Customer Retention – The Lost Art (And Science) Of Marketing

In the past, understanding which marketing programs delivered the best results proved challenging. Today this is no longer the case. Marketing departments are swimming in data. But the key to demonstrating ROI from Marketing lies in utilizing the latest tools such as marketing automation and the all the data available to the modern marketer to make the right decisions that drive business results.

The goal of marketing is to get and keep customers. And while much of the time, effort and money spent in marketing involves the process of getting new customers, focusing on keeping the customers you already have often provides a much higher return from marketing investments.

Marketing automation tools provide the data and the insights marketers need to determine how to increase customer retention, how to acquire more of the right kind of customers in the first place, and how to determine an optimal marketing mix to deliver on the results executives are expecting.

The importance of customer retention as a marketing objective

Marketing programs are often tied to 3 main objectives: Brand Awareness, Engagement, and Conversion.

But there is a fourth, often forgotten objective: Customer Retention. This is despite tremendous amounts of research showing that acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one.

It makes sense when you consider that keeping a paying customer is easier than finding, convincing and converting new ones.

Research conducted by Bain & Company revealed that it costs six to seven times more to acquire a new customer than to keep existing ones. Increasing customer retention rates by 5% increases profits by 25% to 95%. The bottom line: keeping the right customers is valuable. And it might be the most important way for marketing to prove it’s value to the C-suite.

What is retention?

Retention rate is a metric that measures the percentage of customers who continue to use your product over time. Some companies measure the opposite of retention: churn rate. Or the percentage of customers who leave in a given time period.

Most companies look at this on an annual basis, but companies that sell and invoice monthly (think your mobile phone, gym membership, or monthly cloud-based software might look at this monthly.

Retention and churn rates have become a popular tool for investors to evaluate the underlying health of a firm. The higher the churn rate (the more customers that chose to leave after signing up), the more they question the company’s viability.

This is why customer loyalty and retention have become so important in measuring the value of marketing overall.

Leading companies are using customer retention as their main marketing objective to ensure that they are acquiring the right kind of customers in the first place, to predict the return on marketing overall, and to drive sales and financial forecasting models.

How marketing automation provides the data needed to measure retention

Once a customer is acquired through all the various marketing touch points, marketing automation can provide the data to determine how much that customer spends, how much they are using your product or service, when they leave, and in some cases why.

For example, using customer data, many companies have discovered that poor customer service is the number one reason why customers leave. Using that analysis, you can target customers you suspect might cancel and offered them extra services, like training.

Marketing automation can determine which content, offers, channels, topics and types of marketing programs are delivering not just new customers, at what cost, but also can determine which programs and variables are driving customers who stay longer and spend more.

Acquiring the right customers in the first place

The biggest mistake companies make when analyzing retention rates is not seeing that a high churn rate is the result of poor customer acquisition efforts.

Many companies are simply attracting the wrong kinds of customers in the first place. This can occur when price is big factor in the decision, and marketing programs that attract deal seekers will result in customers who leave as soon as they find a better deal.

So once you determine you have a retention problem, consider whether you have an acquisition problem instead. The goal of marketing is to get and keep customers who you can provide value to and who are valuable to your business.

How to use marketing automation data to drive retention

Marketing automation provides a number of data points to improve marketing ROI and drive customer loyalty and retention.

1. Marketing effectiveness overall: marketing automation allows you to measure the effectiveness of marketing ROI overall. You can see key performance indicators such as program budget, results, offer performance, leads generated and deals closed. These call all then be tied back to retention rate and spend levels by various customer segments.
2. Marketing mix: marketing automation not only provides overall results, but also can be used to determine the right mix of awareness, engagement, conversion and retention campaign approaches. By using the data from marketing automation, you can model the right mix of activities to generate the highest return.
3. Sales and customer service insights: marketing automation data can also be invaluable to sales and customer service teams to determine which prospects are the most important to be followed up on, and which customers might need some extra support or services.
4. Content and messaging: Beyond understanding which programs and marketing mix drives the most value, marketing automation data and insights can help you determine which marketing messages and content resonate with customers who stay and spend more.

With so much data available today, marketers are able to focus their programs and investments on attracting the right kind of customers: customers who get the most value from your solutions and who return the favor in the form or customer retention, loyalty, higher revenue and even referrals.

While customer retention and loyalty are all too often the forgotten marketing objectives marketing automation and the data and insights it provides, are allowing today’s most effective marketers to deliver on the promise of marketing: getting and keeping the right kind of customers.

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