Performance Management Friday — Customer Retention/Customer Attrition

Usually it’s easier, and cheaper to sell to a current customer than to acquire a new customer.  Monitoring customer retention and customer attrition is important.  Ideally, 100% of our customers continue to see superior value in our products and services, and want to continue to be customers.

There are a number of different ways to measure customer retention.  In the simplest form, you want to look at the percent of customers that bought in some previous time period that buy this year.  For example (Customers Buying This Year That Also Purchased Last Year)/(Customers That Bought Last Year) expressed as a percentage.

For some businesses, it’s worthwhile to look at this over a longer period of time.  For example, in my business, we have very high customer retention, but not all our clients buy our types of services every year.  Consequently, we monitor this over a several year period.

Having high customer retention numbers is good, it’s an indicator of customer loyalty.  There are some I think are better, or complement Customer Retention–Net Promoter Score is one I like a lot.  But what’s most interesting about customer retention is actually the inverse–the past customer that you have lost.  It’s called Customer Attrition.  It’s past customers that are choosing to buy from someone else.

It’s always critical to understand why customers abandon you.  Were they unsatisfied with your products/services?  Were they unhappy with quality?  Did they believe they could get a better deal from someone else?  Did they feel forgotten, or that service did not meet their expectations?  Without understanding why you are losing customers, you don’t know what it takes to improve, how to retain more customer or how to grow the relationship.

We’ve done a lot of analysis about Customer Attrition.  Our clients are always surprised, one of the surprising, but major reasons customer don’t buy again has nothing to do with their satisfaction with the product, quality, service, or price.  We find a surprisingly large number of past customers simply saying, “We forgot to buy!”

“We forgot to buy!”  It’s a terrible reason to lose customers, it’s sales error!  It’s always important to keep in touch with customers, to make sure they are satisfied with what they have bought, to assure they are achieving the results they need, to build the relationship, to give them more ideas about how they can extend the use of the current products they are buying or to buy more.  We need to continue to call on them, we need to continue to communicate and teach them, we need to make our relationship an important component of their success.

Are your measuring retention and attrition?  Are you understanding why customers continue to buy and why they stop?  Are you taking action based on what you’ve learned?