With old retention strategies, the house always wins.
Customer success experts know that increasing customer retention rates by 5% can increase company profits by as much as 95%.
Yet most companies gamble at customer retention as they focus on customer acquisition and let their customers slip away. Why roll the dice on retention and hope your customers don’t leave?
Here’s a brief look at where customers go wrong.
Retention fallacies, realities and remedies
Bain & Co has identified the five main fallacies that prevent companies from getting a handle on customer churn. For each misconception, we’ve identified specific remedies to help companies get back on track and keep their customers coming back for more.
- Fallacy 1: One or two poor episodes cause churn.
- Reality: Churn more often results from a series of episodes over time.
- Remedy: Focus on the entire customer journey, or overall experience.
- Fallacy 2: Intervention at any point can save the day.
- Reality: It’s more costly and less effective to intervene later.
- Remedy: Excel at a few interactions from the start in order to build equity with the customer.
- Fallacy 3: One silver bullet will stop churn.
- Reality: Churn will not succumb to a single initiative, because churn takes different paths and each path stems from several root causes.
- Remedy: Identify and focus on the subset of root causes that have the greatest effect.
- Fallacy 4: Satisfying customers is good enough.
- Reality: Customers who call themselves satisfied may be passive and easily wooed by competitors.
- Remedy: Earn customers’ active advocacy by delighting them at key moments.
- Fallacy 5: Success hinges on installing the right technology and processes.
- Reality: Technology, processes and policies remains important but great service requires employees with a customer-centered mindset and the latitude to act.
- Remedy: Give employees the tools and incentives they need to rapidly address customer feedback.
Why companies don't focus on churn
These types of incorrect perceptions for how to tackle customer retention often lead to discord and a lack of clearly defined strategies. Our Social Times reveals several reasons companies claim for why they don’t focus on churn.
- 22% of companies cite lack of resources.
- 19% of companies say that they lack a clearly defined strategy to retain customers.
- 13% of companies blame technology limitations.
- 10% of companies say they lack a single customer view.
Churn and loss of profit
Ultimately, companies that lack focus, priority and execution on customer retention are going to lose big bucks. When it comes to churn and loss of profit, here’s what to expect:
- It is 6-7 times more costly to attract a new customer than it is to retain an existing customer (White House Office of Consumer Affairs).
- A 10% increase in customer retention levels can result in a 30% increase in the value of the company (Bain & Co).
- Some 80% of your future revenue will come from 20% of your current customers (Gartner Group).
- A 5% increase in customer retention can increase profits by as much as 95% (Gartner Group).
Banking on a steady stream of new business can be like gambling away your future. It’s a well-established fact that customer retention can yield a huge return, and the tools exist to make it happen. Start identifying the root issues that cause churn, create a more positive customer experience, and enjoy taking home the winnings from a more stable and prosperous future.
About the authors: Ben Rigby, CEO, and Joseph Pigato, managing director, at Sparked help companies retain their customers through predictive analytics and engagement tools. Follow Sparked on Twitter @sparked.