Customer Retention – the secret to growth

05/06/14 by Tricia

Subscription businesses and membership organizations have two primary challenges. They need to add new customers while retaining the current customers. Whether you call them users, members, customers or have some other designation, the same equation applies: retention = renewal.

The Math Behind Customer Retention

retentionv1Studies show that an increase as small as 5% in customer retention can generate 25-95% more profit. How could this be? It comes down to the cost of acquiring a new customer. Many membership organizations and subscription based businesses spend north of 50% of the annual expected revenue simply to acquire a new customer.

When you combine customer acquisition costs with service costs, the return for the first year is often negative. New customers only start to become profitable in renewal years. The first study of this sort was completed in 1990 by Bain & Company along with Harvard Business School researchers. Subsequent studies have reaffirmed the findings.

Retention Starts Before the Sale

So what can you do to increase retention? In addition to your great product or service we recommend two things:

  1. Build a community
  2. Look at the data

A community is now easy to implement with and it can tie your customers more closely to your organization.  This is a place where you can provide additional information and services, answer questions and enable your customers to interact with each other. Think of this as customer engagement beyond your core product or service. It is the icing. It also becomes a differentiator between your service and competitive offerings.

While a few organizations are concerned about the time associated with building and maintaining communities, the economics are very favorable because of the retention benefits on profitability.  And, the tools are also simple to use.

Data Provides Insight to Higher Retention

LeakyBucket2When you are considering customer retention strategies, start with your data. Inside your, in your product interactions, the website and call centers are data related to your customer activities. These sources can provide insight into who is using the product lightly or not at all.

Light users are the highest risk for non-renewal and could be indications that your team needs to conduct additional outreach and training. Heavy users are often candidates for upsell to additional services. Communities also provide additional data on customer interactions. Every time a customer asks a question, posts a comment or uses a service on your community, it can be incorporated into their record.

Having all of the records of customer interactions integrated into your instance can help your sales team prioritize their renewal efforts. Don’t simply add new customers while letting your more profitable current customers leak out the bottom.

To learn more about communities and customer retention, click here:

Learn About Salesforce Communities