Customer acquisition vs. customer retention — the comparison has existed for quite some time, especially with global enterprises realizing the impact of customer churn on the bottom line and long-term growth. But most companies, regardless of size and scale, focus more on new acquisitions. They set periodic sales targets, invest heavily in lead generation, acquire sophisticated marketing technologies, constantly evaluate sales-increasing offers, allocate necessary resources for sales operations and analytics, incentivize sales teams to meet targets and celebrate acquisition breakthroughs.
Customer retention, on the other hand, is not as much celebrated as a new sale. Sales centers are considered profit centers and call centers are typically seen as cost centers even in recurring revenue businesses in which once a customer is retained, the company has several months of future cash flows from them. It’s surprising to see the lack of sophistication in retention compared to the investments in sales, even though saving a customer from canceling is similar to, if not harder than, a new sale.
So, why are sales often celebrated more than customer retention? Some of the reasons include the following.
1. Sales offer immediate revenue gains compared to the investment in retention initiatives in which payback is realized over time.
2. The maturity of lead generation and marketing technologies supports sales more than retention and can allocate larger budgets.
3. It’s easier to associate revenue with sales activities and create better lifetime value modeling for new customers.
4. It’s easier to get executive buy-in by showing how sales investments drive business growth.
Yet, the business case for retention is clear in recurring revenue businesses.
But although sales milestones should be celebrated, do these milestones really matter if the acquired customers leave? A company’s growth depends more on recurring revenue than on gaining new customers.
Let’s look at an example scenario: A company starts the year with one million customers and a 20% customer base projected growth.
• If the churn rate exceeds 20%, even aggressive sales won’t suffice. That’s a considerable expense to bear, considering new customer acquisition is at least five times costlier than retaining an existing customer.
• At a 20% churn rate, the company will require a significant spend just to prevent customers from leaving to break even.
• Even with a less than 20% churn rate, the company will still have to spend sizably to fill the hole left by canceled customers.
That’s the impact of churn, and it’s a compounding, snowball effect. Similarly, retention improvement has a compounding effect. A mere 5% increase in the customer retention rate can lead to a more than 25% increase in profit. Additionally, loyal customers have higher net promoter scores and do better word-of-mouth marketing for referrals. Also, the cost to serve a tenured customer is significantly lower than a new customer. Therefore, your margins continue to increase.
Building post-retention survival curves and demonstrating retention value are a couple of actionable steps in showing retention significance. In addition, artificial intelligence (AI) and machine language (ML) technologies can help predict if customers are likely to cancel and proactively save them while recognizing positive net present value. These simple techniques can demonstrate the value of retention and establish a foundation for celebrating retention with incentives, monthly campaigns and prizes for top retention specialists that are similar to those within sales centers.
Celebrating retention requires an operational as well as cultural shift.
Designing this new celebratory model involves careful planning and a clear roadmap. Retention should be a part of the goals for every department concerned with any stage of the customer life cycle. In addition to productivity, better customer satisfaction scores and save rates should remain a top focus.
In addition to redefining internal performance metrics so that every saved customer is as big a win as a new sale, this requires nurturing the customer success mindset and building a customer-centric culture across the organization. Then, you’ll be armed with all the data to improve your product, marketing campaign effectiveness and quality of sales-qualified leads.
The frontline should be at par with salespeople in terms of rewards and recognition.
It’s critical to celebrate retained customers with the same enthusiasm and accolades as new sales. You must recognize the efforts of your frontline and motivate them to perform better. To do this, you should start with these questions.
• Do your call agents know when a customer is at cancellation risk?
• Do they know the red flags leading to cancellation?
• Do they have an easy way to deliver targeted offers to convince customers to stay?
• Can they quickly understand the cost of various offers and provide the best offer to the customer?
• Can they make quick decisions about retention offers without having to flood their superiors with questions while keeping an angry customer on hold?
Once you have the answers, provide your agents with all the tools and guidance they need to be successful. And make it a priority to celebrate their success, as it contributes to yours. Retention goals should be appropriately combined with your performance and incentive structure. This shouldn’t be a cost-intensive exercise, given that you’re saving a lot on marketing by retaining existing customers, and the snowballing benefits are adding to your profitability.
Technology could help you reach your retention goals.
It’s time to invest more in retention and celebrate it as you do sales because even a small investment in retention can produce significantly more value. For example, AI and ML solutions can deliver benefits by processing massive volumes of customer data, analyzing results and driving continuous improvements through real-time actionable intelligence. Some AI/ML-based technologies can predict churn, spot cancellation reasons, identify the propensity to buy more and empower the frontline with relevant customer retention intelligence. By leveraging this intelligence, you have the possibility of attaining something more valuable than temporary higher sales figures and margins — the ability to have customers for life.
This article was originally published in VOZIQ AI Blog.
Image Credits: Adobe