3 Ways Retention Data Can Drive Growth and Profitability
March 18, 2016
Customer acquisition data is glossy and exciting. Customer retention data can save your business.
That was the message from Cassie Lancellotti-Young, Sailthru’s executive vice president of customer success, speaking at Sailthru’s most recent Lift conference.
Customer retention, Cassie said, is five times more effective than customer acquisition. Yet only 16% of marketers place their primary focus on retention.
Why such short-sightedness? Cassie asked just this question to Sailthru board member Bill Gurley, a general partner at venture capital firm Benchmark. His answer: Because in customer acquisition, “the math is easy.” Retention is more complicated, and for a long time, most of the tools available to marketers were focused on acquisition.
No longer. Here are the three ways marketers can use retention data to drive growth and profitability. Scroll down to the bottom of the post to view Cassie’s full presentation!
1. Optimize the Acquisition Mix
Who are your best customers, and how did you acquire them? These are important questions, and retention data can help answer them.
To start, make sure all your metrics are sliced and diced by source, so you know how many customers come from each source, and how much it cost to acquire them.
Then, drill down to see how lucrative each customer is (or isn’t). For each source, look at both repeat purchase rates and opt-out rates. If a source has both high repeat purchase rates and high opt-out rates, said Cassie, “You would ask yourself, ‘Was the uptick in quality, as measured by the repeat purchase rate, enough to offset the decrease in quantity, which is measured by the opt-out rate?”
Using predictive technology such as Sailthru’s Predictions Manager, you could also compare the cost to acquire a customer to the amount they’re predicted to spend over the next year, “giving you very quick and nimble insights into what you can expect to see from any given source.” One source might look expensive, but if customers from that source are predicted to be big spenders, the higher cost might be justified.
2. Play the Long Game
Every marketer knows what it’s like to be grinded to make their numbers at the end of the quarter or at big seasonal events. Instead of using discounts or other tactics that could hurt your brand in the long term, consider what happens if you take the long view. Cassie did some back-of-the envelope calculations on a group of customers that had an average order value of $50 over two years. “What if we could just improve the purchase frequency by 20% over that two-year period?” she asked. The answer: An 8% lift in revenue.
3. Diving beneath the surface metrics
66% of marketers use open rates to determine the effectiveness of their email campaign. “This is alarming to us for two reasons,” she said. “One, open rates don’t tell you anything about conversion or solvency. Second, they’re a snapshot surface metric.”
If you insist on using open rates, why not go deeper and ask, “What’s my open rate on a cohort basis?” or “What’s my open rate by acquisition source?” Or look at open rates after a cohort has been signed up for a month or three. If your users are disengaging after 30 days, maybe you want to automate a re-engagement email or find some other way to keep the content fresh for them.
Digging deeply into metrics can also give you a window into the customer’s state of mind. Cassie cited one merchant that was promoting jewelry and accessories in its welcome stream. Those items were at a slightly lower price point, and sold well.
But by digging deeply into the numbers, the marketers discovered that the most attractive items to non-buyers—as opposed to people who were already customers–were kitchen and home products. By highlighting those items in the welcome emails, the company experienced a very material lift–something that just wouldn’t have been possible without detailed retention data.
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