NPS, Lifetime Value, Churn: Are You Using the Right Customer Retention Metrics?
March 7, 2016
Your native ad captured a casual browser’s attention. They followed the ad to your blog, where they read an amazing post that addressed a pain point. Then they downloaded your eBook, entered your nurture campaign, and ultimately ended up buying your solution. Congratulations! Your work here is done. High fives all around.
Okay, in reality no sophisticated marketer would consider a purchase to be the end of the buyer’s journey. Depending on who you ask, it can cost between three and 30 times more to acquire a new customer than to retain a current one.
Even though marketers know the value of existing customers, it’s easy to overlook customer metrics in your day-to-day marketing efforts. Sales and upper management tend to focus on new business, which pulls marketing’s attention away from customer retention.
We know that established customers are just as relevant to revenue as the rest of the funnel. To really round out your full funnel marketing efforts, it’s important to track, analyze, and improve your customer metrics. Use the following metrics to understand and deepen your customer relationships.
Net Promoter Score
Customer satisfaction is the one metric that informs all the others on this list. Net promoter score (NPS) is a way to measure customer satisfaction in no-nonsense, absolute terms. It provides a baseline for the health of your customer retention program.
To measure your NPS, ask your customers one question: “On a scale of one to ten, how likely would you be to recommend [our brand] to someone else?” Those who respond with a nine or a ten are considered Promoters—loyal customers who will provide repeat business and referrals. Sevens and eights are Passive. They’re satisfied customers, but not enthusiastic, and they are just as likely to go with a competitor next time. Anyone under seven is considered a Detractor, an unhappy customer who can actively damage your brand.
To get your NPS, subtract the percentage of Detractors from the percentage of Promoters. Then check back with new and existing customers over time to keep the NPS current.
At first glance, upselling can seem like an underhanded tactic. You lure the customer in with an offer, then attempt to sell add-ons they haven’t asked for. Upselling can be a customer retention tool, though, when it involves selling the customer on a solution that better fits their needs.
Marketers can support upselling with content that educates existing customers, and by soliciting feedback to more intelligently recommend additional services. The results can be tracked in additional revenue and the impact on your NPS.
Like upselling, cross-selling can be seen as a shady tactic, but it has the potential to improve the customer experience. If you know your software solution performs better with other products from your company’s line, it makes sense to recommend them. As long as the goal is the best solution for the customer, cross-selling boosts revenue and can increase your NPS.
Usually expressed as a percentage, churn is the number of customers who leave over a specified period of time. Churn is easy to measure for subscription services like SaaS—it’s just the percentage of canceled subscriptions. For non-subscription models, it’s harder to track, but not impossible. Keep track of customers who drop off your mailing list, stop interacting with the brand, or purchase a competitor’s product.
Churn rate is tied closely to your NPS—Promoters rarely churn, while Neutrals and Detractors are more likely to jump ship.
The opposing force for churn is your win-back rate: The number of previous customers you can reactivate with a targeted marketing effort. Compared to cross-selling and upselling, marketers have a higher level of control over the win-back rate. While the right marketing materials can influence cross and upselling, win-back depends on direct, active marketing involvement. Think of it as extremely lower-funnel lead nurturing.
All of the above metrics tie into a master metric that can guide marketing budget allocation. Lifetime value is a projection of the revenue that a customer will generate during their lifetime (note this means their lifetime as a customer, not their expected lifespan on the planet). For subscription-based services, this is a simple calculation of average length of subscription X monthly cost of subscription.
KISSmetrics produced this infographic with a good explanation of how to calculate lifetime value for less predictable services.
As you develop your full funnel marketing strategy, it’s important not to neglect the very bottom of the funnel—that semi-circular piece that directs existing customers back into the middle and lower funnel. Track and analyze the metrics in this article and you can continue to improve your customers’ lives, and deepen their connections with your brand.
For more expert advice on the metrics that matter, read The Sophisticated Marketer’s Crash Course in Metrics & Analytics.
Photo: Death to Stock Photo