What are the main indicators for monitoring the performance of a Customer Retention strategy?
Many times, due to objectives and deadlines constrains, we tend to start working on strategies development without clarifying the main definitions to work with. While deploying the strategy, when we get stuck in pros and cons around a decision, we realize that we could use some landmarks to help us in our decisions.
Things aren’t different when it comes to Customer Retention strategies. Therefore, here are some basic definitions to start with if you think about creating a Customer Retention strategy.
Retention rate = the rate of retained customers. It’s usually relative to the total number of customers who directly expressed their intention to give up a product or service.
Renewal rate = the rate of customers renewed. It’s relative to the total number of customers eligible for renewal in a certain period of time.
Churn rate, or Attrition rate = it’s the ratio between number of customers who left a brand in a certain period of time and the total number of existing customers at the beginning of that period of time.
Voluntary churn = is the churn rate caused by the voluntary decision of customers.
Involuntary churn = is the churn rate caused by involuntary decision of customers (e.g.: contract termination due to non-payment).
Rotational churn = is the churn rate caused by customers who give up a product or service to buy a new one or a cheaper one, but from the same brand.
Proactive retention = actions to retain customers, addressed to those customers who are identified as having the intention to leave, and for whom the organization takes action before they effectively announce their wish to leave or give up the product/service.
Reactive retention = retention actions addressed to those customers who have already clearly stated their desire to leave.
Reasons to churn = the reasons underlying customer’s intention to leave.
Churn line = the line organizations define as the milestone that once a customer passes is considered lost. The line is defined by taking into account the recurring behavior of the entire customer base.
I’ll stick around this topic a little. There are businesses where, at least apparently, is hard to define when exactly a client gave up on your brand. Some time ago I was talking to a good friend of mine, one of the most talented experts in Brand Management, and the owner of an exceptional habit of challenging almost everything I say, about how one can determine churn in the case of wine customers. We’ve both arrived at the following conclusion: in businesses where purchasing recurrence is the only loyalty (and churn) indicator, the organization can segment its clients based on the number of recurring purchases in a given period of time – consequently, if, for example, a customer buys wine three times a year, it means is our ideal client, as opposed to a customer who only purchases wine once a year. Naturally, the line must be adapted to the particularities and the ecosystem of the given industry – careful – industry, not business.
I believe that if the strategy will start by having these definitions in mind, the rest will be easily discovered on the way and you can customize them, depending on the business you’re in.
Excerpt from the first book of Romans Customer Retention, This is Retention. Pre-order here.