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explaining-retention

Explaining the importance of retention [interactive]

Like any growth leader who’s watched the Sean Ellis videos, I have an open form for anybody at the company to submit growth ideas.

It’s been very successful, and I get all sorts of cool ideas every week.

However, I’d noticed that nearly every idea submitted has been related to new customer acquisition.  Very rarely is there an idea that relates to retention.

This makes sense.  For one, it’s fun to come up with marketing ideas, whereas ideating about retention usually requires admitting that your product is flawed in some way.

But furthermore, the non-linear nature of retention is tough for humans to internalize at first glance.  In the same way most people don’t internalize how wealthy you can get by saving and investing small amounts of money on a monthly basis, people don’t necessarily internalize the impact a small increase or decrease in retention has on a business.

And unlike with new customer acquisition, literally every team impacts retention.

So we set out to try and teach it.

Conveying the importance of retention

Every week at LawnStarter, someone from each gives a presentation to the entire company.  This week, our data analyst created and presented an interactive Tableau view he made, that uses three fictitious companies to illustrate the giant effect retention has on a business.

I thought it went over really well, so I decided to post it here for others to use.

Without further ado, here it is (slide summaries below):

 

Slide #1: Which company would you work for?

This slide shows three graphs of active customers.  Most people in the audience will agree that with this data, you’d either want to join Company B or C.

For our purposes, active means a customer spent money during a given month.

Slide #2: Let’s define a few terms

Here we defined three categories a customer can be in:

  • New – this is the customer’s first month as a customer
  • Retained – the customer was active last month and is active this month
  • Churned – a customer was active last month but is NOT active this month

Note we left out the concept of a reactivated customer for simplicity’s sake.

Slide #3:  Let’s take a closer look

This slide shows the monthly breakdown of new, retained, and churned customers.  It’s a great time to ask the audience what they see.

Slide #4: Key differences between the companies

Companies A & B are acquiring the same number of new customers each month.  However, A has a monthly retention rate of 85%, whereas B has a higher retention rate of 95%.

After two years, Company A ends up with 1,306 customers, whereas Company B ends up with 2,832 – over two times the number of company A.

Companies B & C end up with the same total customers, yet company C is accelerating its acquisition to get there.  Ask the audience if this matters, and why.

Slide #5:  Adding revenue and marketing costs to the equation

Chances are, the audience brought up the fact that acquiring a customer isn’t free.

So if we assume monthly revenue per customer of 300 and an acquisition cost of 100, we see that Company C is actually in much worse shape than Company A.

This is a great time for the audience to play around with the inputs, and compare each company given different unit economics.

A final challenge to the audience is to state that you have’t taken support costs to account.  If there were a cost of supporting each customer, what would that do to each of these companies?

Conclusion

Afterwards, we proceeded to show some of LawnStarter’s actual numbers, and some of the factors we’ve found correlated with retention (or churn, the inverse).  This resulted in people coming up with not only ideas on how to acquire new customers, but ideas on proactive churn prevention, re-activation, and even customer advocacy.

Do you need to help your team internalize the effects of retention?  I’ve made these slides embeddable, so feel free to use them!

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