Customer retention strategies work when they’re tailored to a brand’s level of annual revenue and stage of growth. All customer retention strategies are not created equal.
This content was originally published in the No Best Practices newsletter on 03.26.2023.
I wanted to expand on this twitter thread I wrote a few weeks ago, because it got such a strong response.
I often break out advice into annual revenue tiers: $1M, $10M, $25M and so on. Why? Because you need different capabilities, and a different mentality, to break through each of these plateaus (unless you’re very, very lucky).
A lot of retention marketing destroys value. I explain why here, but TL;DR–most brands measure it the wrong, and sneaky SaaS companies use that fact to their advantage.
When you are under $25M in sales and have been in business for less than three years, returning customers won’t be a meaningful part of your growth. Time is the secret ingredient to retention success.
Your customer pool is a leaky bucket. For every 100 customers you acquire, you’ll be lucky if 30 come back for a second purchase–ever. Only 5-10 of those 100 will make purchases that span multiple years.
Each year you’re building up that pool of loyal customers, but it takes time before that revenue will make up a meaningful portion of your total sales.
I’ve worked with/for brands that have been in business for decades, doing $50M+ per year from customers who were acquired 10+ years ago. Those businesses can drive seven figures of upside from retention optimization BUT it takes decades to get there.
A big part of retention strategy for a young brand is avoiding negative influences and red herrings. When it comes to the latest SaaS you see hyped up on Twitter, you need to have the strength to say “not today, Satan”.
These are my recommendations on where to focus at each stage of growth, so you can be sure that your retention efforts actually make you money.
One caveat before we begin: this advice is applicable to the average mono-brand eCommerce business. Some brands–especially luxury/high AUR brands–focus on cultivating a small but loyal base of big spenders. This advice doesn’t fully apply to that business model.
Retention Strategies For Brands With $0-2M Annual Revenue
At this stage, you are trying to crack product/market fit for your first key acquisition channel. Repeat customer revenue is not going to be a significant percent of total sales, maxing out around $50-200k per year.
Something you need to realize about retention: some of your customers will repeat purchase, even if you do nothing. Retention marketing lifts that baseline retention rate, but there is a hard ceiling on your gains. It’s hard to get more than 40 of every 100 new customers to repeat purchase without engineering it into your product mix and/or business model.
What that means: realistically, you’re not going to drive more than $5-20k in true incremental benefit from retention activities at this stage. It’s not a high leverage use of your time. Work on cracking PMF and scaling first.
A lot of founders will use retention as a way of ignoring PMF issues. They’ll ingest SaaS sponcon success stories about much larger brands, then try to email their way out of bad PMF. Not going to happen. Eat the frog and fix your product/ price/ offer/ ad creative/ etc.
This doesn’t mean you should ignore email and SMS entirely. Here is what I would focus on:
- Pick a low cost, low effort email service provider that integrates seamlessly with your eCom platform. You should not be paying an integrator $25k to set up an abandoned cart flow. You should not be paying $35k/year for an ESP at this size.
- Consistently collect emails, and maybe phone numbers. A first purchase offer (x% off if you sign up!) is strictly optional.
- Build out basic, WYSIWYG drag and drop email templates so you don’t need to build every freakin email in Photoshop. Make sure those emails look good/work well on mobile.
- Set up a basic welcome series, abandoned cart/browse and transactional flows.
- Mail your list at least 1x/week. Make sure your messaging is clear and consistent from email through to on-site experience. I get so many emails from small brands where the main image isn’t even linked anywhere.
Basically: start getting good SOPs in place, and don’t shoot yourself in the foot.
Retention Strategies For Brands With $2-10M Annual Revenue
Is this where returning customer revenue becomes a meaningful slice of the pie? It depends.
I’ve worked with brands who have spent 5-10 years treading water around the $7-10M revenue mark. For these brands, returning customers will often drive $3-5M in annual sales. So they can achieve an upside approaching $300K/year.
But if you’re a young, growing brand who spends 1-2 years in this revenue range, returning customer sales will likely be closer to $1-3M. Your upside will top out around $150K/year.
The business in the first example can throw off a lot more cash than the business in the second example. Some brands keep growth slow and steady for a reason. But retention is never going to drive hockey stick growth at this size.
At this revenue level, your annual promo/sales calendar strategy can drive more impact than email or SMS strategy. But that’s outside the scope of this piece. In terms of channel strategy, this is where I would focus:
- Start thinking about your customer lifecycle in terms of prospects, nurture and loyalty. Your nurture customers are less “bought in” than your loyal customers. So they will respond better to a different set of products/ content/ offers.
- You don’t need to send out two versions of every email, but plan nurture and loyal customer content into your email calendar.
- Build out a post-purchase journey for new customers, with the goal of getting them to buy again within 30 to 90 days. For growing brands, this is going to be your biggest retention opportunity.
- Now that you have a better handle on your acquisition pipeline, try to refine your Welcome flow to convert more customers within 7-14 days of opt-in. Use education and direct response copywriting, not promos.
- Consider piloting SMS, but build out an intentional use case around it. Sending the same content in email & SMS is only incremental for a small fraction of your subscribers. SMS is also much more expensive than email.
Basically: build strategies that are customer lifecycle-first, not channel-first.
Retention Strategies For Brands With $10-25M Annual Revenue
This is where retention starts to become more meaningful to your top line. But it’s also where you run the risk of miring yourself in value-destroying philosophies and behaviors. Why? Because many brands make their first director-level retention hire at this stage.
If you hire the wrong person, you’ll end up with a retention program that chases last-click demand with zero regard for incremental demand or long-term outcomes. Or you’ll find yourself subscribed to tons of software. Or you’ll get roped into doing a loyalty program (hint: brands of this size do NOT need a loyalty program).
The number one thing you want to screen for at this stage: Can the candidate tell you what differentiates nurture and loyalty customers at their current employer? And did they implement strategies to leverage that knowledge?
Hiring questions aside, here are the channel tactics and strategies I would focus on at this stage:
- You should have an idea of what differentiates your best customers vs your repeat customers vs your “one and done” customers, in terms of first purchase behavior.
- Based on first order characteristics, you should break customers into “likely VIPs”, “likely repeaters” and “everyone else”.
- Use your Welcome series and post-purchase marketing to guide each segment towards its greatest potential. This often means honing in on second purchase recency and guiding folks towards specific products and categories.
- Test offers for likely VIPs and likely repeaters–can you use bundles, the free shipping threshold, or other levers to incentivize the behavior you want?
- Build out lifecycle programs for “at risk of lapsing” and “lapsed” customers.
Basically: this is where you’re doing enough sales to invest in data-informed strategy. Do not give in to the siren song of SaaS, or conflate retention with channel tech.
Retention Beyond $25M Annual Revenue
At this level of revenue it becomes hard to give specific advice that works for everyone. Number of years you’ve been in business and returning customer revenue penetration vary widely.
Upside potential varies based on how closely you followed the advice in the preceding sections. So, if anything I wrote about smaller businesses is new to you, you can start by applying that.
The most impactful thing you can do at this stage is to understand how your product assortment and promotion strategy impacts customer lifetime value. You need to understand how great, average and “one and done” customers behave. And then you need to adjust all of your marketing–acquisition, nurture and loyalty–to guide people towards a higher LTV.
Driving incremental value from returning customers often follows the 80/20 rule. You can drive 80% of a customer’s LTV potential with data-informed lifecycle marketing.
To capture the remaining 20%, deep personalization and other SaaS-driven strategies may be required. It’s up to you to calculate the value of that 20% and weigh it against the “total cost of ownership” of whatever tech you’re using.
The more personalized your marketing becomes, the more asset variations you will need to produce. If your people and processes aren’t built to handle that, segmentation and personalization will always hit the wall of creative bandwidth. I wrote about solutions to that problem here. Get your people & processes right before you go all-in on tech.