033. Customer Retention: The Key to Business Growth

Foreign hello everyone, my name is Emilio Garcia from Boundify and welcome to another episode of Demand Gen Studio where we cover demand Generation topics for B2B marketing and sales professionals. I'm really happy to have the opportunity to talk to you again. It's been a while, I've been busy, so I have neglected the episodes a little bit. But I hope that everybody, everybody is doing well. I hope you're having a fantastic day. If you're listening this today and of course if you listen to that later, if you listen to it later, feel free to reach out in all the channels that we live stream this episode and let us dive in into our conversation for today. I pick something that it is, I will say in the fringes of demand generation because usually demand generation focus only or primarily on brand awareness, lead generation and to some extent customer acquisition. Especially the velocity of that acquisition and what happens after is usually outside of its realm. However, customer retention is important and we will see why. Because if, if we don't cover that part, if we don't, if we don't have a handle of the customer retention process, what will suffer will be the demand generation, especially the demand creation portion, right? It's. Demand creation as part of demand generation relies heavily on the brand and the brand. It's a cumulative effort of not just who you are and who you take care of and where you stand, stand for, but also the, the, the experiences that your current customers and past customers have had with your company and that builds that reputation, which is the basis or the foundation for a great demand creation process. So quite important. And that's the reason I decided to start that topic or cover that topic for today. Let us dive in right away into it. And, and the first question, the first area obviously I want to cover is what do we mean by customer retention? What is the meaning of that? And you know, generally is the customer retention, you can say that it refers to the ability of companies to turn customers or clients into repeated buyers, right. And to some extent to prevent them from switching to competitors. Right. And it indicates to some level the quality of the products and services that you offer to your existing customers. Right. And in theory to accomplish that there are a series of strategies, right? So you will put in place in your company processes and initiatives that will allow you to build that customer loyalty and over time improve the customer lifetime value, which is something that we will cover very shortly. Right. And I was explaining or discussing that at the beginning of the conversation. Customer retention is different from customer acquisition or lead generation in the sense that you primarily focus on lead generation and customer acquisition, on getting new business, right? Interacting or getting in front of people that you have never worked with before. While customer retention, focus on building a great experience for your current customers so they can continue to purchase from you or continue their services. And so it's a, it's a different angle at the whole revenue growth idea for, you know, something that is important for all companies. Now I have hinted why customer retention is important. One of the reasons might be that impacts marketing. But the biggest impact for why customer retention is important is because is very cost effective at generating or increasing revenue. According to Harvard Business Review, acquiring a customer can be between five and as much as 25 times more expensive than holding to an existing one. So that is really important. It is understandable that for especially most new businesses or businesses that are launching or introducing new products to the market, customer acquisition will be the most important activity. That is pretty understandable. And that is the reason usually customer acquisition has so much coverage, right? In terms of sales, training and marketing efforts. Because for a lot of businesses what matters is to acquiring new customers. There's not a big base of current ones that they can rely on. However, it's important to not forget that once you have a decent base and, and you are growing steadily, then you should not neglect the fact that your best growth opportunity is with your current clients, right? If they have great experiences, they will continue buying from you. It will be easier to offer them other products or services that you have in your company and cross sell or upsell them. So because that reduced friction and the fact that happy customers would probably buy more from you easier than, you know, new prospects that have never had the experience of working with your company. That is the reason that acquiring, you know, acquiring a new customer is quite expensive compared to holding an existing one. So that will be primarily the biggest benefit, right? That is more, more cost effective. But the other big component, something that companies that Hopspot promotes very heavily is is that happy customers usually talked about your company in a good way and they become advocates or evangelists of your brand and that feeds your marketing efforts. Actually, I will argue that most customer acquisition marketing efforts are rarely, you know, Roy positive unless you have a strong brand behind it, right? So the best example that I can, I can relate to that is that it's like starting a fire, right? So marketing budget, especially for paid efforts in particular, it is like, you know, the Kindle, the, this starter that you put at the beginning, very effective to starting the fire, but it fails miserably. If you, if you want to use it to hold the fire for a long time, for actually holding that fire, you really need logs of wood. And those logs are, are that the strength of your brand. And the only way to build that strength if you have happy customers that build a good reputation for the company. So that's the other big component of why customer retention is important is because allows you to have a very effective marketing effort or in order. The other way that you can see it at it is that is leverage, right? With very little effort. When you have a strong customer retention program, with very little effort from your marketing efforts, you will have a high impact in terms of lead generation and obviously on customer acquisition and the velocity that you close clients. So that's the other key component that sometimes is hidden because attribution for great brand is hard to measure, right? The impact of those good conversations are very hard to measure. You will not see them on your regular attribution tools. They will probably show up just like SEO organic traffic. And it is hard to measure. And the other great thing about that, you know, great experience that customers might have is that you can leverage that, especially in B2B in the form of testimonials, case studies, reviews in directories or sites where you can leverage that good vibe that your happy clients have about the company. So great, great way to improve demand generation because allows you to essentially leverage your demand creation process very well. So I will argue those are the two main reasons. Obviously there might be more, but the two main reasons why customer retention is key to demand generation. Now obviously you want to have some metrics, some, some a way of measuring the impact that your program might have. And there are many, many metrics that you can use. But I obviously recommend that you focus on some or just a handful of them. I will today talk about three that you will find very often on the literature about it. So you have customer retention rate, customer lifetime value and customer churn rate. And they measure slightly different things. So it's worth exploring what they are. I will start with the most popular customer retention rate. And so what it is, is a measure of the percentage of previous customers that remain loyal to your business over time, right? So this obviously you always measure over a period of time and you need three inputs. One is the number of customers that you have at the beginning of the period, right. That you are measuring. Let us imagine that for example, you're measuring customer retention rate by month or customer retention by year, right. Usually the peer will depend on the frequency that you turn over those clients. So B2B usually will be longer peers. Maybe you have a quarterly or yearly metric and for more transaction oriented or B2C you will have probably something that measures on months, weeks, or I guess you can think about a daily basis for some scenarios, but I doubt it. So you need the number of clients or customers that you have at the beginning of the period and then the number of clients that you ended up having at the end right of that period. So the beginning, the photo or the picture that you have at the beginning at the end. And finally the third metric that you need then you need the number of customers that you added as new customers over that period of time. And then the formula, and I know that you know looking or listening to this is hard enough. So but the formula is you take the number of clients that you have at the end of the period and then you subtract the number of clients that you added and you divide all that for the ones that you have at the beginning and you multiply by 100. So that will give you a ratio, right? In theory, if you don't add anything and you keep the same amount in out, you will have 100%. And if you lose clients, then obviously it's going to be lower than 100%. So that's a very quick way to measure customer retention is the one that is used the most. That's one metric that you can rely on. The other one is slightly different customer lifetime value. I like it especially for B2B efforts where you have recurring revenue. Because sometimes if you just measure especially marketing efforts just by one, the first purchase that a client does, it might be misleading because if you are really good at retaining clients, they will continue to purchase for you over their lifetime, right? So it's great for E Commerce, especially for low volume products or high volume products, Sorry. Imagine for example Starbucks. That's an example that I use very frequently. The value of a client for Starbucks is not the first cup of coffee that they buy, right? It is the amount of products that they will buy over their lifetime with Starbucks. And so if you measure it that way, then you will discover that customer retention initiatives will increase that lifetime value. And it's a great metric to use for, for your efforts. And finally, one that is less direct and I will consider negative in some aspects is churn rate, right? Which is kind of the inverse of the customer retention rate. Because here is the percentage of customers that you lose over time. It's very useful in SaaS. And just like other metrics, the way that you Use it. Is that as a way of efficiency? Because if your cost of acquisition is very high and you have a very high churn rate, then you run into this problem of having to replenish those clients in a very fast way to just keep up with the churn rate. Very similar to what happened with email marketing list, right? If you don't add enough new emails and you keep losing them because your content is not relevant, then that list is not sustainable because it will not grow. So the Same happened for SaaS products if they have that bad relationship. So churn rate is a metric that is used on SaaS quite often. So those are three potential ones. You can go around and look for more, but I will start there. Now, obviously now that you have, you know, you have a clear understanding of. Yes, I understand that customer retention is important. I understand why I have selected a metric that matters to me, right? Either customer retention or churn rate or lifetime value. What are the things that I can do to improve customer retention? And in a similar way here, there are tons of things that you can do. There are many, many things that you can do to improve. I have selected a handful of them that I think are especially important important for B2B clients. But obviously you can search and look for additional ideas. But here are the ones that I think are Most valuable for B2B clients. The first one is setting expectations early and often, right? So I see it, especially in the work that we do as an agency is really, really important that you set the expectations of the engagement right from the beginning and that you communicate them very clearly. So the clients, you know, know what to expect. Sometimes the problem is not necessarily the quality is that I expected something and then I'm not getting that. And that builds up over time. Right at the beginning of the relationship or the service, the client might be happy because he's excited. But as times go by and they discover that what they have been promised is not what is being delivered, their relationship will go sour. And not all of them will be very vocal. Some will, but some won't directly with you. They might report that to other people within their team or worst with other potential prospects. And that definitely will not be helpful. So setting up those expectations, it's a very good idea to improve that retention. Very related to that one is that you communicate results on a regular basis. Again, I think for B2B, especially for services, this is essential, right? So I don't think there's such a thing as over communication. You can always scale back. If the client tells you so but I will recommend obviously to set up in place a plan that will allow you to set up expectations about how and when and who will communicate with the different points of contact. And it's really, really important that in that communication plan you include not only the point of contact or the buyer, but especially the other stakeholders that might influence the decision to continue that relationship. So that's quite important. Sometimes we neglect people that might be against the product or the service and we pay the consequences with the client not renewing their contracts and losing them. So it's really, really important to include them and have them in the picture with a system that allow communication. Now related to that one is offering, you know, support in multiple channels is very related to communication. So and this is one that is easy to make mistakes because we assign some channels to some activities or client facing activities when we should think of them as all of them being potential for support or for client success. For example, something that I have seen is that maybe you have a support email or a support phone number, but you forget about the fact that maybe the client want to reach out through a form or they want to reach out through a chat conversation or maybe just pick the company number and they just want to ask with someone that is already taking care of them. So you need to think of all potential channels that you might be using right now for marketing or for sales efforts are in theory options for customer success. And it's highly recommended that you build the decision tree that allows you to direct those requests to the customer success team and to the right person that is already taking care of that client. So if you have for example a chat on your website that if someone is already a client, you have connected your CRM so what is in front of them is potentially their account manager, for example, or the same happened with a phone call, right? That you have an option to sending that prospect to customer success and that the person that answers can see the relationship that they have with the client, can see the products and services that they have purchased, can see any tickets or any customer related issues that they might have right now. So they don't fumble around trying to trying to find help. That's something that as customer have I experienced all the time. It looks like one part of the company knows you and cares about you, but the other areas like marketing and sales behave like you are not a client. And that can be very frustrating. So set up that omni channel support or multi channel support for your clients and don't assume that everybody's going to just look for the one that you have designed, right your support email and try to think what will happen if they, if they call us, what will happen if they start a chat conversation or they fill a form. Because some will do right. So very important in that aspect. Now obviously related to once you have those channels implemented and you make that communication issues will arrive right there especially for transactional ones issues will arrive and you will have requests from your prospect, from your clients and and you need to have a fast support and let me make a precision here, I'm using here some information from Zendesk Data. They say that according to their customer experience trend report that they issue on last year 73% of their customers said that PD support resolutions are key to a good customer experience. Now the trick here is that what rather matter the most is that you respond fast even if you cannot solve the problem right away. And I have experienced this myself. Sometimes what I care about the most is that someone can tell me, you know, don't worry, we are taking care of this. And while we are not sure when we will solve it because it's complex, we will get back to you by tomorrow or in two days. So I have a clear expectation of when they are coming back and I get that answer quite a way. So delivering fast support of course is one of the cornerstones of, you know, improving customer retention. And in that aspect speed matters in terms of acknowledging the the problem and giving guidance into when we will touch base again with the client. So they have that information available. Now in theory, if you have all those systems set in place, your main metric like customer retention should improve. But unfortunately customer retention is a lagging metric, right? You will know if you're doing a great job after the fact because you will have all that period to build the information. So that is not great because it's not something that you can action if there's, you know, if you're going in the wrong direction in real time, you need something that allows you a lead indicator that allows you to see in real time how things are going. And the best way to do that if is you consistently collect feedback from your customers. Right? So that will be the one of the final recommendations in terms of improving customer success. Collect feedback, collect it frequently if you need to, or as frequent as it makes sense. Very similar here for B2C where there's a lot of transactions or for services where you have a lot of interactions based on ticket, it makes sense to collect that feedback every time that you have an interaction or for more High end products and services where maybe their relationship need to, you know, you need some time to build that feedback. It will make more sense to maybe ask about it every month or at the end of a milestone or every quarter if it's a long term relationship. What matters if you have consistency, that you have a program in place. So here's where your NPS or your I forgot the name of the other one where you pretty much use faces to say I'm happy or sad about the service and you can get feedback will make sense, right? So define the rules and ask about them and have in place something to act depending on their answer, right? That's the real time portion of it. If you have the opportunity to look at that and the happy ones, you want to know what we are doing? Great. That's a potential source for testimonials. As I was saying before. And for the ones that are not happy, we want to understand why and what we can do about it so we can retain them, right? Have an opportunity to change whatever we're doing bad, retain them and improve that lagging indicator that we have on top, which is the retention rate. So consistently feedback. And finally another great recommendation is that there are going to be instances where the client want help, but not certainly from, you know, from the customer support. They might be willing to take that issue on their own hands. So if you offer great content for both educating the client on how they can take advantage of the products or services, how if you build a community around it, that will be a great source of satisfaction and it will reduce the amount of people that you need on support and it will allow you also to, you know, answer common questions and, and provide other ways of giving them support. If for whatever reason they, they don't solve the problem there, they can just scale up and ask your support channel. So educating your customer and offering great content is an excellent way to, to provide support at the first level and usually also will impact your marketing to some extent because if that content is indexed and you offer solutions not just on your products or service, but in the general issues that your clients faces that will index on search console, you know, on search engines and will improve your SEO for sure. So that's another idea. So there you have it. Those are all the points that I have for today. A kind of like a summary of what we have discussed today. We said customer retention is important because it feeds your demand generation programs back like in a flywheel at the end. And the reason is because it's more effective to retain customers than acquiring ones. So that's one of the biggest reasons I highly recommend that you pick at least one lead indicator, one that you will consider your main metric. We talked about retention rate and lifetime value and churn rate and that you implement some strategies like managing expectations, communicating regularly with your prospects and sorry, your clients, delivering fast support, getting feedback from them, collecting feedback in the form of customer service as soon as you know as frequent as necessary, offering a multi channel support and finally educating them on your on your products and services with great content. So I hope you have find this episode helpful. Stay tuned for next episodes. We usually update those on all the channels where Demand gen Studio is available. It has been a pleasure. I hope you have a great day and until the next time, thank you.