Skip to main content
increasing-customer-retention

The two ways to increase customer retention

Anyone in a business with a semblance of a recurring revenue model knows the impact of increasing retention.

As I pointed out previously, increasing retention a small amount can have huge implications on the revenue for a user.

Not to mention, higher retention means higher LTV, which means you can spend more on customer acquisition. If customers are around longer, they refer more customers, increasing your viral acquisition. And finally, if they retain longer, they will likely purchase more, and talk well about you increasing this mysterious but very true concept of brand perception.

However, increasing retention can be very difficult. I wanted to share a concept that I’ve personally found helpful when it comes to thinking about how to increase your company or app’s customer/user retention.

The two ways to increase customer retention

I’ve found that there are really two categories of increasing retention: the test and iterate and the raise all tides.

Both are important, and not mutually exclusive. But it’s important to know which variety you’re employing, because it affects what you do and how you measure success.

1 – The test and iterate approach

This is the much more growth-hackerish way of going about increasing retention. It involves finding particular points in your customer journey where there are confusion, pain, or poor messaging, coming up with a test, and determining if one test group had an increase or not.

At LawnStarter, it’s inevitable that a small number of customers won’t be satisfied with their lawn service.  We can tell as evidenced by how they rate their lawn care professional.  This is a definitive point in our customer’s journey where can offer to send a crew to fix the work within 24 hours to the customer, give a refund, or simply switch their lawn care provider.  A perfect test to setup and run, measuring the increase in retention (and an ROI calculation given the costs involved),  making the winner the default, and moving onto the next test.

Another variety of test and iterate might be running A/B tests on email or push engagement campaigns. It’s quite easy to see which copy or messaging improves user retention.

Eventually, you’ll run out of big wins in ‘test and iterate’, but the good news is that if you’re growing, you’re growing your sample size and you can test more frequently to make up for the fact that your wins aren’t as big.

2 – The rising tides approach

The rising tides approach has to do with making your product and experience better overall. It may involve making things easier to use, creating more features, having better customer support…whatever makes your customer happy. In a lot of ways, the rising tide approach is simply a function of making a better product.

Typically, you cannot directly tie what you do under the rising tide directly to customer retention the next day

Measuring how a new feature or a redesign affects customer retention can be hard, if not impossible. In the consumer world, the changes may be so subtle the behavior change is subconscious. In the B2B world, you have long-term contracts skewing test results, not to mention a small sample size.

How do you know if the rising tides approach is working? Leading indicators.

Most businesses have some sort of leading indicator of retention. Net promoter score is one that’s established to be a leading indicator of both retention and word of mouth. Engagement is another likely one. Heck, even the Facebook ads team, which has more users than any platform in history, often uses engagement as a leading indicator of monetization when it runs tests.

Should you A/B test in the ‘rising tides’ approach? It depends. For one, do you have the sample size to run a test and measure a change in a leading indicator?

Secondly, is there any chance that this rising tide change will hurt your company. If you have a feature that most customers are asking for, and won’t hurt existing functionality, why not release it? Sure, you could hold out on half the sample just to see if it makes a difference, but that not only adds complexity, and prevents half your customers from getting to use a new feature.

Sometimes, you just need to have faith that making your product better will pay dividends in the long run. Just like you can’t directly measure the ROI of investing in content marketing, PR or social media in the short run, you have previous examples of success, fiction in excel models, and your gut instinct to tell you that you should do them. Same goes for making your product better and your customers happier.

Rising all tides may not be immediately measurable, but its where the real innovation occurs. Whereas you’ll always reach an asymptote in A/B testing, the sky is the limit when it comes to making your customers happier in the long run.

Conclusion

There’s often room for both methods of increasing customer retention, no matter what your company. But it is important do determine which camp you’re in.

I’ve made the mistake before. For example, I remember testing out personalized videos and hand written notes to customers, and being pressured to shut the program down because I couldn’t measure an immediate lift in retention. But how do I measure the smiles on customers faces when they get that note? Maybe NPS, or maybe we should have just had decide this was a good thing to do and we’re willing to eat the cost.

Before you execute on an initiative, decide whether you are testing and iterating, or rising all tides. If you find a discreet moment in a customer lifecycle where you can run an A/B test, and definitively measure an increase in retention, you’re testing and iterating. If you’re building something that likely will make the overall experience better for everyone, over the lifetime of a customer, and you can at-bes, you’re rising all tides.