Improving Customer Retention📈: Analysis to Execution Strategies
“What is the retention rate of this month?” and "What about the retention of the customers acquired that period? ” Both look like similar questions about retention, but they need to be answered in different ways.
Oct 31, 2022
When it comes to retention, we often face two questions. “What is the retention rate of this month?” And What about the retention of the customers acquired that period? ” Both look like similar questions about retention, but they need to be answered in different ways.
“How much will the retention be this month?”
In order to know what the retention rate of this month is and how the retention of the business is changing monthly, you need to measure retention with all data from the very beginning of the business. This is because you need to know exactly when the first purchase of a customer is made so that you can accurately calculate the retention. If you simply define retention as 'the customer who bought this month and also bought last month,' it would lead to the wrong conclusion. Let’s say you sell shampoos that can be used for two months. If you define retention as 'out of the buyers this month, who also bought last month', you’ll define people who are still using the products well and possibly make repurchases when the purchase cycle comes back as churned customers. Therefore, the standard of retention should be measured according to the customer's use(purchase) cycle even if you check the retention monthly.
To do this, you should identify the appropriate use(purchase) cycle for each service. For example, if you use a grocery service once a month, the average use cycle will be about 30 days. On the other hand, the use cycle of a commerce service that sells health functional foods which can be taken for 90 days will be around 90 days. For the former case, the retention rate is the 'percentage of people who made purchases in the previous month and also made purchases this month', but in the latter case, the retention rate should be the 'percentage of people who made purchases 3 months ago and also made purchases this month'. Let's compare these with Retentics's Retention chart.
One of Retentics's clients offers a grocery subscription service. Because the subscription product has a purchase cycle of 30-day, the client is checking its retention with the Monthly - Monthly chart.
The problem is another client who sells health functional food that can be taken for 100 days. When they checked their retention with the Monthly - Monthly chart, they would check that the average retention rate is 7%. However, if you look at the Monthly - Quarterly chart, the retention rate is 20%. You need to define retention based on your customers’ purchase cycle so that you can figure out the exact monthly retention of our service.
“How’s the retention rate of the customers that were acquired at that time?”
To answer this question, you need to derive retention from a cohort analysis. A cohort is a homogenous group of people who have had the same experience over a specific period of time. For example, you can consider a cohort of customers who signed up during the promotion for new customers. On Dashy, you can set up a cohort by period, region, channel, product, etc.
Unlike checking retention on a monthly basis, by checking retention through cohort analysis, You could discover the requirements of a loyal customer that you didn't know about.
Something unusual has been found in the cohort chart of customers who offer grocery subscription services. For the third month since the first purchase of customers (cohort of May 2022), the retention rate was 5.5% higher on average than that of customers who entered at other times. The accumulated amount of purchase made by one customer over three months was also 45% larger in May 2022 than other cohorts. Finding these numerical differences on the cohort chart leads to actions that identify differences in behavior patterns between customers who were acquired in May and others.
The client found out that the first and second purchase items of customers who were acquired in May were different from those of different cohorts. Only customers who came in in May had different Item Journey. Growth marketers design experiments without missing these hints. The A/B test is conducted by dividing into a group that induces the following Item Journey, which is presumed to lead to loyal customers, and a group that follows the most common Item Journey of the service. You can find out a purchase journey which leads to a loyal customer by comparing retention after three month of the two different groups who were acquired in the same period but have different item journeys.
To sum up, retention should be checked in two ways. By monthly analysis, you should check whether the overall retention of the service is within the expected range or outside the expected range. You should also check which experience makes a significant difference in subsequent customer retention by cohort analysis. Both can be checked in a day without developers if you use Retentics. Contact Retentics's Growth team now and check customers’ retention of your service.
Written by: Julian Kim
Share article