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Strategy

How to Stop Your Retention Bucket from Leaking

If you focus too heavily on retaining customers while completely ignoring the root cause of your high customer attrition rate, your retention efforts will be all for naught

Matt Duczeminski
April 11 2018

Question for you:

If you’re carrying a bucket of water, and it springs a leak, do you:

  1. Fill it back up with water?
  2. Fix the leak and then fill it back up?

The logical course of action, of course, is to fix the leak before doing anything else; it doesn’t make sense to ignore such an obvious problem. It also wouldn’t make sense to focus your energy on preventing spills from the lip of the bucket, either, as the hole at the bottom is a much more pressing issue at the moment. In other words, the reason you won’t have much (if any) water left when you get where you’re going won’t be due to spillage from the top; it’ll be due to the hole at the bottom of the bucket

In retention terms:

If you focus too heavily on retaining customers while completely ignoring the root cause of your high customer attrition rate, your retention efforts will be all for naught.

Differentiating Between Promoting Retention and Avoiding Attrition

On the surface, it might seem that “promoting customer retention” and “avoiding customer attrition” are one and the same. But, as we illustrated above, though the end goal of promoting retention is the same as the end goal of avoiding attrition (i.e., keep customers on board), the ways to reach these goals differ from one another. Promoting retention and avoiding attrition are essentially opposite sides of the same coin. Typically, when focusing on retaining customers for the long haul, we’re all but assuming that their baseline expectations and needs are being met and we can focus on going the extra mile. On the other side of things, if we’re looking to avoid attrition, we can assume that our services aren’t meeting our customers’ needs in the first place, and something needs to be fixed before we think about doing anything more for them.

Let’s take a look at how you can fix the hole in your proverbial bucket of customers in order to make the process of retaining them much easier in the future.

The Principles of Fixing a High Customer Attrition Rate

When focusing on decreasing your customer attrition rate, pay close attention to:

  • The right metrics
  • The right customers
  • The right solutions

Without these three key factors in mind, you run the risk of investing time, money, and energy into initiatives that simply don’t end up making a difference – neither to your customers, nor to your business.

Here’s what these factors look like in greater detail:

Metrics That Matter

Take a look at the following chart:

(Source)

Looking strictly at retention rate vs. attrition rate, we see that the company retained 60% of these customers and lost 40% of them. But does that really tell the whole story here? Absolutely not.

Let’s say that the “daily activity” in this scenario signifies making a purchase. Lara is much more valuable to the company than Jane or Bob – even though all three of them contribute to an increased retention rate. From the other side of things, if Lara were to not make a purchase on Day 15 or any subsequent days – but Bob continued his “on again, off again” pattern – the company would still be worse off (even if the overall retention rate remained the same). Similarly, if Frank made a surprise purchase on Day 15, but Lara did not make her (seemingly) habitual purchase, this would likely be cause for concern, even though revenues were technically the same for that given day, the loss of business from Lara is more palpable than the surprise purchase by Frank.

Finally, imagine if Frank and Robert returned, and each made purchases once a week – but Lara—during the same timeframe—churned. In this case, the company’s retention rate would actually increase, but the company would not be making near as much as they would have had Lara stayed on board. While you want to pay attention to fluctuations in your retention and attrition rates over time, there’s more to the “bigger picture” than these two surface-level metrics. Fluctuations in other statistics – such as customer lifetime value, repeat purchase rate, and average order value – will help you truly understand the impact from changes in your retention or attrition rate. Yes, no attrition is always better than any amount of attrition – just as some retention is better than no retention at all. But it’s not so much the on-paper metrics you need to pay attention to when combating attrition – it’s the customers behind the metrics that are much more important.

Customers Who Matter

The ideal circumstance is one in which you don’t lose any customers, losing a customer who provides the least amount of value to your company is perhaps the next best thing. There are two ways of looking at this. Going back to the chart from the last section, we see that Frank made two purchases, but never ended up returning. It’s likely the company was not able to recoup the cost of acquiring Frank in the first place, and his LTV is certainly rather low. However, as it’s rather unlikely that Frank will end up providing a huge amount of value in the long run (e.g., as much as Lara has), it may not be worth investing all that much time and effort into getting him back on board.

Some of the factors to consider when deciding whether or not to chase after an at-risk customer include:

  • The probability that they’ll churn in the future anyway
  • Their average spend per transaction
  • The cost of attempting to keep them on board, weighed against the probability of these efforts paying off.

Increasing retention often entails “going the extra mile” for those who may be looking to get more out of their experience with your services, while reducing attrition entails ensuring your customers’ baseline needs are met. It’s important to ensure your services are meeting the needs of your customers – we’ll get to that in a moment, but it’s also vital that you’re attracting the best-fit customers for your services in the first place.  The more specific your personas are, the easier it will be to focus on meeting the needs of those who fit these profiles. Similarly, you’ll end up spending much less time and energy chasing after one-time customers who have little to no chance of providing long-term value to your company.

By focusing on attracting only those who will definitely find your products or services useful and valuable, you’ll inherently cut down on your attrition rate – as those who would almost certainly churn after their first or second purchase likely won’t even make it that far in the first place.

Solutions That Matter

Now, if you’ve already developed laser-focused customer personas, but your attrition rate is still not decreasing, then you have a problem and need to make some changes as soon as possible. Going back to our bucket metaphor one last time, adding a handle with a better grip or a sturdy lid isn’t going to allow the bucket to better retain water if there’s a hole at the bottom of it. Similarly, adding extra features to your products or services isn’t going to matter much if your customers’ immediate needs aren’t being met.

But, before you make any changes to your products or services, you should consider the answers to the following questions:

  • What, exactly, needs to change?
  • Will making the change result in a worthwhile decrease in attrition?

First and foremost, you’ll want to elicit feedback from your customers – both happy and unhappy. Even more importantly (in regards to reducing attrition), you want to get feedback from customers who you believed would provide major value to your company, but who unexpectedly churned rather quickly. (We’ve talked before about the best ways to gather this information in this article.) While you’ll ideally want to make all of the major changes your best-fit customers suggest, you’ll first want to focus on making the improvements that will keep your best-fit-but-still-at-risk customers on board, at least momentarily. Not only will doing so provide an immediate return on investment (as these customers will continue to provide value), but it will also provide you with subsequent opportunities to prove yourself in your best-fit customers’ eyes.

Wrapping Up

Though the end result of “increasing retention” and “decreasing attrition” is virtually one and the same, the way in which you tackle each initiative varies widely. Before you begin focusing on providing extra value to your customers in an effort to keep them on board, you need to ensure there aren’t any gaps in your baseline services that will cause your customers to defect without a second thought. Plug these holes first, then focusing on evolving your services to meet your best-fit customers’ growing needs.

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