Your most valuable kinds of customers are the ones you keep. Your most dangerous customers are the ones you lose.

It’s been proven time and time again: customer retention is the simplest, most affordable way to drive profit. It’s cheaper than acquiring new customers, it increases average customer lifetime value, and it creates more brand “evangelists” who spread the good word about your business.

On the other side of the coin, losing customers is incredibly bad for business. 52% of the time, unsatisfied customers talk smack about businesses that wrong them.

Source: BuildFire

So, it’s fair to say that customer retention is exceedingly important. Simply put, customer retention is keeping your customers active after their first purchase. Depending on your business model and average buying cycle, this can look like anything from a purchase every day (think Starbuck) or a purchase every few years (like Toyota).

The short of it: as long as the customer keeps coming back, they are retained.

But how do you retain customers? Since we’re all about the data here, let’s break down five straightforward ways you can use sales analytics to increase your customer retention rate and decrease the dreaded churn.

Measure Churn Rate So You Know What’s Up

Churn rate is the percentage of customers you lose overtime--or the exact opposite of customer retention. It seems pretty obvious, but truthfully, very few businesses run the calculations to know what percentage of customers are lost in each sales period.

To calculate your churn rate, you first need to define what churn means for your business. At what point is a customer “lost”? There are two common points:

  • When they cancel their subscription, membership, or service
  • When their subscription, membership, or service ends and they don’t renew

It’s important to note that when a customer cancels or lets their service lapse, all hope isn’t lost. You should have systems in place to try to win them back by either correcting what made them cancel or reminding them to renew.

But, assuming you’ve done everything you can and the customer is indeed lost, here is how you calculate churn rate:

Number of Customers Lost / Total Number of Customers x 100

Since you don’t want new customers to hide the number of customers you may have lost, calculate the total number of customers at the beginning of a time period and calculate the number of customers lost at the end.

For example, if you start a sales period with 96 customers and lose 5, your calculation would look like this:

5 / 96 x 100 = 5.2%

To know if your efforts to retain customers are working, you first need to establish your baseline. Calculate your churn rate to get that starting point and work to improve from there.

1. Identify Customers With One Foot Out the Door

Customers--especially customers who have been with you for a while--don’t usually drop your business out of nowhere. Almost always, there will be warning signs that a customer has one foot out the door long before they hit that “cancel” button. The thing is, you need to have systems in place to track and identify those red flags.

By tracking your customers' journey with CRM software, you can identify the trends of what makes a customer more likely to cancel overtime. This is called predictive analytics. And once you know what to look for, you can put interventions into place to try to get the customer back on track.

For example, the chart below represents how a telecom provider assesses churn risk factors with their new subscribers.

Source: Pointillist

As you can see, this business has identified that billing problems, service outages, and requests for call center help (the red circles) all increase the likelihood that a customer will ultimately cancel their service. Fortunately, they also found that customer care outreach (the green circle) makes a big impact in getting customers to stay on board.

To create your own flow chart, you’ll first need a statistically significant amount of data. You’ll need to use your CRM software to look at each customer that has churned and identify what they have in common. Are most churned customers ordering a specific package? Calling customer service? Reporting errors? You’ll never know what the problem is until you look.

This is a lot of data to juggle, but the good news is that machine learning methods can help you create these predictive models. It can get super technical really quickly, but this is an excellent resource if you’re interested in learning more.

Once you find out what’s making customers go, you can use the same process to discover what encourages customers to stay on board.

2. Make Customers Feel Heard and Remembered

Usually, when we talk sales analytics, we’re talking about using math behind the scenes to calculate what’s working and what’s not working in our business. But because of the nature of sales analytics, we’re also keeping a detailed log of our customers’ experiences.

Use that record to your advantage.

Instead of just giving your sales analytics to your marketing and sales teams, involve your customer service team as well. That way, when a customer reaches out with a question, comment, or concern, your representatives can respond in a way that treats the customer as an individual.

For example, imagine that you ordered 500 parts and, much to your dismay, received the wrong ones. This isn’t the first time this has happened. You call customer service to get it straightened out and instead of throwing you from person to person, the customer service representative acknowledges (without you pointing it out) that this isn’t the first time you’ve had a problem and offers a free upgrade that similar accounts to you often purchase.

Fun fact: You will see significantly better customer satisfaction if you offer compensation and apologize!

Source: BuildFire

I don’t know about you, but I would be much more likely to stay with a company after that. Fortunately (and unfortunately), the bar for customer service is exceedingly low, so if you’re able to go one extra step for your customers, your customer satisfaction will go through the roof.

3. Reward Your Ideal Customers with Status

To keep your best customers coming back for more, reward them with a special title or tier. Not only does giving your customers a cool “status” increase their likelihood to stay around--it also boosts their customer lifetime value (CLV).

So, how do you decide where to put the incentives? Well, in every business, you’ll have certain “tipping points” where customers go from good to great--and great to excellent.

Using segmentation, separate out your customers into different groups based on their value to your business. It could be dollars spent, items ordered, transactions completed, or whatever other indicators you find to be most revealing. For example, if you find that customers who order more than five times have much higher CLV, then make that a segment.

Once you establish these segments, create special rewards to nudge customers from one segment to the next. For example, check out Uber’s rewards program that they rolled out earlier in 2019.

Source: TechCrunch

These categories encourage customers who are on the cusp to spend just a bit more to get a better VIP status, a cooler title, and more perks. But let’s be real: the perks aren’t all that great. It’s not like you get to Uber around for free. It’s the status that’s the real prize.

A fascinating psychological phenomenon to note, though, is that customers only seem to care about their title or tier if they know that there’s an option below them. For example, Uber’s Gold status would be less desirable if it weren’t for the freebie Blue beneath it.

4. Run A/B Tests to See What Works

Predictive analytics only go so far. At some point, the rubber needs to hit the road--you need to put those predictions to the test. And what better way to find out if something actually works than with A/B tests?

Generally, changing something is risky. It’s not advisable to wake up one morning and decide that most customers don’t like X offering so you’re going to replace it. You might be right . . . but you might be terribly, terribly wrong.

Testing something, on the other hand, is smart. Why do you think Burger King tested its fancy new vegan burger in 59 Saint Louis restaurants before rolling it out nationwide?

Any of the points discussed in this article so far can be rolled out in an A/B test. For example, you can launch a Beta loyalty program and only initially offer a small subsection of “good” customers expensive perks. That way, you can be sure the program is profitable before you implement it on a larger scale.

Customers are always going to be more offended when they lose something than when they never get it in the first place. Phase new processes or offerings in slowly and methodically so they don’t backfire and end up driving down customer satisfaction rates.

To return to the vegan Whopper example, imagine if Burger King initially released it nationwide . . . and determined it wasn’t profitable, so they took it back off the menu. Now, instead of making customers happy, they’ve disappointed customers nationwide and risk losing them as customers altogether.

5. Keep an Eye on Your Customer Service KPI

While 9 times out of 10 you want to test, test, test, some decisions are just common sense. And when it comes to customer retention, these KPI (Key Performance Indicators) have been proven over and over again to be essential for “good business.”

Response Time

How long does a customer wait between when they reach out and when they hear back from a representative? Typically we think about response time as it relates to new potential customers, but it’s important for returning ones as well.

Whether they have a problem that needs addressing or a new order that needs placing, customers don’t like to be kept waiting. And, it’s important to note that what customers consider “fast enough” is often vastly different than what businesses consider “fast enough.”

Source: SproutSocial

It’s also important to note that response time should be tracked across all communication methods your business uses--phone calls, email, live chat, social media, etc.

Customer Engagement

Your business is putting tons of effort into building a connection with your audience. But is it successful? Are your customers responding?

By tracking things like email open rate, click-through rate, conversion rate on upsells, responses to requests for feedback, and more, you’ll gain a better understanding of if your customers are actually connecting with the materials you’re putting out into the world.

Another key thing to consider here is engagement differences across devices. Are you getting a much higher email response rate on desktop than on mobile? Maybe your emails aren’t as responsive as you thought.

Conclusion

At the end of the day, retaining customers and reducing customer churn is all about keeping people happy. By paying attention to sales analytics and using data to inform your decision, you can make more intelligent decisions that make your customers feel valued and save you time and money in the process.

Have you found sales analytics to be helpful in customer retention? Do you love a strategy we left out? Share it with us in the comments.