Episode 14 - When to Double Down on Customer Retention

Welcome to episode fourteen of the Retention Blueprint. This newsletter promises to transform your retention impact in just 5 minutes per week, providing digestible retention content that adds value every time. This episode explores when you must double down on customer retention. 

Note: The TLDR is the final thought in every edition of the Retention Blueprint Newsletter. If you have only 30 seconds and not 5 minutes, scroll down to final thoughts. 

At Launch, Acquisition is Key 

If you are running a subscription business, it is critical to build a customer retention plan from day one. However, if you are launching a new product or service, senior management can find it challenging to devote time to retention, given the need to drive product take-up first. Of course, when launching a new product, acquiring new customers is key; undoubtedly, that should be the business focus at that time.

Criticality of Understanding Your Total Addressable Market 

I had a brilliant call with Robert Skrob (Author of The Retention Point) last week and he and I talked about brand TAMs (Total Addressable Markets). Rob talked about the work he did many years ago for the Professional Opticians of Florida. When working with that brand, he knew that if his program lost just one customer, it would hit profitability since there are only 3400 Opticians in Florida. This example perfectly illustrates the criticality of understanding your TAM. 

The fact is that there will always be people in your TAM who do not adopt what you are selling, and the faster the population does not adopt what you are selling, the faster acquisition numbers fall off. If you haven't focused on retention before you reach the peak of the s-curve, your business/product will, at best, flatline or, at worst, begin to decline. 

When to Double Down on Customer Retention 

As soon you validate that your product has a product-market fit (i.e. you are getting positive feedback from the market regarding sales), investment and business focus should shift more towards customer retention. At this point, it is likely that you still have lots of the addressable market to penetrate, so acquisition will remain important, but as you continue to grow and penetrate the market more, more of the total available customer and marketing investment and resource must shift away from acquisition towards retention. This diagram provides a high-level guide for when shifts should occur:

As you start to shift investment towards retention, if you have accurately completed CLV (Customer Lifetime Value) analysis, you should focus retention investment on high- or mid-value customers, those that generate 80% of your revenues, or those with high potential for ARPU growth (see episode 1 of the Retention Blueprint Newsletter for more detail on this). 

Typically, once your acquisition activity drops below a 3:1 CLV to CAC ratio, you will have reached the peak of the s-curve, and customer investment should be dominated by customer retention. You can effectively track where you are on the s-curve by looking at the relationship between CAC and CLV, a 3:1 CLV to CAC ratio signals that you may have reached the top of the s-curve.    

The problems facing many retention teams and brands

The problem is that because initial growth is driven by acquisition and subscriber growth is often demanded by markets and investors, leadership and marketers often focus on acquisition even once they have passed the point of effectiveness. The reasons for this are often due to: 

• Acquisition, especially digital direct acquisition, having a direct, immediate input and output; you spend X and get Y, driving a dopamine hit for leadership, as anyone who has ever sat in a trading meeting with senior management after an extensive campaign investment will have observed. 

• If your customer base is declining or growth is slowing, increasing acquisition spend can often be seen as a quick fix. 

• Retention investments can have a range of returns in terms of time horizons and are sometimes not immediately observable in the P&L in the same way that acquisition investments are. This is because retention actions often compound over time.  

The sad fact is that if the brand has not paid attention to retention early enough when acquisition numbers start to fall off, and growth starts to stall, leadership can often assume this is due to bad marketing, with obvious repercussions for those teams. 

The Solution

It is critical for CMOs to drive the retention conversation from launch. Ensure the CEO and CFO understand the TAM opportunity clearly and are aligned on when investment focus should shift towards retention and how it should happen.  

Before the launch, develop your retention tactics and testing/optimisation plan. Then, ensure leadership is aligned with the plan. The plan should cover:  

• How you will drive product adoption and affiliation via excellence in onboarding (see episode 4 of this newsletter for more details on tactics surrounding this) 

• How you will embed your product in customers' lives (see episode 7 for more information on tthis) 

• What your customer love plan will be and how you will handle key service issues because your brand is judged on the experience you provide (see episode 2 for more on this) 

• Identify how you will handle the cancellation process to avoid driving negative sentiment while encouraging customers to ponder their decision (see episode 9 for more) 

Once you launch very quickly, data, analysis, and customer research will allow you to understand critical moments that lead to greater retention or churn (moments of truth). When you have the appropriate insights, double down on the things that support retention and aim to remove the issues that trigger customer churn. 

The Truth 

Many products can enjoy initial success and growth, then flounder and die as the market evolves. Failure to innovate can lead to permanent decline, and sometimes, dramatic innovation and pivots are required to continue operating within the market (everyone knows what happened to Kodak, Blockbusters, Nokia and Blackberry). However, building your retention plan early and being aware of how to shift investment towards retention as your TAM penetration grows will allow you to create a business that profits in the short and medium term, while giving you the best possible chance of success in the long term. 

Final Thoughts (also the TLDR) 

Retention is the key to long-term growth. While acquisition is crucial at launch, delaying a shift to retention can undermine your success. Businesses that don’t prioritise retention early often struggle when growth plateaus.

Once product-market fit is validated, begin reallocating resources toward retaining high-value customers. Use Customer Lifetime Value (CLV) to guide your investments, ensuring you maximise impact as acquisition costs rise.  

Plan your retention strategy from day one, align leadership on its importance, and continually refine it based on data.