7 Deadly Sins of Customer Retention
Managing your customer retention rate is an incredibly important part of growing a sustainable business. There’s no better feeling than acquiring a new customer. On the other hand, there’s no worse feeling than watching the customers you worked so hard to acquire switch to your competitor.
Many businesses take the wrong approach to growth, focusing entirely on acquisition while ignoring the number of customers they lose on a monthly basis. When they do start to focus on customer retention, they view it not as a priority, but as a secondary focus behind acquiring new customers.
In short, they’re often guilty of the seven deadly sins of customer retention. If your startup is just beginning to focus on retaining customers, use the seven sins below as an example of what not to do:
Overpromising and underdelivering
Does your website oversell your product? It’s not uncommon for products – particularly SaaS products and direct response offers – to overemphasize their benefits in an effort to squeeze every last conversion out of the traffic they receive.
It’s very tempting to promise the world in your copy, especially in a crowded market where the smallest of advantages can set your product apart from others. But if you don’t deliver on your promises, you’ll quickly find your startup losing customers.
Conversion optimization is an essential aspect of any startup’s acquisition process, but it should never result in your landing page or website creating an impression that’s different from reality.
Take the hustler approach to talk versus work, as displayed in Joey Roth’s famous poster. When you make promises, you must deliver. Fail to live up to expectations and you’ll lose customers at an even faster rate than you acquire them.
Automating every aspect of your customer service
Automation is an important part of any online business. Automating repetitive processes saves time, reduces costs and lets you focus your time on the 20% of your business that requires 80% of the human attention.
Part of that 20% is customer service. Customers are people, and people ultimately want to talk to other people when they have problems, suggestions, and questions. FAQs and an automated chat system can save time and reduce costs, but they can also severely hurt your customer retention rate.
- 75% of respondents complained that they couldn’t reach a real person via phone.
- 68% complained that the company they wanted to reach didn’t provide a customer service phone number.
- 61% complained about poorly configured and ineffective voice recognition systems.
There is a time and place for automation, and that place – for the most part – isn’t your customer service department. Instead of automated chat and a FAQs page, offer a direct phone number, a real live chat representative and an email address that’s monitored frequently.
Failing to keep up with your competitors
Your product might be the best in its category now, but if you have competitors, they will most likely be working on offering something better. Take your leading market position for granted and you could soon find yourself losing customers to a more motivated and ambitious competitor.
Customers don’t just buy your product because it’s good – many will buy it because it’s the best in its category. It could offer the best value for money, the best overall quality, or the best mix of the two.
Slip into second place and you may notice customers defecting to a competitor, especially if the process of moving is quick and simple.
Regardless of the way in which your product is the best in its category, staying there requires a constant attention to what your competitors are offering. Instead of resting on your laurels, pay attention to your competitors and make it a priority to always be one step ahead.
Here are a few tips on how to stay ahead of your competition:
- Know your competitors – identifying your competitors’ strength can give you an idea of what areas you need to improve in order to stay competitive.
- Understand your customers – Be aware of your target audience, their needs, and expectations.
- Hold on to existing customers – Nurturing your customers increases your profits as they are more likely to continue buying from you and recommend you to their friends.
Viewing every customer as a replaceable profit opportunity
As the owner of a product-based business, one of the biggest customer retention mistakes you can make is adopting the mentality that every customer needs to be profitable, especially in the short term.
From time to time, customers will feel disappointed or upset with your product. It may not be an ideal fit for their needs, or they may have had unrealistic expectations before purchasing. Focus entirely on the short term and it’s tempting to view these customers as expendable.
Sometimes, retaining a customer means sacrificing profitability this month and paying closer attention to their potential lifetime value. If you sell a physical product, this could mean overdelivering on customer service by sending a free replacement, complete with a bonus to say “sorry.”
If you offer a non-tangible product, it could mean waiving customer’s bill for the month. Think long term when responding to an unhappy customer and you’ll turn detractors into promoters — think short term and you’ll develop the reputation of a brand that puts its profits first.
Doing things manually when automation is possible
Offering personal service to every customer is a great way to gain a reputation of a brand that cares, but it can become extremely costly. Instead of doing everything manually, split tasks into two categories:
- Tasks that are directly related to customer interaction, such as phone or chat support
- Tasks that are indirectly related to customer interaction, such as surveying customers and sending notification emails
The first category is where personal interaction is really valued. Customers will always choose to talk to a real person over a computer, but they’re less concerned about whether their emails and notifications are created manually or automated.
Automate strategically and you’ll reduce the cost of delivering great service to customers, letting you do more with less. Do everything manually and you could find yourself overwhelmed by the sheer volume of customer support tasks your team needs to complete.
Discounting your offer to improve customer retention
It’s a disappointing situation: a once loyal, satisfied customer contacts you asking to cancel. It’s also one that every business, no matter how successful it is at customer retention, eventually needs to deal with.
When a customer contacts you asking to cancel, it’s tempting to offer a discount in an effort to retain their business. Doing so often works, but it also has several negative effects:
- The customer could view the months in which they paid full price for your product as a missed opportunity to get a discount.
- Your product’s value weakens in the eyes of the customer.
- Instead of competing on quality, you begin to compete on price, making your product a commodity instead of a unique offering.
- Since the customer starts to pay less, your margin decreases.
There are times when discounts make sense. Preventing cancellations is sometimes one of them. All you need to do is be aware of the negative effects of discounting and the long-term effects it could have on the way customers perceive your product.
Marketing to the wrong audience
When you acquire the wrong customers, it’s only natural that most of them will leave. Many startups make the mistake of focusing on cheap customer acquisition at all costs and target audiences that aren’t ideal customers.
For example, pretend you offer a SaaS product aimed at enterprise customers and mid-sized businesses. Is it better for you to reach out to big companies, albeit at a significant cost, or to advertise to small businesses and freelancers?
Cheap customer acquisition often leads to poor customer retention. Use customer profiling to ensure you’re marketing to the right audience and businesses with a need for your product and the means to continue paying for it over the long term.
These four hacks will help you define your target market:
- Look at your current customer base – Find common characteristics of your customers. How old are they? Are they married? What is their income?
- Look at your competition – Who are your competitors targeting? Maybe you should target the same market or maybe there’s a niche market that they have overlooked.
- Brainstorm about your product/service – who will gain from the value in your offer? Think of a problem that your product or service can solve, then use that to determine who will be willing to pay for the solution.
- Evaluate – Look at what else is available in the market and think of what is so unique about the way your product/service solves the problem. If you can’t answer these questions – wrong target market or offering.
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