One thing you'll learn when running customer lifetime value analysis is that the churn or attrition rate of a given cohort starts out very high and gets lower over time.
This isn't because the customers in the cohort are growing more loyal, but is because once the short-term customers leave, all that are left are the loyal, long-term customers.
Don't waste money retaining sticky customers
Of course it's important to engage these sticky customers and find ways to develop their value - but one costly mistake companies make is spending an equal amount of money on retention efforts for all of their customers, including the sticky (loyal) ones.
For instance, an eCommerce retailer might send discount offers indiscriminately targeting anyone on their customer list. This cannibalizes money they would have earned anyway from their most loyal, sticky customers. Sending 20% off to a frequent customer who is 99% likely to return just means you get -20% revenue from that customer's next purchase with next to no benefit to you. Efforts like these should be targeted to customers in the acquisition phase or those who you haven't seen in a while.
Other costly efforts like strategic account management or boosted loyalty rewards may similarly yield a net negative revenue for those customers who aren't going anywhere anyway.
Instead, find more sticky customers
If you're saving money by not going out of your way to retain already-sticky customers, you'll have resources to put into a much higher-leverage effort: finding more sticky customers!
Below are five proven strategies for increasing your bench of the best customers (those who value your service, want to tell others about it, and keep coming back for more).
1. Referral program
An often overlooked method for finding more great customers is simple: ask your great customers to spread the word.
Many of the traits that make your best customers so loyal will be shared by those they know - friends, coworkers, etc. They'll share similar pain points and value similar solutions.
Not convinced? Try a test first. Select the top 1% of your customers by customer lifetime value and offer them a deal: give a friend a discount off their next purchase and the existing customer will get a discount too.
You should be willing to spend less than you'll earn from the new customer over their lifetime (discounted to today, as is done with CLV). We recommend adding a safety cushion to give you some room for error. If a new customer is expected to give you $1,000 in profit over their lifetime, offer them $100 off via your existing customer's discount code, and give your existing customer $100 off as a reward and motivator to continue referring. That's hard to pass up!
By running this test, you'll see if the effective -10% discount for two of your customers is worth it. Are the referred customers sticking around long enough to give you a positive ROI?
2. Lookalike modeling
Many digital advertising channels including Google, Meta, etc. offer "lookalike" functionality, where you can upload a list of your top customers, and the company will spend your ad money targeting customers who look like your original list. This is a good way of leveraging the analytical capabilities of these firms without needing to build your own complicated lookalike models.
As always, be wary of the metrics they give back to you and do your own ROI analysis of the new customers you acquire through this method.
3. Leaving reviews or testimonials
Encourage your best customers to leave reviews or provide testimonials for other best customers to find you.
Having a well-written testimonial page is powerful because it provides social proof for customers who are on the fence about using your product. If the testimonial includes the customer's before and after showing clear improvement from using your product, and details on why they sought you out in the first place, even better and more compelling for the prospective customer.
Online reviews serve a similar function, where high-value customers (and mid-to-low value customers) have an on-ramp to your business. Make sure to reach out and ask customers for their review of their service if they were very satisfied (and if not, ask how you can make it better).
4. Research current customers
Where did you acquire your current best customers? What products do they use and how? What specific pains did they have that you solved? What other communities might these customers "live" in where you could do some outreach?
Make sure you're making ample use of your in-house data on your customers. A little bit of data-mining and analysis can go a long way, especially if you haven't done it before.
5. Research discussions about your competitors
One great way to find valuable new customers is to pay attention to discussions - usually online - where customers of your competitors are unhappy or unsatisfied. You may even find situations where a competitor is being discontinued or going out of business, and have an opportunity to onboard their old customers.
One great recent example of this was Intuit's announcement that their budgeting app Mint is being discontinued. Unhappy customers took to the web to discover what alternative services existed. The team at Monarch took full advantage of their competitor's misfortune by creating marketing collateral specifically targeted to these lost customers.
You're ready to go!
I hope this post gave you new ideas how to fill your pipeline with more great customers, while making sure to not overspend on retaining existing ones. Try it out and reach out to let us know how it went!
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