How to Do a Customer Retention Analysis

Customer retention is essential for profit. According to a study from Bain and Company, just a 5% increase in retention rates produced over 25% in profit. Further research finds that 80% of a company’s future profits stems from 20% of its existing customers. Loyal, repeat customers are more likely to spend more than new clients. So how can you ensure you’re retaining customers most effectively? This is where a customer retention analysis can help.

What is a customer retention analysis?

Retention analysis describes the process of analysing metrics related to customer churn. With this type of analysis, a business spots patterns related to churn and turnover. A customer retention analysis example would show:

• Timing of customer churn

• Volume of customer churn

• Reasons for customer churn

• Impact of churn on your profits

• Customer attitudes to the business

Armed with these insights, the business can then make simple changes to improve retention rates.

What goes into a customer retention analysis model?

Before we break down a customer retention analysis into a series of steps, it’s helpful to first understand how the process works. The goal of any customer retention analysis model is to identify how, when, and why your customers decide to leave.

• The when: Is there a certain point in the customer journey where a high percentage drop out? Are there fluctuations in churn rates at certain types of year?

• The why: Through gathering customer feedback, you can gain valuable insight into the causes of churn. You can also use data analysis to identify any behaviours that customers have in common before cancelling services.

• The how: By gathering data and metrics as well as identifying customer patterns, you can then move on to formulating a strategy. How will you go forward with more effective retention strategies?

How to perform a customer retention analysis

Now that we’ve covered some customer retention analysis examples of what goes into this type of model, here’s how to get started, step by step.

Step 1: Calculate customer retention rate.

Look at your sales figures and financial records to find out how many customers are staying in proportion to the number that leave. For a more detailed analysis, you should break down your customers into similar buyer personas orcohorts. In other words, group customers with similar characteristics together and calculate retention rate separately for each of these cohorts.

Step 2: Track behaviour throughout the customer lifecycle.

Starting with customer acquisition, track user behaviour as they progress step by step through the customer lifecycle. This shows how they interact with your business at every stage. Is there a particular stage where customers are more likely to leave? Flag any behaviours that seem to indicate a higher churn risk.

Step 3: Choose and follow retention KPIs.

Bolster your analysis with the most useful engagement metrics. Examples include customer churn rate, customer lifetime value, and customer engagement score. These provide a data-driven measurement of customer engagement and retention that you can follow over time. By tracking specific metrics, you can decide whether new retention strategies are working as intended.

Step 4: Compare long and short-term customers.

What distinguishes the customers who stick with your business for the long haul? Is a specific demographic associated with higher churn rates? Identifying red flags both in terms of behaviour and demographics can help you tweak your strategy.

Step 5: Ask for customer feedback.

Finally, ask your customers for their feedback directly through surveys, particularly when you launch a new product or service. While gathering data behind the scenes is important, sometimes it’s most helpful to simply ask what works – and what doesn’t.

How to improve customer retention

With results from your customer retention analysis in hand, it’s now time to find ways to improve retention rates. You should use the direct feedback and buyer behaviour to fine-tune your marketing efforts. You can also encourage customer loyalty by starting a new rewards program. At times, loyal customers can feel like they’re put on the backburner when businesses focus their efforts on new customer acquisition. Show that the loyalty is appreciated with reward points, free upgrades, or other perks.

Keeping lines of communication open is another simple way to improve customer retention. Build and foster relationships with great customer service. When you ask for feedback, show that you’re listening by implementing it.

Finally, don’t underestimate the importance of an efficient, frictionless payments process. A series of failed payment attempts will turn off even the most loyal customer, leading to both voluntary and involuntary churn. You can prevent this by automating your payments system. For example, GoCardless allows businesses to take Direct Debit payments for a seamless user experience. Your customers only need to enter in their payment details a single time for greater convenience. Furthermore, our Success+ intelligent retries tool recovers up to 70% of failed payments, preventing involuntary churn for improved retention.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.