Introduction
The true health of any business is closely related to how well it acquires and retains customers. The metrics for these two functions will tell you much more about the long-term outlook of the company than a yearly financial filing. This truth has extra significance for online businesses, especially those with recurring revenue business models. This guide will discuss the best practices that are most effective in helping online merchants optimize their customer retention strategy.
Customer retention, simply defined, is the ability for a company to keep its existing customers. It is the measure of a company’s ability to provide enough value with its products or services for customers to keep them coming back for more. The critical metric to measure customer retention for merchants with recurring revenue is Average Customer Lifetime Value (ACLV). ACLV is the product of the customer duration and the average recurring charge. For example, a $15 monthly charge and an average customer lifetime of 20 months results in an ACLV of $300.
The flip side of customer retention is to analyze how and why customers are leaving. You need to fully understand the exit paths that customers may take and develop a strategy to address each one. We will discuss approaches for opt-outs, cancellations, customer service refunds, failed payment methods and chargebacks in more detail.
The main purpose of this guide is to provide advice for how to improve processes. However, improving the processes alone is often not enough. Merchants should embrace an approach of continuous improvement to be truly successful. In addition, merchants need to understand their customers’ behavior and demographics. Knowing as much as possible about your customers, how they use your service or product, how they interact with one another and with your company, will provide key insights to understanding the best way to retain them.
One of the simplest ways to determine why customers are leaving is to work with your customer service department to identify the top five support issues. The most common issues should be addressed with specific retention offers, used by customer service representatives and also incorporated into the website and self-support. As would be expected, the top reasons are always a moving target and require constant adjustment based on the most recent data.
In addition to continuously improving support issues, it is necessary to communicate to your customers about the changes and enhancements that have been made to your products and services and highlight the value you provide. By communicating new features, content and improvements through email and across your website, customers are more likely to see continued value in your products and stay longer.
The last point to consider before diving into more detail is the security of Personably Identifiable Information (PII). For merchants with recurring billing models, data security is even more important as storage of the customer’s payment information is required along with their name and address. Privacy standards have been enacted across the globe to regulate handling PII, but the major credit card companies have established additional requirements for uniform protection around this sensitive information, resulting in the PCI Security Standards Council Data Security Standard (PCI DSS). While this standard is a mandate and may appear burdensome initially, there are longer term benefits to online merchants. Once customers know that a merchant is taking all possible precautions and has implemented strict security standards, they are more likely to feel comfortable doing business with you, both initially and on subsequent visits. To this end, merchants should make it clear that they have achieved compliance and are taking extra steps to protect their customers. With this in mind, the PCI DSS should be considered a baseline to build upon for true data security.
This guide will discuss best practices around these issues and outline specific actions that can help a merchant increase their customer retention. To that end, we will talk about how to measure retention and action plans for the most common exit paths. Later, we will discuss some strategies for handling friendly fraud chargebacks and how pricing discrimination can be leveraged to keep customers engaged longer. Lastly, we summarize and highlight customer successes on the Vindicia CashBox™ platform.
