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Strategy

Why Attributing ROI to Retention Marketing Campaigns Isn’t your Smartest Bet

Set a baseline, develop a strategy and analyze feedback: measuring retention marketing requires to dive deep into the data, but it’s crucial for your company’s growth

Matt Duczeminski
September 12 2017

Last month, Aaron Orendorff talked about some of the metrics you can use to demystify your retention ROI. While Aaron focused on measuring your company’s overall ability to retain customers (and the positive effects of doing so), he also touched on another important point:

You should always try and determine the ROI of each individual customer retention campaign or initiative within your organization.

Now, here’s where things get a bit tricky:

Your most loyal customers most likely engage with your brand in a number of ways. They’re probably a member of your rewards program. They subscribe to your blog and open every email you send them. They almost always use the coupons you send them whenever they come into your store.

Clearly, your retention strategies are working. But, from such a high vantage point, it’s difficult to tell whether all of these strategies are working together to drive retention (and profit) – or if some strategies are pulling more weight than others.

Of course, if you don’t take the time to figure out which of your strategies are working (and which aren’t), you may be spending time and money on initiatives that don’t add much to your company’s overall profits. And you also might be ignoring the strategies that do work – meaning you’re also losing out on potential additional revenue, as well.

Facing the Challenges of Attributing ROI to Retention Marketing

You already know how important customer retention is.

Gartner Group reports that, typically, 80% of any given company’s future revenue comes from 20% of its existing customer base. Data collected by Invesp tells us that it can be five times cheaper for a company to retain a customer than it is to acquire a new one, and that just a 5% increase in customer retention can lead to an increase of over 25% in overall revenue.

Surprisingly, marketing initiatives focused specifically on customer retention are, for the most part, lacking. Invesp also reports that a mere 18% of companies polled say they focus more on retention than acquisition (compared to 44% that say the opposite). The general consensus is that measuring the effectiveness of acquisition efforts is much easier than measuring that of retention campaigns.

Though it’s clear that retention marketing strategies are generally effective in generating additional revenue, business owners can’t afford to operate their company in general terms. In turn, this leads them to focus more on initiatives they can measure, rather than gamble on initiatives they can’t.

The thing is, though:

While measuring ROI of retention marketing campaigns requires a deeper dive than measuring acquisition marketing ROI, it absolutely can be done.

Let’s get started.

Set a Baseline

Before you begin measuring the effectiveness of a given retention marketing initiative, you need to know where you currently stand – as well as where you’d like to be – in terms of ROI.

Dig into your customer data to determine where you stand on each of the metrics such as retention rate, churn rate, CLV, etc.

(Note: You may or may not be implementing customer retention initiatives at the current moment. Setting this baseline won’t help in determining the ROI of strategies currently in use; rather, it will go toward measuring the effectiveness of future endeavors.)

Now, not only should you assess how your own company is performing in terms of retention rate, etc.; you should also investigate how your company stacks up against other companies within your industry. While you might already be doing this as a regular course of action, you can now do so with a focus on using retention marketing to meet – and surpass – the performance of your competitors.

Once you’ve determined your current position – and where your competition stands – you’ll be ready to set specific goals for your customer retention campaigns.

Obviously, the main goal is to implement retention initiatives that increase retention rate and generate additional revenue. But, because you now have a general idea of the industry standard for retention and revenue, you can be specific when setting these goals. For example, rather than simply saying you want to “increase your monthly retention rate,” you can say you want to increase this rate by a certain percentage within a given time period.

Furthermore, you can also determine how much money (and other resources) you’re willing to spend to reach your determined goal. This is an important factor to consider, as your true goal increasing your ROI by increasing this retention rate, not increasing your rate of customer retention.

One thing to note here is that we aren’t measuring the ROI of retention marketing initiatives per se. Rather, we’re analyzing how implementing such initiatives affect your company’s overall ROI. In other words, your goal isn’t to be able to say, “The ROI of our loyalty program was xx%”; but you will be able to say “Our loyalty program helped us increase our ROI by xx%.”

Develop and Implement a Single Strategy

This, perhaps, is where many organizations begin experiencing difficulties when trying to pinpoint the effectiveness of their retention marketing initiatives.

As we’ve said, you may currently have some retention marketing campaigns already in place. And, as you move forward, you may want to implement more than one strategy at a given time.

From a business perspective, that makes sense: you can definitely provide added value to your customers by providing offers via email, maintaining an educational blog, and developing a loyalty program concurrently.

But, for the purpose of determining the ROI of a specific initiative, you’ll need to implement such strategies separately. Think of how science experiments are conducted: if more than one variable is changed at one time, it’s impossible to determine the degree to which either of these variables affected the overall outcome of the experiment.

Once you’ve determined which strategy you want to implement and assess, you’ll also want to determine the length of your “study.” The length of time it’ll take to generate usable results will ultimately depend on the nature of the strategy; for example, it will probably take much longer to see changes in ROI after implementing a blog than it would after launching a loyalty program.

After a strategy is up and running, you’ll probably start noticing what’s working well within this strategy (as well as what isn’t working). Again, it’s most effective to make one improvement at a time in order to determine the effectiveness of that specific improvement.

Once the designated time period has expired for a given “experiment,” you can move on to a different retention initiative. Of course, you won’t be removing the former initiative (as you would in a true scientific experiment). Instead, you can measure your “new” overall ROI to determine an updated baseline before implementing the next strategy.

Note that, as you continue introducing new strategies, they inherently will begin to have a synergistic effect. The ROI from a number of retention strategies will likely be greater than the combined ROI of each of these strategies implemented in isolation.

Still, implementing such strategies in a staggered manner as we’ve discussed will provide a decent look at the ROI that each initiative generates for your business.

Solicit and Analyze Feedback

As you implement each new retention strategy, you’ll of course want to reach out to your customers to determine how the receive each initiative.

There are two ways you can collect this data from your customers: overtly and covertly.

Collecting this data overtly simply requires you to ask your customers specific questions about a specific campaign or initiative. For example, if you’re assessing your blog’s effects on customer retention, you might ask your existing customers how often they visit your blog, what they do with the information you provide, and how (or if) your blog affects their overall experience and satisfaction with your brand.

You can also ask more general questions regarding your customers’ level of satisfaction with your services after you implement each new initiative (without specifically mentioning the initiative). With each new initiative, you can compare the results of these general surveys to determine whether your audience had a positive, negative, or neutral reaction to the new campaign.

Note that the data collected through such surveys will merely infer that a specific initiative has affected ROI (by way of improving customer satisfaction). Surprisingly, this is one time in which asking your customers for information might actually be less effective than a more hands-off method of data collection.

The Bottom Line

As we’ve said, there’s no denying that focusing on customer retention can be incredibly beneficial to your company. And there’s little doubt that marketing initiatives focused on retention work.

But, there are no hard and fast rules that say how well such campaigns work for any given organization. As such, your best bet is to use your own past performance as a benchmark for moving forward. This will allow you to focus on determining what works for your company and your customers, rather than implementing a given strategy because “everyone else is doing it.”

Coming up: we’ll be breaking down the ways in which you can measure the effectiveness of specific retention marketing strategies. Check back soon.

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Matt Duczeminski

Matt is a professional writer specializing in helping entrepreneurs improve relationships with their customers. He lives in Philadelphia with his wife, Sarah, and he'd probably get a lot more work done if his cat would stop bothering him.

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