prospect is 5 to 20 percent on average, however, the sale probability increases to 60 to 70 percent when selling to an existing customer.
It's easy to understand the financial impact of retaining customers. It's not as easy to systemically lower customer defections. Here's are several customer retention best practices to help.
Calculate Your Retention
First, you need to measure your current retention as that becomes your baseline.
Your Customer Retention Rate (CRR) is the number of customers at the end of a period (E) less the number of new customers acquired (N) during the period, divided by the number of total customers at the start (S) and multiplied by 100.
CRR=((E-N)/S)*100
Your CRR essentially shows the number of customers who were lost during the period. While most companies calculate CRR quarterly or annually, the Customer Service Excellence research found that Best-in-Class customer service leaders calculate CRR monthly.
Customer Churn Prediction
The downside of CRR is that it is a lagging indicator. To get proactive many companies turn to prediction reports. In a perfect world these reports would use leading indicators to forecast which customers are at risk. But as we've previously shared the problems with customer churn forecast reports, we know that these reports attempt to show which customers will defect but not why. This makes the report another lagging indicator even when it's accurate; which most are not.
Customer Churn Prevention
Churn prediction reports can be appended with the causes of customer churn, the methods to reduce loss, and the KPIs that most impact revenue. This shifts your information from static reports built on lagging indicators to interactive models that show how to proactively reduce attrition.
Knowing why customers turn over is more powerful than knowing which customers will defect as it allows companies to prevent customer attrition before it happens.
The Tool for the Job
If you have CRM software, you have the tools to proactively improve this business imperative.
CRM analytics are the tools to increase retention at scale. Analytics examine customer history to identify causes of attrition and patterns of behaviors that occur before customers exit. These patterns can then be monitored and prevented. Or if they occur and exceed a threshold score, an alert can be dispatched to an account manager or other person to take quick action.
Some of the actions to save a customer include:
- Account engagement where sales reps, account managers, customer service representatives (CSRs) or other staff open a dialogue with the customer.
- Nurture retention campaigns to create engagement at scale.
- New or revised customer on-boarding programs.
- Win Back campaigns to recover a portion of lost customers.
- Quarterly Business Reviews (QBRs) to establish a cadence with at-risk customers.
- Exit surveys. Note that email exit surveys generally get less than a 5 percent response rate while telephone conversations triple that and get more qualitative intelligence. Also recognize that customers are reluctant to be candid and share the real reasons they left with company staff. The best practice is to outsource exit interviews to people that do this for a living.
- Special retention-focused offers or incentives. Although these are generally a last resort, some offers will result in an upsell or cross-sale and continued business.
Unfortunately, all of these actions are reactive in nature and quite often too little too late.
A better approach is to solve the problem before the customer decides to leave.
The Johnny Grow Early Warning System
Making the shift from reactive to proactive retention is best done with a real-time, interactive and predictive analytics model.
The below customer retention predictive model is built with CRM analytics. The model integrates the causes of attrition and the activities or necessary services to avoid attrition. It displays the measures of churn in a dashboard that brings real-time visibility to key performance indicators.
See the customer churn early warning system and related customer retention best practices.
Click to TweetUsing CRM analytics to proactively mitigate the causes of churn is no easy task. But succeeding where competitors fail provides a unique competitive advantage. It also provides a significant and sustained source of increased revenues and profits.