In our last post, we talked about the importance of subscriptions for eCommerce brands. Technically speaking, brands that leverage subscriptions have retention built into their business model – or so they should. But the data tells a different story. Even though subscription businesses rely on and cater to repeat customers, 72% of subscription eCommerce customers fail to make a second purchase within six months of their initial transaction. This shocking stat highlights the work-to-be-done when it comes to retaining customers for fast-growing eCommerce companies.
If brands want to thrive in 2020, they need to leverage not only subscriptions but focus on retaining those subscribers to ensure sustainable growth.
The Achilles’ heel of fast-growing brands
Retention is key to increasing your customer lifetime value (CLV)–the queen bee of retention metrics. Unfortunately, there is no silver bullet or one-size-fits-all solution for customer retention.
Most eCommerce subscription businesses already know that the real value isn’t in their first sale with a customer but rather, in their extended relationship (and recurring revenue) with them over time. The revenue eCommerce brands can generate by retaining customers is astounding. Between 70-95% of revenue comes from renewals and upsells for brands that offer them. Considering that acquiring new customers is up to 25 times as expensive as retaining existing ones, it’s clear how important retention is for the longevity of any brand or business.
The problem for most brands is that retention isn’t exactly data-friendly. It requires companies to look at data over time, which can be complicated and messy for most companies due to a lack of accurate reporting.
As Jarid Lukid from Kind Snacks puts it, “retention isn’t as easy to measure as acquisition. You need the right data model and/or tools.”
Most subscription eCommerce platforms don’t offer any kind of customer lifetime value metrics as a built-in feature, so brands are forced to hack together their own systems to try and account for this. This makes identifying at-risk customers and figuring out how to engage them painstakingly difficult. Without accurate and relevant data, reducing churn feels like shooting in the dark. Brands need reliable reporting and analytics to identify the patterns and behaviors that make a customer at-risk so they can proactively prevent churn. Without accurate and relevant data, executing on retention strategies becomes futile, making retention the Achilles’ heel of many fast-growing brands.
Retention + acquisition: two sides of the same coin
Acquisition tends to take priority early on for businesses, which makes sense–you can’t retain the customers you don’t have. The problem is, brands often get into the habit of prioritizing customer acquisition over retention. This means the customers they worked so hard to acquire slip through the cracks later, decreasing their CLV. The challenge for fast-growing eCommerce brands is figuring out how to align their customer acquisition and retention strategies to increase their CLV.
A lot of brands overinvest in acquisition without strategizing around how to actually align those tactics with their retention efforts. For example, if a customer was acquired through a free trial or a heavy discount, they’ll expect more of that in their post-purchase experience. That means engaging those customers with loyalty or rewards programs and other value-driven engagement tactics to delight them at every touchpoint so they can retain them.
Companies need customer acquisition and retention to sustain growth and the most successful eCommerce brands prioritize both. That’s because they’re two sides of the same coin. If you focus on customer acquisition without a retention strategy to back it up, you’re effectively putting your business on a hamster wheel going nowhere fast (while bleeding money the entire time).
The underlying issue for a lot of companies is that retention isn’t perceived as something that’s “sexy”. It’s often viewed as a thankless job, with no one owning it outright nor any clear-cut tools or processes to increase it proactively. Companies tend to celebrate every time they acquire a new customer, but the same enthusiasm isn’t expressed when someone is able to retain an at-risk customer.
Given the current stats around retention though, it’s clearly lucrative–not to mention sexy. More importantly, when companies are able to align their customer acquisition and retention tactics, they’re able to get on a path to meaningfully increasing their CLV.
Why engagement matters for retention
Subscription-based eCommerce brands need to provide ongoing value if they want to retain their customers. In order to prevent fatigue or loss of interest, in addition to justifying a monthly charge, brands need to provide a personalized customer experience with multiple touchpoints to engage customers throughout their customer lifecycle.
Engagement is a key variable in the retention equation. By personalizing the post-purchase experience so that each touchpoint or engagement a customer has with a brand is delightful, brands can ensure customers continue to experience the same sense of excitement they felt the first time they purchased. In 2020, it’s not enough to just meet customers expectations–brands need to exceed them.
When companies use relevant engagement tactics to consistently delight their customers, they’re not only able to retain more customers but also increase their chances for organic referrals. That’s because by focusing on engagement, brands can turn customers into brand advocates. Brand advocates aren’t just loyal repeat customers–they take it a step further by referring other customers to the brand in question. This brings a brand’s cost of acquisition for a new customer to zero, which is good news since acquisition cost trends are rising by 31%.
Spending time and money acquiring customers only to have them churn later makes growth increasingly expensive. That’s why brands need to focus on building relationships with and engaging the customers they already have to prevent churn. Retention hinges on customer relationships and the ability to leverage the data from those relationships to create personalized engagement touchpoints to increase customer delight, referrals and repeat purchases over time.
Brands that engage their customers in the right way and at the right time are better able to retain them, making engagement a key piece of the retention puzzle and a key variable to increasing CLV.
Retention as a growth strategy
Brands have two options to propel their growth: keep acquisition rates low, which is becoming increasingly difficult and daunting or reduce churn by building a solid retention plan that will pay dividends over time. Implementing retention as a growth strategy requires fast-growing eCommerce brands to understand the variables negatively impacting their CLV so they can focus on ways to optimize them.
The first step in this is to understand why churn is happening so that companies can address it head-on. For example, customers oftentimes don’t actually want to cancel–they simply want to modify their subscription. The problem here is that a lot of subscription-based eCommerce brands don’t have the right processes or tools in place to enable this, so valuable customers drop off. Retention as a growth strategy requires relentless prioritization and optimization of the post-purchase experience.
Like we mentioned, companies can begin doing this by aligning their acquisition strategies with their retention strategies. From there, businesses need to understand the customers they already have and identify which are at-risk. Identifying which behaviors mark an at-risk customer, like decreased online engagement or even a drop in overall spend is critical to proactively preventing churn. If certain customers are at risk, figuring out how to engage them based on what they’ve responded to in the past (including how they were acquired) via automatic email notifications or cancellation flows can help eCommerce brands prevent customers from falling through the cracks.
Again, acquisition isn’t the only growth lever to pull–delighting the customers you already have and leveraging repeat purchases, upsells and referrals are some of the most lucrative ways to grow. Put simply, companies need to look at growth holistically rather than leaning on acquisition alone to increase their bottom line. The brands that leverage retention as a growth strategy typically grow revenue way more than anticipated, making it a powerful growth lever for brands that want to thrive in 2020.