Executives today recognize that their customers are their firm's most significant resources. However, many struggle to answer the question: Am I extracting the maximum potential value from my customers?
Evolving consumer demands and digital risks mean the worth of your current customers has never been more crucial. Businesses need to handle drastic changes in purchasing trends, service costs, and perceived worth across industries and value chains. This subsequently results in price surges for nearly all goods, products, and services.
Acquiring and retaining customers has never been more challenging for businesses. The rise of competition and rapid technological advancements have significantly reduced the switching costs. Especially for companies relying on new technologies or subscription-based products, there will be challenges to face.
As product uniqueness declines and entry barriers for new players diminish, discerning customers seek more tailored solutions. Numerous leading firms have already reacted by transitioning from a transaction-centric approach to fostering relationships and retaining loyal customers.
What is the fate of businesses that ignore this trend? They will encounter escalating acquisition expenses, diminishing customer lifetime worth, and shrinking profit margins.
Why is customer retention important?
Growing via acquisition is expensive. Businesses that concentrate on acquiring new customers, but overlook the growth of their current customer base, miss out on the emerging market trends.
- Typically, keeping existing customers is five times less expensive than attracting new ones.
- Existing and repeat customers are 50 percent more likely to try new deals compared to new customers.
- In general, existing customers account for 90 percent or more of a company's earnings.
These statistics highlight the immense potential of leveraging an existing customer base. A methodical strategy, grounded on adaptable and distinct pricing, has proven to significantly enhance a company's long-term performance.
This can be further expedited by digital transformation efforts that stimulate demand for comprehensive shopping solutions and facilitate scalable, personalized customer experiences.
Besides digital transformation, another expansion catalyst is price augmentation. This allows businesses to propose variable and distinct pricing structures to prospective customers. With a noticeable shift in the market, companies have a special opportunity to act swiftly and seize value through efficient management of their customer base.
What is net retention and why do companies struggle with it?
Net retention evaluates the ability of businesses to expand using their current customer base. Firms with a positive net retention offset the revenue loss from customer attrition by generating more income from existing customers. They achieve this via pricing, upselling, deep selling, or cross-selling.
On the other hand, firms with negative net retention experience a greater revenue loss from customer churn than what can be offset by revenue growth from their existing customers.
Numerous businesses grapple with negative net retention. They must "plug the leak" through continuous customer acquisition, which restricts their growth.
Five elements for your customer retention strategy
1. Determine the causes of customer attrition and measure the risk
- Consistently gather demographic and behavioral data at an individual customer level.
- Forecast the worth of your customers at the time of acquisition, including a prediction of their retention.
Which customers are on the verge of leaving? How can you spot them? And, most crucially, how can you prevent them from churning?
Knowledge is the key here – hence, you require organized and pertinent customer data. But how can you create such a data resource?
Our MyBase platform links and synchronizes existing data sources, verifies the included data, and employs data analytics and machine learning algorithms to produce effective insights.
2. Find out the exact value of your customers – new and old
- Segment your customers based on behavioral profiles, including churn risk.
- Compute the value of each customer and categorize them.
Every customer is valuable. However, let's face it: When a top customer switches to a rival, it's far more painful than losing a smaller, less lucrative customer.
So, to manage your customer base effectively, it's crucial to determine your customer lifetime value (CLTV)and tailor your strategies accordingly. CLTV serves as a distinguishing element for your customer segmentation.
Assign each customer a churn risk and a value and categorize them into a specific segment. This can also be combined with existing segmentation, e.g., high risk young professionals vs. high-risk families. This customer segment becomes the crucial determinant for your churn prevention strategies.
3. Use measures to prevent churn
- Identify customer churn triggers and apply effective prevention measures, increasing net retention.
What's the best way to engage your newly gained customers to ensure their loyalty? If you have a solution to this, you've tackled one of the primary hurdles in managing a customer base.
Keeping existing customers is significantly less expensive than to attract new ones. Therefore, it is crucial to establish a robust customer retention plan. By understanding customers' lifetime value, their likelihood to churn, and the triggers that cause churn throughout the customer journey, you can devise proactive retention strategies that create a sense of exclusivity for each of your most valuable customers.
Churn triggers will guide you on what strategies to put in place. Segmentation based on customers' lifetime value and churn likelihood will indicate which customers to focus these strategies on.
4. Uncover new avenues for cross-selling, upselling, and deep selling
- Determine the most suitable next offers for your existing customer base.
- Use your up-/cross-sell opportunities in a systematic way.
Effective customer base management isn't solely about reducing churn and enhancing customer retention. It's also significantly impacted by customer loyalty and potential opportunities for up-selling, cross-selling, and deep-selling. The more products or services a customer utilizes, the less likely they are to churn. Cross/up/deep-selling requires a systematic approach.
Furthermore, pinpointing the most valuable customers allows businesses to more effectively direct their sales team and marketing initiatives. This strategy makes attracting users with high Customer Lifetime Value (CLTV) and loyalty easier.
Successful customer base management is intrinsically tied to automated performance marketing. This allows marketing teams to target appropriate customers effectively through measurable customer segmentation.
5. Align organization and processes to fully unlock your customers’ lifetime value
- Ensure company-wide involvement and alignment to steer the customer journey for increasing loyalty.
- Organize your business to maximize the total value of a customer over their lifetime.
Effective management of the customer base relies on several factors. These include customer retention, churn, and strategies for cross-selling, up-selling, and deep-selling. However, even the most effective solutions won't reach their full potential if your internal processes and systems aren't in sync.
First and foremost, it's crucial to secure the support of key stakeholders. This ensures their willingness to be part of the journey toward achieving excellence in managing the customer base. Furthermore, it's vital to instigate a shift in the company-wide mindset. Only this way can you share customer data and collaborate across departments to improve customer service quality.
While it's essential to have the support of key stakeholders (management, board, team-leads), it's critical to include the employees who handle the operations. By guaranteeing alignment across the company with the new customer base management strategy, you cultivate a superior marketing method: relationship marketing.
What are the benefits of better customer retention?
Formulating a potent strategy for managing your customer base can give your organization the advantage. You can anticipate immediate effects and measurable outcomes such as a decrease in customer attrition, enhancement in net retention, growth in up- and cross-selling volumes, and a rise in sales returns. We have already accomplished remarkable results for our clients across a range of industries.
- On average, we have reduced the customer attrition rate by 10 to 30 percent. Likewise, the net retention rate has improved by 2-10 ppt.
- The volumes of up-selling and cross-selling have seen a significant boost, often by 3 percent.
- In general, the application of MyBase measures has resulted in a rise in sales returns of three to seven percent and a revenue growth ranging from five to 10 percent.
Your platform for managing the customer base
Our approach towards superior customer base management is built on three fundamental principles:
- Comprehensive data strategy, utilizing Big Data and ML/AI technologies
- Customer engagement based on context
- Corporate mentality
Our highly efficient modular system, MyBase, provides businesses with a comprehensive solution for enhancing customer base management, significantly boosting net retention and customer loyalty.
From establishing a data foundation to implementing strategies throughout the organization, MyBase takes your customer base management to a higher level. This significantly enhances your net retention rate and gives you a competitive edge.
Every client's situation is distinct, and so is our approach. We don't offer a one-size-fits-all solution. Instead, we tailor our cutting-edge customer base management toolkit to each unique situation.
Our strategy can vary from practical to highly advanced, depending on our client's level of maturity. However, the common thread in all our projects is our integration of the end-customer, market, and client viewpoints.
Above all, we prioritize your customer's voice.
We merge our comprehension of your customer's needs with our extensive market expertise and your unique circumstances.
Simply put, our clients' best interests are always at the forefront of our minds. This enables us to create customized customer base management solutions that both you and your customers appreciate and guarantee your market success.
