The three pillars of customer retention

Most entrepreneurs believe gaining customers should be the top priority within their business. And they’re right: business is about securing customers. However, it’s not the number of signups or products sold that will determine whether or not the business succeeds.

Why? Well, it’s not that easy to acquire customers cheaply today. The competition for most efficient sales channels, such as ads, is fierce, and that significantly increases their prices. Also, people are more distracted than ever before and the conversions aren’t what they used to be.

Not surprisingly, most new businesses today fail not because they can’t acquire customers but mainly because they fail to build a viable business model. That means developing an ability to gain customers much more cheaply than the revenue they generate.

At the end of the day, if you pay $300 to acquire a customer that spends $200 with you, you’re running a loss-making operation. Believe it or not studies such as the Startup Genome Report, show the vast majority of startups fail as a direct result of this.

So as an entrepreneur, what you want to achieve is having a great Customer Acquisition Cost (CAC) to Lifetime Value of Customer (LTV) ratio. In other words, you want your CAC to be as low as possible while delivering a high LTV.

There are many ways to increase your LTV, but the most effective way to do so is to make customers stick with you for the long term. And that’s what retention is about, making customers loyal to your company.

1. Invest in onboarding 

In the mobile app space, most users delete an app after they use it once or twice. That’s because they fail to reach the “Aha!” moment – the point at which the user understands what the app delivers and how it can become a valuable part of their lives.

For example, in the early days, Twitter failed to keep acquired users. Then the marketing team discovered that if a new user follows a minimum of 30 people, they are most likely to return. So they designed a signup process that requires every user to follow other people, friends or celebrities.

Offline, it’s all about engaging customers with the brand so you can build stronger relationships. The first impression matters the most, so it is crucial to invest in welcome emails and delivering great initial support to help customers discover all the great features of your offering.

2. Customer service

As a startup, you may lack credibility as most customers don’t know you well enough yet. Therefore, they’re very cautious and less forgiving when it comes to mishaps. However, personalised customer service is what usually draws people to smaller companies as big corporations rarely deliver it.

It can even become your competitive advantage in highly commoditised markets. Just look at companies like Zappos, Amazon or Rackspace, who have built billion dollar businesses on the back of great customer service.

According to a study by Accenture, nearly 70% of defecting customers would have stayed with a business if their problem had been resolved with better customer service.

To deliver a great service, you want to respond fast, constantly gather customer feedback, develop an easily accessible FAQ and knowledge base and treat customers as friends.

Appster’s philosophy has always revolved around feedback and developing a culture of close collaboration with its clients and customers. Every customer’s feedback has immediately been taken under consideration and used to improve Appster’s services. This has been the company’s philosophy from the very start and has resulted in a service that is closely aligned with our customers’ needs. 

3. Build a community

The community is bigger than brand or product alone. Think of communities built around the World of Warcraft or Hacker News, started by Y Combinator. They’re ideas that would carry on in some form even if the original company ceased to exist.

Community building goes way beyond just having a Facebook Page. It’s about building real relationships with your customers and connecting customers with each other. It’s a movement around a problem, idea or activity related to your product.

Most importantly, it requires work. At a minimum, you want to invite your customers for coffee and meet them in person. Start organising events and meetups and deliver great experiences. Then encourage members to carry on.

A good example is Coursera’s Quora account, whose members organise meetups around the world. Appster is the host of a meetup called Disruptive Startups, which sees the attendance of hundreds of entrepreneurs each month, with a strong focus on startup community and culture. The community has become self-sustaining because of the value it delivers, which goes way beyond the product itself.

Josiah Humphrey and Mark McDonald are the co-founders and co-CEOs of Appster, a mobile app and product development company in Australia, with offices in Melbourne and San Francisco.