- The Benefits of Customer Retention Analysis
- How to Run a Customer Retention Analysis
- Alliance Virtual Offices’ Role in Supporting Customer Retention
Q: What is customer retention analysis?
A: Customer retention analysis involves examining and understanding the factors that influence a company’s ability to retain its existing customers, including behaviors, preferences, and patterns of repeat purchasing, to improve retention strategies. This article explains how you can run a customer analysis in detail.
Suppose you are running a well-established business that just launched a new product line or a startup diving into the market with an innovative app.
On Launch Day #1, over 500,000 leads clicked on and viewed your products, and approximately 100,000 completed the signup process to become fully registered and active users. A similar trend continued all through the first three to four weeks.
The numbers are satisfactory, and you predict to have 3 million active users by the year’s end! Six months in, you have over 1 million registered users, but barely 10,000 are active users—and the numbers seem to be dwindling by the day.
You are bewildered.
What’s with the high churn rate? Why are your customers losing interest so fast? What’s making the active users stay? What do you need to improve? What do you need to throw away? You have so many questions, but the answers are not immediately evident.
Customer retention analysis has the answers to your questions.
Customer retention analysis, also known as survival analysis, is a key business growth strategy that involves analyzing key user metrics to understand the how and whys of factors influencing customer retention and churn.
A comprehensive customer retention analysis takes you through the acquisition, activation, retention, and advocacy/referral phases of your customer’s journey. It reveals where your customers are dropping off the most and the key factors behind the churn.
Forward-thinking businesses leverage the competitive advantage of comprehensive retention analyses and Alliance Virtual Offices’ customer support services to grow and sustain their user base, thus ensuring that converted leads are retained and actively engaged.
In this article, we’ll discuss the benefits of customer retention analysis, how to conduct a thorough analysis, and how Alliance Virtual Offices is helping businesses improve customer retention.
Let’s get started.
The Benefits of Customer Retention Analysis
Frequent retention analyses are crucial for businesses that want to thrive in an increasingly digital world driven by an attention economy.
Customer relations and marketing teams are using various innovative tools to deploy a myriad of strategies to get customers’ attention.
However, for those who are unable to conceptualize and implement strategies that lock in customers, all the efforts and resources might as well be flushed down the drain.
At its core, customer retention analysis is all about improving customer experience. According to a Harvard Business Review Analytics Services survey, 93% of business leaders regard this factor as highly or extremely important to their organization’s success.
Hence, it is important to reiterate the benefits of retention analytics in team meetings, push for it when due, and ensure that the process is thorough.
Here, we’ll be taking a comprehensive look at the benefits from a three-point perspective.
1. Detailed Understanding of Customer Behaviors
Businesses often map their product’s journey with preliminary customer surveys. However, it’s customers’ experience and interaction with the products/services post-launch that inform how businesses fine-tune their products and campaigns to be of better fit and value to their target consumers.
- Retention analyses that focus on useful metrics addressing customers’ attitudes toward given products, services, processes, or overall company affairs expose critical user needs and pain points.
- You learn to accurately define your loyal customers’ personas, determine what keeps them ticking, and channel your customer engagement efforts aptly.
- A thorough analysis reveals more detailed and nuanced insights into how customers perceive your products and services across different touchpoints.
- When done well, retention analysis can disclose the differences in needs across demographics.
You might learn that your customers churn the most at checkout because you lack a reliable payment gateway.
Or, it could be that most drop-offs happen after interactions with your customer services reps because they are not sufficiently prepared to attend to customer inquiries.
Whatever the outcome, the retention analysis results serve as pointers for businesses to gain a more realistic understanding of their target customer behavior.
Subsequently, businesses can improve their products and services to drive impeccable customer satisfaction and instill customer loyalty beyond what’s ordinarily obtainable from preliminary surveys.
2. Cost Savings and Increased Profitability
We are all too familiar with the notion that it is often better to retain an old employee, as hiring new employees is significantly costlier. That’s also the case in customer relationship management, but it’s never said enough!
It is 5X more cost-effective to retain an existing customer than to acquire new customers. Therefore, customer retention analysis is your gateway to crafting suitable retention rate improvement strategies that ensure significant cost savings.
For context, when compared to new customers:
- Existing customers who already interact with some of your products are more likely to spend more money on your other/newer products.
- Existing customers are more likely to become your brand advocates and spread the good news about your business through word-of-mouth, online reviews, and referrals.
- Existing customers are more likely to quickly adapt to changes in your business processes and provide feedback on avenues for improvement.
From the context above, you can see how retaining active customers can help boost your user base and cut costs for new customer acquisition.
Moreover, a high customer retention rate positions your user base to be more self-sustaining, laying a solid foundation for long-term profitability.
Note that the point is not to abandon new acquisition attempts but to reduce the churn rate among existing users instead of focusing on attempts to replace them.
Retention analysis reveals why active users are suddenly churning and provides insights on what you can do to re-engage and retain them.
3. Personalized Customer Experience
This point links back to point #1. A comprehensive client satisfaction analysis highlights the prevailing pain points, needs, and motivations of real users.
The marketing and customer relationship management teams can further aggregate the analysis’s outcomes to surface trends and patterns in certain customer categories.
- What are the attributes of those who start but never finish the onboarding process?
Why are they leaving?
- What stops those who complete the onboarding process from engaging further?
Are the products or services not to their expectation?
Are the steps to action not clear enough?
- What demographic of the user base spends the most? Say, pay for the premium subscription.
What are their motivations?
By extracting these and similar data, the customer-facing teams can refine their approach to offer a more personalized customer experience. That could mean:
- Customizing different marketing campaigns to target different customer segments.
- Adopting a customer service approach that ensures all customer inquiries are duly and aptly addressed in a manner that the target users expect. This could also mean offering self-service support options.
- Overhauling the prevailing user experience to better suit the taste of the engaged customer. Refining how you nudge users to explore your offers.
- Creating incentives or reward programs that customers can tap into right after onboarding.
Acknowledging these benefits and taking the necessary steps to tap into them puts your business on track to record a higher retention rate.
Given that customer behaviors change with trends, it is a good idea to run retention analyses monthly, quarterly, semiannually, or annually.
Now, the question is: how do you run a comprehensive customer retention analysis?
How to Run a Customer Retention Analysis
Defining the relevant variables is the first step to running a customer retention analysis. How do you define your active users?
Traditionally:
- An active customer or user is a customer who constantly engages with and pays for your product or service offerings.
- An inactive user is a customer who may have engaged with certain points of your offers but has now ceased all engagements.
Suppose you are running a SaaS business; you could decide to categorize your active users into three groups:
- Those who have locked in with annual subscriptions
- Those who constantly opt for monthly subscriptions
- Those who come in every now and then for one-month subscriptions
Therefore, part of your goals for the analysis could be to find what motivates the last two groups and how you can bump them up the ladder.
How you define your active users may vary depending on the nature of your business and offers. Having the definition in place is an important first step to measuring the useful metrics during the analysis.
It is also necessary for mapping the user journeys of various user personas, cohorts, or segments.
Calculating Customer Retention Rate and Customer Churn
According to Forbes Advisor, the customer retention rate is generally calculated thus:
CRR = ((E-N)/S) x 100
Where:
E = the number of active customers at the end of the given period.
N = the number of new customers onboarded during the given period.
S = the number of active customers at the start of the given period.
Suppose you are running a new insurance business. You started off in January with 15 clients. Between January and March, you onboarded 8 new clients but ended up with 19 clients by March end.
Your CRR would be:
CRR = ((19-8)/15) x 100
CRR = (11/15) x 100
CRR = 73.33%
Most businesses aim for CRR within the 90% limit.
There are two equations for calculating customer churn:
- CC = (C/S) x 100
Where C = the number of churned customers within the given period.
S = The number of customers at the start of the given period.
- CC = 100 – CRR
Using Equation #2 to calculate CC for the previous example, we have:
CC = 100 – 73.33
CC = 26.67%
Using Equation #1 to calculate for the example at the start of this article, we have:
CC = (100,000-10,000/100,000) x 100
CC = (90,000/100,000) x 100
CC = 90%
Besides these traditional formulas for calculating customer retention rate and customer retention analysis, there’s a lot more to running an in-depth customer retention analysis.
A thorough analysis will assume a three-point approach:
- Gather relevant data
- Analyze the data
- Utilize the results appropriately
Gathering the Relevant Data
You might have noticed the use of the term “useful metrics” in this article. It is a reference to measuring what matters—relevant retention metrics—and skipping what doesn’t.
In line with the “garbage in, garbage out” concept, if you use vanity metrics (such as clicks, views, downloads, etc.) for your analysis, you may get results that do not reflect the true retention rate.
For more insightful results, you could segment your customers into cohorts and track and analyze the metrics over a given period.
For example, a SaaS company could segment its customers by demographics, personas, subscription plans, user types, etc.
Vital metrics to look out for include:
- Purchase history
Bookkeeping software like QuickBooks can help you to easily track and retrieve customer purchase history within a given timeframe.
Things to look out for in the purchase history include repeat purchase rate and time between purchases.
These metrics help you determine the number of customers that make frequent purchases and how long it takes them to come back, further serving as an indicator of customer satisfaction.
What could you do to make them come back more often?
What are the factors behind the periods with low repeat purchase rates?
What is the order cancellation rate?
How many customers downgraded their subscriptions?
Another metric to check here is the revenue retention rate (or dollar retention), which measures the share of the monthly recurring revenue (MRR) linked to a particular customer segment within a given period.
How is customer retention and churn affecting your revenue?
Lastly, what is your customer lifetime value (the total amount a customer is expected to spend on your business throughout the relationship with it)? How does your customers’ spending behavior compare to it? This metric is also helpful in segmenting your customers based on their potential value.
- Customer feedback
Conducting customer surveys is one way to measure client satisfaction and their likelihood of being repeat customers.
You can request customer feedback via surveys placed at the end of an interaction with a page, product, or service.
These are usually in the form of Likert scale surveys that extract net promoter score (NPS), which measures customer loyalty, satisfaction, and enthusiasm, among others.
In this case, survey questions could be phrased thus:
On a scale of 1-10, how would you rate our service?
I would recommend this product to my friends and relatives: strongly disagree; disagree; maybe;
agree; strongly agree.
With NPS, you can further segment your customers into Promoters, Passives, and Detractors. And apportion retention efforts accordingly.
NPS helps you understand the views and perspectives of your customers or target customers towards your brand or product and what you need to improve for retention.
- Engagement metrics
Engagement rate measures how often your target users interact with your products, services, or content. This metric is best measured in parts by customer cohorts and channels.
It provides detailed insight into how target customers are progressing across their journey map, from acquisition down to the advocacy phase.
Engagement rates could be monitored and gathered at daily or monthly intervals by collecting data for daily active users (DAU) and monthly active users (MAU).
Some SaaS businesses also prefer to track engagement rates weekly to eliminate retention analysis pitfalls due to activity spikes during weekends and promo periods.
From the engagement rate, you can also derive a customer engagement score, which is a summation of the number of times customers engage in an activity that you consider crucial to overall customer value. It is a useful indicator of users’ perception of key activities in your business processes.
Another key customer experience and engagement metric is the customer effort score. This indicates how easily customers interact with your business across various touch points.
Analyzing the Data
There are various tools and programs for visualizing and analyzing engagement and retention data.
- Conversion funnels:
A conversion funnel provides a top-down visualization of customer engagement rate as they move through the acquisition, activation, and retention phases to the advocacy phase of the user journey map.
A typical funnel includes the key activities a customer should engage in as they interact with your services.
It provides a visualization of the engagement, conversion, and retention rate at each touchpoint, showing where customers churn the most. This visual provides clear insights into where more work should be done.
Businesses can build customized funnels by using SQL or Python to code the funnels and then integrate them with Tableau or Google Data Studio for visualization.
Otherwise, you can use funnel analytics tools such as Amplitude or Hotjar.
- Google Analytics
Google Analytics is a free web-based tool that allows businesses to track and measure their customer retention metrics at the customer acquisition phase.
With Google Analytics, you can:
- Analyze your traffic by channels. Where are most of your customers coming from? Paid ads? Organic searches? Referral links? Social media?
- Analyze your customers by region: Determine where most of your customers are from and how you can restructure your campaign to further attract more customers from said location and lock them in.
- Use the conversion value on your Google Analytics to analyze how your pages are contributing to sales. This will help you determine the pages or touchpoints that your customers value and implement measures to optimize them for better retention and returns.
- Analyze your bounce rate: How many of your visitors leave after checking out one page? What is making them leave?
- Analyze historical data to determine which campaign or channel brought in most of your repeat customers.
The great thing about Google Analytics is that it provides these metrics in graphs and numbers and allows you to conduct instant analysis over set timeframes.
- Other Third-Party Customer Relationship Management Tools
For an encompassing and more efficient analysis that covers all stages of your customer’s journey, consider integrating the services of customer relationship management tools such as HubSpot, Salesforce, or UserPilot.
These tools have dedicated functionalities for running automated customer retention analysis on the go.
Hence, conducting streamlined or enterprise-wide retention analysis becomes effortless.
For instance, with UserPilot, you can:
- Generate funnel reports
- Generate customer engagement scores
- Perform retention analysis by cohorts.
All in a no-code, virtual environment that you can navigate with little technical know-how.
Utilizing the Results
Running a retention analysis won’t magically translate to a higher retention rate. You must be willing to utilize the lessons learned to develop optimized business growth strategies that;
- Maximize customer value
- Motivate your customers to stay
- Inspire your loyal customers to spend more and become brand advocates, and
- Compel new customers to look forward to a long-term relationship with your business.
On the surface, all these are goals that could be easily attained. However, it’s also easy to make mistakes and miss the point.
To keep things simple and achieve these goals, you should:
- Monitor, evaluate, and refine your retention and acquisition strategies
Given the patterns and trends observed from the analysis, define relevant metrics and restructure your processes to be more measurable.
That will make it easier for you to observe and adapt to customer behaviors and trends as they change. Also, ensure you have multiple channels for soliciting and responding to feedback.
Recall that we mentioned the need to keep segmenting your customers in cohorts during the analysis.
At this point, you should have a clear visual of the segments that are performing the best. Those are the right customers for you.
Focus on personalizing your strategies to target and satisfy the needs of those customer segments. Save your resources by directing less to segments with low potentials unless a need arises otherwise.
This puts you in a position to substantially maximize your customer value and make your loyal customers feel more appreciated and keener to have a longer business relationship with you.
- Institute a more responsive and helpful customer support service
In 2023, Qualtrics’ Experience Management Institute analyzed World Bank data and concluded that poor customer service could result in losses amounting to $3.7 trillion annually.
Although consumers reported only having a negative customer experience 14% of the time, it was enough reason for 51% of consumers to shun or boycott the businesses in question.
The whole point of customer retention analysis might be null if you do not have an excellent customer support service to back it up.
- Predict churn
Given the results at hand, when is churn most likely to occur? Is it during holidays, weekends, summer, or the end of the trial period?
Whatever the case, you can use reliable predictive models to assess your customers’ behavioral patterns and determine when churn is most likely to occur.
The next step is to develop strategies that effectively reduce customer churn during certain events.
- Offer loyalty programs
Make your loyal customers feel special and valued by offering them discounts, coupons, reward points, or exclusive access to new products or services.
Alliance Virtual Offices’ Role in Supporting Customer Retention
If there is anything we know about today’s industries, it is that the battle for customers’ attention has become fiercer and more competitive. Only those who dare do all they can to give their target customers all the attention they deserve will be rewarded with high CRR.
This is why you do all you can to retain the customers you have locked in instead of attempting to replace them with new ones. It is also why you focus more on the segments that have your most loyal customers.
At Alliance Virtual Offices, we help small businesses and SaaS companies firmly retain their market share in highly competitive spheres while deploying strategies that ensure continued growth.
Drive Excellent Customer Service with Our Live Receptionists
Despite the seeming rise of AI receptionists, people still prefer to chat with a real human, so much so that some countries are making it a legal requirement for companies to guarantee personalized services directly through human operators.
Unfortunately, getting very professional live receptionists is not the easiest nor the cheapest thing to do. And many businesses are losing customers because they are unsuccessfully trying to juggle customer support with other business growth processes.
If you think that’s not you, use this list to quickly rate your business across 10 essential customer support needs.
On a scale of 1-10, what was your score? You are losing lots of customers if you rank below 8.
Our live receptionists are trained and certified professionals with vast experience in personalizing customer interactions and accurately documenting leads and feedback for easy and meaningful utilization.
With us, you can be sure that your customers’ inquiries are adequately addressed and that you have all the insights necessary to develop apt retention strategies.
Enhance Workplace Culture with Our Virtual Offices
Customer retention works where customer-facing teams and managers work. The burden of a successful retention strategy lies on the collective shoulders of all the teams and members working together to build a credible brand image.
How easy will it be for your customers to advance to the point of being your brand advocates and referrers if your employees/team members don’t believe in the brand? Well, that’d be a pretty tough one.
A Gallup survey reveals that only 29% of employees strongly agree that they are proud of the quality of services their organizations offer.
This segment of employees is 2.7 times more likely to feel responsible for the quality of the services and 4.9 times more willing to put in the effort to meet changing customer and market demands.
For most businesses operating remotely, having a physical office may appear too costly and unnecessary. However, there is always a need to build a professional identity that inspires team members to trust the process and the customers to have more confidence in your products and services.
A virtual office allows you to access and enjoy the benefits of having a physical office while enjoying the flexibility of operating remotely.
For starters, you get an authentic office address that you can use to register your business, receive business mail, obtain a business license, and build business credit. You cannot do most of these things with a home or PO Box address.
When client or team meetings or training are needed to reinstate confidence in the business process, a virtual office provides an on-demand workspace.
In Summary: Driving Customer Retention With Alliance Virtual Offices
There is no doubt that customer retention analysis is one of the most indispensable business analysis techniques. A thorough analysis will aptly inform the development and implementation of strategies that lead to a loyal and growing customer base.
However, customer retention strategies can only guarantee business success when there is excellent customer service and a credible brand image to back them up.
Alliance Virtual Offices services, like Live Receptionist and Virtual Office solutions, are helping businesses enhance customer experience, stronger relationships, and customer loyalty by:
- Addressing customer inquiries duly, in a professional and personalized manner
- Giving loyal customers undivided attention, especially during predicted churn periods
- Capturing more leads and documenting insightful customer feedback effortlessly
- Building a credible brand image
- Providing professional customer interactions
- Ensuring efficient business operations
Further reading:
- 10 Signs You Need a Live Receptionist
- Integrating Live Receptionists Into Your Small Business Communication
- Creating a Professional Image: Enhancing Brand Perception with Live Receptionists for Startups
- From Chaos to Control: Process for Small Business Productivity
For example, let’s say you predict that customers often churn after their free trial period or whenever it is time to renew their subscription. Our live receptionists can help with personalized calls that guide your customers toward renewing or upgrading their subscriptions.
Integrating Alliance Virtual Offices’ solutions in your customer retention plans enhances your processes and leads to assured business growth.
