&Open Jan 21, 2020
In a hyper-competitive market, differentiation is imperative. What your brand is doing to stand out, acquire and retain customers makes all the difference.
Today, we talk a lot about the Customer Lifetime Value (CLV), a term created in the nineties by marketing experts. Its basic formula: Customer revenue minus the cost of acquiring and serving the customer. This simple metric matters for all kinds of reasons; to highlight when marketing campaigns are spending too much or just enough on customer acquisition; to show how valuable a customer can be once acquired, and conversely, to highlight how costly it could be to lose them. Consider this: it costs significantly more money to acquire a new customer than it does to retain an existing one - between five and seven times as much. What’s more, the average loyal customer is worth at least ten times as much as their first purchase and they’re also 50% more likely to try out new products by that same company.
It is imperative, therefore, that the relationship between a company and its existing customers is managed, nurtured and prioritised. In other words, how do you keep your churn rate as low as possible? 44% of companies spend more money on acquisition rather than retention and a mere 18% spend more on retention than acquisition despite the profitability of a loyal customer base.
There are three main reasons for a high customer churn rate, all of them ultimately related to care.
1. Poor onboarding (23%)
2. Weak relationship building (16%)
3. Poor customer service (14%)
When companies are unaware of customers' needs, or only interested in new customer acquisition, the churn rate increases.
Say you spend $90 on acquiring a customer. As a company, you hope your customer will spend at least five times this, making the cost of acquisition worthwhile. For some industries, the Customer Acquisition Cost (CAC) is extremely high because they expect once the customer has come on board, they will remain for a considerably long period, so the initial investment is paid back and profit reaped over time.
The problem here, however, is modern competition. If you’re in a monopoly, spending as much as possible on acquisition is fine because you’ll hold on to that customer for as long as they’re in need of your product. If however like most companies, you are grappling with tough competition between price and product, there’s risk of your churn rate increasing.
We estimate that you should be spending at least the same amount on retaining a customer as you do acquiring them.
So, how to keep the churn rate low?
A few years ago, sending regular correspondence would have been the best way to maintain touch and satisfaction, but now, email open rates are rapidly declining and are even considered a point of annoyance for some customers. In 2018 only 18% of marketing emails were opened.
The first point of contact between a business and a customer informs the continued relationship. Inevitably this can sometimes be as a result of an issue, in cases such as these empathetic and thoughtful customer service is paramount. Innovative businesses however are making sure the first touchpoint is before a complaint, for example, a personalised handwritten note thanking them for their business, or urging them to give feedback if any issues arise.
Here’s where gifting can help during those first touchpoints.
We estimate that you should be spending at least the same amount on retaining a customer as you do acquiring them. This keeps your churn rate low and ensures you’re investing in your customer as they continue to invest in you. A thoughtful and contextual gift as part of this retention strategy reminds customers that they are seen. It strengthens the bond between customer and company and lets them know you value their loyalty more than the worth of an email. This established connection ensures longevity and loyalty but also turns a regular customer into a brand advocate - the ROI of which you simply cannot measure.
With the help of software, those touchpoints or anniversaries can be tracked and gifts sent with ease. If a client has made their fifth or tenth spend; signed up for a new product; posted on social media about the company - the gifts can be dispatched accordingly and with relative simplicity.
The trick is knowing when to gift: a happier touchpoint rather than an apology has the potential to deliver far superior results and pave the way for long withstanding client relationships.
So, how to keep your churn rate as low as possible? Treat your customer with as much respect as you did when they were simply a prospect or a lead, and do everything in your power to retain them. To understand the impact of a meaningful gift and the story behind it, read the post below or head to our Try us Out page to see how we can help delight and retain your customers with unique gift experiences.