Is It Worth Winning Back Lost Customers?


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Why the answer may not always be yes, and how to know when to say no

You can be certain that any article that uses a question as its headline, the answer is a resounding “It Depends!” Full disclosure, this article will be no different in that respect. While a predictable answer, we dive deeper into when it’s worth it to win back lost customers and more importantly, when it may not be.

So, how do you know when it’s worth it to win back lost customers? Find out how to unravel the precarious “It Depends,” starting by determining what defines a “lost” customer.

What Do We Mean By Lost?

Determining a lost customer is not always as easy and clear as one might expect. The term lost customer is defined in a variety of different ways, often informed by the nature of the business and the expectations of stakeholders.

For example, among subscription-based businesses, classifying customers as lost is straight forward. Did they cancel their subscription or not? Stakeholders in such an organization would generally agree with this point of view.

This definition gets a bit more complicated when examining other types of business models.

In retail, how much time has to pass before a retail customer is lost? One week? Six months? Is it a function of a dramatic downward shift in spending patterns? What about high-price, low-frequency businesses such as appliances? How often does one need a refrigerator? Children’s clothing stores are another example. Is the customer truly lost if they “age out”? Maybe the parent has other family members to buy for, such as grandkids.

The takeaway? To determine if a customer is lost requires information from a broad range of data across different engagement points, including how, when, and why a customer interacted with the brand. At a minimum, this data should include spending patterns, purchase timing, demographics, and online and offline brand engagement metrics.

If you’ve been paying attention, you’ll notice we reference several different considerations. Understanding the nuance of the business, having technology in place to process data, and, of course, the analytic acumen to identify and quantify the emergent patterns will help you successfully define a lost customer for your brand.

What’s It Worth To Your Brand?

When I said the answer to the headline question is “it depends,” I meant it. Why? Because how much a lost customer was worth is going to determine what the brand does about it.

While defining a lost customer is crucial to implementing any type of intervention, many brands often try to woo back every lost customer. Unfortunately, this can deplete limited marketing resources.

Instead of focusing on winning back every customer, focus on lost customers whose past behavior indicates a willingness and/or need to re-engage with the brand, and those who provide ongoing financial benefits that cover the cost of reactivation.

Losing a customer who rarely buys or only buys the lowest margin product is worth a lot less than losing a customer who generates a great deal of profit. Here is where the answer may be no. In these cases, it is prudent to divest from disengaged customers rather than fund retention efforts that offer little hope of a positive ROI.

Which brings us to the next complicating factor.

How Does One Determine A Customer’s Value?

It is clear today’s marketers need to determine where to invest their marketing dollars to maximize return. Yet, there are a variety of ways to approach this.

For example, short-term, point-in-time approaches can calculate value such as RFM, but a critical deficiency is these techniques don’t take into account what the customer would have contributed in the future had they remained active.

This is where customer lifetime value (CLV) analysis joins the party.

CLV requires an understanding of a customer’s current and future profitability at all points in the customer lifecycle. This is not a trivial undertaking, requiring both detailed customer engagement information and strong buy-in from the organization to ensure successful implementation.

According to Forrester Analyst Brandon Purcell:

The challenges most organizations encounter with customer lifetime value stem from an expectation of perfection. As a metric, CLV is precise in that the output is a number in hard currency. Unfortunately, people tend to mistake precision for accuracy, but it is impossible to develop a CLV calculation that is 100% accurate for every customer over the tenure of their relationship with your brand. As a probabilistic prediction, this just isn’t possible.

Recognizing the power and potential of CLV is a critical step in ensuring the proper allocation of marketing dollars to reactivation efforts.

Getting Back Together With Lost Customers

In the spirit of adding a bit more complexity to the situation, after a brand has developed a workable and realistic definition of a lost customer AND determined if the potential lifetime value of that customer exceeds the cost of reactivation, we still must determine who is likely to re-engage at all.

While this decision ultimately falls to the customer, detailed customer databases allow brands to access information about how these customers behaved before disengaging. The result? Crafting successful reactivation offers that identify and target the most profitable candidates.

The critical factor to success is the ability to determine when it is financially worthwhile to recapture a lost customer. Investments in the wrong type of lost customer can have a significant negative impact on both current and future profitability. And, any small financial gains will likely be short-lived.

The development and implementation of predictive models that, along with third-party data, leverage customer behaviors will allow brands to focus on which customers are most likely to reactivate.

When used in conjunction with long-term value metrics, success and profitability of any brand’s efforts to bring lost customers back into the family will dramatically increase.

This notion is not just speculation, as many brands across a variety of verticals have implemented such a strategy. One, in particular, is a large firm that is in the business of helping individuals and families reduce the costs associated with health care through non-insured health discount benefit programs. The overall demographic and economic profile of their customer base required that they fully understand the value of every customer before engaging in any sort of reactivation strategy. Failure to do this would have created a financial hurdle that was nearly impossible to overcome. Fortunately for them, the effort paid off. Not only did they reactivate lost customers, but they did so quite profitably and more than recovered the upfront analytic investment.

So, Is It Worth Winning Back Lost Customers? It Depends.

Sometimes the answer is a resolute yes. And others, profitability and customer value data lead to a definitive no.

But by arming yourself with a thoughtful approach to defining lost customers, a well-developed measure of future profitability potential, and the analytic insights to understand customer lifetime value, worth is a question every brand can answer.

Garry Rosenfeldt
Garry Rosenfeldt is a Principal, Analytics and Campaign Management at Allant Group, which provides marketing technology services that help businesses effectively acquire new customers, retain and grow existing customers, and win back lapsed customers. He has more than 25 years of experience in research & analytics, working for big name brands like Allstate Insurance, USAA, Harris Bank and Midas International.


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