Industries across verticals are losing customers at an alarming rate even today. In fact, the average churn rate among U.S. companies is more than 23%. At this rate, a company that has 1 million customers with a $500 ARPU would end up losing the business of $100 million or more. Plus, the cascading effect of this revenue loss could impact the company’s next year as well. For the rest of this article, I’ll use a fictitious company with 1 million customers, $500 ARPU, and 20% annual attrition (200,000 cancels per year) to discuss potential savings with specific strategies that are proven to improve customer retention.
Another area where revenue takes a hit is customer acquisition. Did you know that it costs five times more to attract a new customer than to keep an existing one? If a company has a $1 million budget for retention objectives, it would have to spend $5 million to acquire the same number of customers lost.
It is paramount that customer retention is taken with a high sense of urgency to avoid this revenue erosion, and most businesses do consider it to be a top priority. However, nearly half of CMOs didn’t expect to improve retention, according to a recent survey. Gone are the days of using traditional retention approaches such as basic loyalty programs, generic nurture campaigns and last-minute discounts and offers. Such one-stop, last-step strategies are bound to fall short of potential, as they tend to be reactive and one-size-fits-all and are activated very late in a customer’s decision cycle.
In today’s world, where the customer is knowledgeable and filled with options, it is very important that your retention efforts are more strategic, tactical and surgical in nature. Strategies involving proactive engagements, understanding every customer’s intent, personalized retention offers and understanding customer life cycles hold the key to successful retention management. The following are three such strategies that also happen to be my favorites:
1. Proactive Retention Strategy (Before The Customer Chooses to Cancel)
So, what is the real problem with retention? Nobody decides to cancel overnight. A customer’s intention to cancel is driven by multiple experiences with the company, service care interactions, word of mouth from friends and family, and, of course, the competition. Furthermore, at all these times, customers keep giving signals to companies about their intentions. Identifying customers’ intents as they occur and proactively reaching out to disengaged or dissatisfied customers with proper steps of resolution could mitigate a lot of impending churn risk.
Such a practice not only impacts CSAT positively, but it can also increase your retention by 50 to 100 basis points, based on my experience in implementing such solutions for recurring revenue businesses. This could mean 5,000 to 10,000 additional customers retained each year for a company with 1 million customers.
2. Retention Performance Improvement Strategy (When The Customer Chooses to Cancel)
Not every customer who wishes to cancel is forthcoming with why they want to cancel. Retention agents engaging with such customers often end up making offers without addressing the real cancellation reasons, as they don’t have all the relevant and necessary information to save the customer with targeted offers. Investing in solutions that offer deep customer insights to front-line agents can increase your agents’ productivity and retention rates, as agents can use the insights to make meaningful offers and have higher levels of personalized engagement.
Such AI-driven guidance to retention agents could help the aforementioned fictitious company salvage an additional 5,000-6,000 customers each year, based on my own experience with these AI tools.
3. Win-Back Strategy (After The Customer Cancels)
According to the book Jill Griffin and Michael W. Lowenstein’s book, Customer Winback: How to Recapture Lost Customers — And Keep Them Loyal, you have a 20% to 40% chance of success to sell to a former customer, and the chances of success to sell to a new potential customer are only 5% to 20%.
In my experience, reacquiring canceled customers costs half as much as acquiring a new customer who has never used your service. The reason for that is simple: They have used your product. They’re better prospects because they know your brand, and you can spend less time educating them about your company. Even further, you have all their data, including why they canceled in the first place. Use AI models to identify customers who are more likely to return, and run targeted marketing campaigns with relevant offers for them.
Such a practice could help our fictitious company reacquire another 2,000-4,000 of its canceled customers each year at a much lower cost.
The Big Unnoticed Revenue Opportunity
Now, when we combine all the numbers gathered from strategies above, you get this result: For a company with 1 million customers, each paying $500 per year — with a churn rate of 20% — this translates into 12,000-20,000 additional customers retained each year. This, in turn, translates into $6-$10 million in additional revenue from saved customers. Over time, revenue from such saved customers compounds quickly and helps you acquire additional customers through word-of-mouth referrals.
Not sure where to start? Here are a few ideas to get you started:
- Use text analytics solutions to listen to customer engagements at scale. Use your call center agent notes, in addition to surveys, as a source for the voice of your customers.
- Deploy an AI solution to identify who your high-risk customers are. However, do not restrict its use case. Go one step beyond, and build multiple machine learning models to understand various facets of customer behavior, such as why your customers will cancel, when will they cancel, how can it be avoided, who will be back, etc.
- Push your insights to front-line agents and marketing teams through API integrations and customer guidance screens for effective and targeted engagements.
As with any successful strategy, extensive research into your customers’ behaviors and demands can help identify the best retention strategies for your business. The secret to implementing these programs depends on your company’s AI availability and capabilities. Your solution must have not only the capability to predict customer behavior, but it should also have the ability to suggest and drive necessary actions to retain your high-risk, high-value customers.