Using Monetized NPS® to Growth Hack Customer Retention

Written by Cvetilena Gocheva

Peter Drucker, a legendary business icon, once famously wrote that the purpose of any business is to “create and keep a customer.” While no one can argue with that logic, not many companies seem to follow the mantra, (i.e., customer retention rates of most companies aren’t great). We put an end to this by introducing a methodology that drives customer retention through the roof – Monetized Net Promoter Score®. Today we will show you how Monetized NPS can be used to growth hack customer retention. CustomerGauge is also going to present you Amazon’s hottest book release this year and will bring in a distinguished customer retention and NPS expert to the table.

What is Growth Hacking?

Growth hacking is a methodology that leverages strategies aimed at unlocking growth at scale. The term was coined by Sean Ellis, first marketer at Dropbox, previously founder of Qualaroo and now CEO of GrowthHackers.com. The methodology is used by today’s fastest-growing companies to drive breakout success—Airbnb, Dropbox, Evernote and Amazon are only a handful of the companies that have adopted the methodology. At it’s core, growth hacking is the use of both conventional and unconventional marketing experiments that lead to the growth of a business. It is based on the growth funnel of awareness, acquisition, activation, retention, referral and revenue.

Growth Funnel by Growth Tribe

     Growth Funnel explained by Growth Tribe Academy at The Next Web Conference 2017

 

This year’s hottest Amazon book release—Hacking Growth by Sean Ellis and Morgan Brown, provides a full chapter on customer retention and growth hacking techniques. Today we will cover some of the chapter’s best lessons and introduce how Monetized NPS can be used as a growth hack to customer retention.

Why the hype on Customer Retention?

The need to focus on customer retention has never been greater in a market where companies constantly battle for the loyalty and attention of their customers. Often, companies focus solely on customer acquisition as the only means for growing their bottom line. While there’s no question that attracting new customers is a driver of growth, one of the biggest mistakes a company can make is not holding retention to a higher standard. This is especially true in a world where it takes so much money to acquire a new customer. The more you spend on customer acquisition, the more costly the loss of each customer becomes—which makes retention even more important.

Not convinced yet? Let’s bring in the facts. Fred Reichheld of Bain & Company has shown that a 5% increase in customer retention rates increases profits by anywhere from 25 to 85%. Furthermore, research has found that it is 10x less expensive to sell to your existing customer base, once again confirming the need to pay attention to customer retention.

Customer Retention vs. Customer Acquisition

Lesson One from Hacking Growth on Customer Retention:

“With customer retention what you need to achieve is a comparatively high rate vis-a-vis your competitors and for that rate to be stable over time.” – Morgan Brown

Here comes the fun part. Research by CustomerGauge has shown that 40% of respondents (25% of executives) do not know their company’s retention rate.  An additional 19% of respondents (15% of executives) didn’t know how much NPS had improved retention. The research was based on surveying over 600 of the world’s biggest brands on the state of their NPS programs.

Why do companies do not know their customer retention rates? We asked customer retention & NPS thought leader, Jorgen Bo Christensen, to shed some light on this. Here are some of the answers companies have given him:

  1. Companies lack the infrastructure to calculate churn
  2. Retention is not considered an issue

“The first is a valid reason, but only in the short term. Long-term, not knowing how much revenue a company loses due to churn can only be characterized as a poor business practices. The second reason may hold for monopolies or if customers have very high switching costs, but otherwise not.” – Jorgen Bo Christensen

Time for a change! Following up on the two reasons given, we have already explained why customer customer retention is highly important. In case there are still any doubts, here’s another lesson from the Hacking Growth book.

Lesson Two from Hacking Growth on Customer Retention:

Homejoy, a home cleaning start-up, can serve as an example of what happens when you ignore customer retention. Despite having attracted an impressive number of initial customers through an aggressive promotional discounting strategy and raising more than $64 million from Silicon Valley investors, Homejoy’s success was short-lived. The company failed to live up to its promise to customers, raised prices while delivering service that customers described as “hit or miss.” Competitors, on the other hand, were enjoying double retention rates, while Homejoy was still spending a fortune on acquiring new customers. If Homejoy had measured their retention rate, maybe that would have saved them. 

“The combination of high acquisition costs and low retention led to Homejoy’s rapid demise.” – Chapter Seven from Hacking Growth 

So, how do you measure customer retention?

The second reason why companies do not know their customer retention rates is “lack the infrastructure to calculate churn”. Let’s tackle how to calculate your customer retention rate (CRR) and how your can use Monetized NPS to take it through the roof.

Churn is the number of customers leaving you and retention is the opposite. Churn and retention are measured as rates between 0% and 100% over a specific period. When calculating your customer retention rate, use the following formula:

How to calculate customer retention

Lesson Three from Hacking Growth on Customer Retention:

After you have calculated your retention rate, it’s time to get to work. Measure retention over time and plot it out to see if it is declining, stable or increasing. Remember that companies will measure retention rates in different ways because the frequency with which customers return will be determined by the nature of the product and service. Facebook will be interested in daily return of visitors, Apple will probably be focused on yearly return.

Here’s an example of a customer retention graph from Evernote, called the Smile Graph.

Evernote's smile graph on retention

The lesson here is that the longer people use Evernote, the more likely they are to continue using it. Evernote’s retention graph shows that the company has been paying attention to what customer need through customer feedback and has improved the usefulness of the service over time.

Improve Customer Retention: Introducing Monetized Net Promoter, the Ultimate Growth Hack

An easy way to understand and improve customer retention is to use the Net Promoter Score. Based on very short and automated surveys, businesses can determine what customers think of them, their overall customer experiences and understand the “why” behind their customer retention rate.

But how do you improve customer retention with NPS? The answer lies in the closed-loop process. After surveying your customers with NPS, it’s important to act on the data that you receive. We call this process “closing the loop”. Detractors will be the customers likely to churn, while promoters will be the customers likely to stay or be retained. We recommend that all detractor issues are solved fast – within 48hrs! Research by Jorgen Bo Christensen has shown that companies that close the loop with NPS enjoy up to 5.2% increase in customer retention.  

However, we have also found a way to growth hack customer retention using a new methodology called Monetized Net Promoter. Monetized Net Promoter is the correlation of company revenues and their NPS programs. It is the process of tying an NPS program to revenue figures, referral marketing and growth initiatives.

With Monetized Net Promoter, companies should:
– Measure and grow retention
– Analyze and grow referrals
– Grow repurchase, up-sells and cross-sells

Simply put, it’s the monetization of a company’s existing customer base using the Net Promoter System®. Our research has found that when companies monetize NPS, their customer retention rate increases up to 6.9%.

Growth hacking customer retention with monetized NPS

Here’s a round-up of key steps for a successful Monetized NPS process:

  • Companies need to measure their rate of retention to understand the extent of their churn. By looking at revenue, segmentation, churn and Net Promoter data companies can understand when customers will churn, which customers will churn and why customers churn.
  • Since you cannot assume that your promoters will simply refer your brand, it’s important to implement referral marketing into your Net Promoter System.
  • You need to calculate your customer referral value. Understanding which customers join due to referral and to which degree referrals shorten the sales process is a requirement to calculate CRV.
  • For your NPS program to be successful, you need to tie your revenue to your NPS program. Having access to revenue data and its different elements, as well as proper analytical tools, is key to tying financial gains to Net Promoter programs.

Want to learn more on how to use Monetized NPS to growth hack customer retention? Make sure you download CustomerGauge’s exclusive eBook below!

Monetized Net Promoter Score

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Written by Cvetilena Gocheva

Cvetilena is the Digital Community Manager behind NPSBenchmarks.com. Her role is to help more businesses become aware of the Net Promoter Score (NPS) system, the means it offers to drive growth forward and the importance of benchmarking. She discovered her passion for community engagement while working in a start-up in the UK. Cvetilena has now moved to Amsterdam and spends most of her free time riding her new bike and exploring the city.

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