Recently, I talked to a wife and a husband who run a company together. Every morning, they get up to a pile of calls and emails they need to take care of.The husband thinks answering prospective customers first is the way to go to grow the business. The wife thinks taking care of current customers first is more important.Who’s right? Let’s do the math.
Not Maximizing Customer Lifetime Value? You Could Be Cutting Your Revenue in Half
To answer this question, we first need to figure out how much it costs us to get paying customers in the door. Customer acquisition costs (CAC) vary from company to company and your average CAC can sometimes be challenging to calculate, but if you track your marketing, advertising and sales efforts, you’ll eventually come up with an average CAC.Let’s say that you invest $1M dollars every year in customer acquisition. Some of it brings you results right away, like salespeople who do cold calling, and some is a long term investment, like building an audience on social media.But if you invest $1M every year in customer acquisition, and get 1,200 new customers a year, every customer acquired costs you an average of $833.3 ($1M divided by 1,200 customers).If every customer pays $700/month, that’s $8,400 a year per customer… which cost you $833.3 to acquire. That’s about 1,008% return on your investment!Even if you get a 15% churn rate and every customer only sticks around for 6.7 months, you’ll still make 5.6 million dollars from the customers you acquired this year – and all it took you to acquire them is 1 million dollars.One business approach is to go out and invest another 1 million dollars in customer acquisition, in order to make another 5.6 million dollars in revenue. But check out this graphic from Punchlime. According to the graphic, this approach actually leaves lots of other millions of dollars on the table.See, if you pay more attention to your already-acquired customers, and manage to cut the churn rate by half – meaning, only have a 7.5% churn rate, and keep each customer around for an average of 13.3 months instead of 6.7 – you basically double your revenue from 5.6 million to $11.2M for every $1M you invest.So basically, the wife was right!
Increasing Customer Retention by 5% Increases Profits by 25-95%
… because existing customers are easier to sell to, and when they buy, they buy more than new customers do, reports this infographic from Invesp:
Infographic by- Invesp
Top 5 Ways to Reduce Customer Churn Rate and Become the Admired Revenue-Driving Superstar of Your Company
Customer churn is unavoidable, and you’ll likely never be able to avoid it entirely. Some customers outgrow your product, others run out of budget, change goals, or find a more accurate solution for their needs. But if you’re leaking customers, you’re leaking revenue, so it’s important to do what you can across the company to increase customer lifetime cycle.The good news? According to the infographic above, it’s cheaper to do it than to acquire new customers. Here’s how.
Understand Why Churn Happens in YOUR Company
According to Charles Kim, head of Americas media at Bain & Company, most companies get the reasons their customers churn completely wrong:
Source: Bain & Company
We’ll give you a bunch of great ideas today, but it’s important to reach out to your customers and ask about their specific situations.HubSpot recommends finding out “what the customer expected to get, what the customer thinks they’ve actually received (or not), [and] if there’s anything that might get them to stay.” Then, HubSpot recommends looking for patterns.There are many ways to get this information: trigger a survey form when they cancel online, have your customer service representatives or account managers ask customers directly when they ask to cancel on the phone or via email… or have higher-level a manager reach out with individualized emails, that sound like they come from a real, curious human who wants to improve, not a corporate template.
Optimize Customer Onboarding
As Bain & Company’s Kim concluded the above video, companies that focus on “delighting their customers will find it far more effective than trying to bribe customers to stay.” To be effective, delighting your customers needs to start the moment they purchase something from you. In a guest post for Intercom, Patrick McKenzie, who’s responsible for content and communications at Stripe, said that software applications lose 40-60% of their users after one attempt to use their software.According to McKenzie, this happens “because they do not perceive value from interacting with the software. We can decrease their abandonment rate by a) making our software better and b) communicating better with our users,” especially in stages where we see large abandonment rates.McKenzie’s suggestions for improvements can be applied by both product and service companies – provide a quick win and a positive feeling.You’re not going to solve all your customers’ problems in that first interaction, but they need “to feel awesome right now,” wrote McKenzie. Show them you can make a small difference right away, and they’ll stick around to meet their bigger goals.
Ensure Long Term Customer Success
As you understand by now, optimizing the onboarding process is important, but you can’t leave it at that. To maximize your customer lifetime value and reduce churn rates, you need to be there for your customers long term.Let’s say you sell sales training. In an interview with Pipedrive, sales coach Mike Weinberg said that “the No. 1 issue that gets in the way of developing new business [is that] people in charge of selling don’t spend enough time selling.” They have too many non-sales responsibilities, like customer service and shipping. That means that no matter how great your sales training is, your customers will have a challenging time implementing what you teach.Talking to your customers about the challenges they’re facing implementing your training can help you uncover deeper challenges, which you can either help them resolve with the help of your team, or refer them to someone who can.After all, customer success managers aren’t only here for upgrading and upselling – which can’t happen anyway if the customer is not seeing results. Customer success managers need to make sure your customers know how to get the best results and best return on their investment from your product or service, so that they have a reason to stick around longer.In other words, says Cliff Cate, SVP of Customer Success at ToutApp, in the following video, customer success is “really all about fulfilling the promise that we made to customers when they purchased.”Here’s more from Cate about how he sees customer success, how to measure customer success, when companies need to start investing in it (spoiler alert: very early), and what kind of people you need hire for this role:
Get Every Customer-Facing Team on High Alert
To ensure true customer success, you need to create a collaborative culture in-house. In today’s world, customers communicate with multiple employees across multiple teams at the same time. If you don’t create systems that make cross-team communication easy, you’ll miss great opportunities.First, you need to make sure every customer-facing team is on high alert for potential customer abandonment – customers who don’t finish setting up their accounts, don’t use the product much, experience a lot of challenges with your product, about to grow beyond their current account, or going through a management overhaul.Awareness is the first step toward change. Once your company gets this data from any of its departments, it can start delivering solutions – like an executive who emails customers after they interacts with support:Want to take it a step further?Get your teams looking for high value customers – those that buy more, refer more or advocate for you on social media – and make sure every department in your company gives them the VIP treatment.
Provide an Outstanding Cross-Channel Customer Experience
In 2013, a Walker Info research predicted that, by 2020, quality of service will be more significant to customers than price or even product quality.95% of customers use multiple channels to communicate with companies, and they expect companies to know who they are and what their history is right away – no matter which channel they use or which team member they talk to.Most companies are now active on multiple platforms, yet each platform operates on its own, and other teams have no access to the data accumulated there. Companies that create in-house collaboration and data-sharing systems, which allow them to create a continuous, top quality cross-channel experience, will be the ones to win customer hears for the long run.What’s your #1 challenge in reducing customer churn rate? What’s helped you maximize customer lifetime value? Share it with us in the comments.