Let’s say you’re an app developer. You’ve found your niche, built an original app that you just know people will love, optimized your marketing and discoverability plan, and have what you think is a fail-proof monetization strategy. But for some reason when it comes to product launch a high churn rate is killing your profit margin.

In the language of sales, customer churn rate is the percentage of customers that stopped using your company’s product or service during a certain period of time. 

To calculate your churn rate, just divide the number of customers you lost during a certain stretch of time by the number of customers you had at the beginning of that time period. For example, if you started the quarter with 400 customers and ended it with 380, your churn rate would be 5% because you lost 5% of your customers.

What is involuntary churn?

No matter what product or service you sell, attracting potential customers and convincing them to part with their money is all well and good, but if for whatever reason they can’t finalize payment, you’ve lost a sale.

Involuntary churn is exactly this. It refers to when a customer is ready to make a purchase but some unforeseen difficulty prevents them from doing so.

Because we tend to think of churn rates as a metric that applies to existing customers, we often talk about involuntary churn as a feature of subscription services or business models that rely on repeat payment. 

When analyzing your website’s traffic, it is useful to think about bounce rate vs exit rate in order to get a clear picture of which stage of the user experience people are leaving the site. The same logic applies to churn rates. When exactly in the customer lifecycle you are losing business is just as important as why.

1- Analyze what’s causing your company’s involuntary churn

When thinking about involuntary churn, the first thing you need to ask yourself is what’s causing the churn.

Are payments defaulting because of a problem with your payment gateway? Or is it an issue with your web design that’s causing the site to crash at the point of sale? 

Different businesses will find that different things are causing customers to churn involuntarily. There’s no straightforward way to figure out what’s causing involuntary churn and ultimately it will take different types of testing to do so.

2- Apply best practices when sending dunning messages

Dunning is the process of methodically communicating with customers to ensure the collection of payments owed. It’s a simple but effective way of addressing involuntary churn that many businesses apply to the management of their repeat customers.

If you’re signed up for any repeat payments, subscriptions, or buy-now-pay-later services, you may have received dunning messages in the past. They typically take the form of an email or SMS sent if an expected payment hasn’t been processed for any reason.

If your dunning messages are accusatory or confrontational, you risk alienating the customer for good. After all, most failed payments can easily be rectified by customers simply re-attempting the payment or updating the payment details.

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Ensure your dunning messages clearly explain what has happened, how the customer needs to proceed, and what the next steps are if they fail to make payment.

3- Use card updaters

For merchants who accept credit or debit cards for recurring charges, expired card numbers can be a leading cause of failed payments and involuntary churn.

Card updater services offer an alternative to trying to get in touch with customers on your own. In recent years, American Express and Mastercard have both accelerated innovation in the field and it’s now easier than ever to automatically update card details. 

Compared to trying to get in touch individually, automatic card updaters help you to retain customers while saving time for everyone involved.

American Express offers a service known as Cardrefresher which allows merchants to keep customers’ Amex card details up to date. The service offers daily updates. Merchants can receive the updates directly or through a vendor or processor that updates their recurring billing or card-on-file data.

The Mastercard Automatic Billing Updater is a similar service designed to assist merchants in keeping their on-file card information current. In the Mastercard system, issuers submit account changes to Mastercard’s database, which merchants can access and use to update their own records.

4- Offer multiple payment options

By multiplying the options for payment, and allowing customers to enter a backup option if one fails to process a payment, you increase the likelihood of successful payment and decrease your customer churn rate.

For truly global businesses, make sure you’re partnered with a payment gateway like PayTabs that supports multiple currencies. Nothing is likely to send customers elsewhere than not being able to pay in the currency of their choice.

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5- Encourage direct debit for recurring payments

Direct Debit refers to when customers give their banks the authority to automatically pay recurring charges. It has been one of the most useful banking technologies for businesses that rely on these recurring payments. It is the preferred arrangement for paying utility bills such as gas and electricity and for subscription services such as SaaS business models.

In today’s international payment environment, the best way to get set up for direct debit payments is to enlist the help of a globally-minded payment gateway, that gives you access to the different technologies used to process direct debits around the world.  For example, EG-ACH in Egypt or Masav in Israel.

Remember that direct debits can be used for both incoming and outgoing payments. As well as helping you to reduce involuntary churn by making repeat payments easy for your customers, it can be one of the best tools for affiliate marketing by helping you to pay your affiliates on time.

6- Optimize your retry cycle

Businesses that rely on some form of electronic payment usually implement a retry cycle that automatically attempts to process a payment again when it fails.

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Retry cycles are especially important in fields such as mobile eCommerce in which retailers are entirely dependent upon virtual payment methods.

When thinking about your retry cycle, it helps to divide declined payments into what are known as hard declines and soft declines. 

A hard decline is when the issuing bank does not approve the payment. Causes of hard declines include:

• Stolen Card
• Invalid Card
• Closed Account

With hard declines, you often need to ask the customer to retry, usually with a different payment method.

A soft decline happens when the issuing bank approves the payment, but the transaction fails at some other point in the process. Typical reasons for a soft decline are:

• Processor Declined.
• Card Activity Limit Exceeded.
• Expired Card.
• The Purchase is Unusual.
• The Billing Address and the IP Address Do Not Match.
• The Card is Being Used Abroad.

For soft card declines, it is best to retry the payment at least once straight away. For hard declines, the ideal retry cycle is to retry again over the coming days or weeks. This gives people a chance to rectify the issue, for example by adding new payment details or funding their bank account if the card has insufficient funds.

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7- Don’t cancel unpaid subscriptions

Some businesses automatically cancel unpaid subscriptions without giving the customer a chance to pay another way.

When there’s so much technology out there to help you collect repeat payments, even if your first attempt fails, canceling subscriptions without following up with your customers just doesn’t make sense.

Before canceling any subscriptions, first, you should find out why the subscription is going unpaid. For example, outsourced or inhouse testing might uncover an issue with your payment setup that is causing failed transactions that your customers don’t even know about. If this is happening, canceling the unpaid subscription would create a loss of revenue that could be avoided.

Conclusion

Whether your business model relies entirely on repeat payments, or a combination of payment types, reducing involuntary churn is a simple but effective way to increase your profits.

After all, a happy customer who continues to pay month-in month-out for a service they value is a great thing for any business. These types of customers can help you survive dips in growth and keep the revenue coming in when other sources dry up.

Emily Rollwitz – Content Marketing Executive, Global App Testing
Emily Rollwitz is a Content Marketing Executive at Global App Testing, a remote and on-demand app testing company helping top app teams deliver high-quality software, anywhere in the world. She has 5 years of experience as a marketer, spearheading lead generation campaigns and events that propel top-notch brand performance. Handling marketing of various brands, Emily has also developed a great pulse in creating fresh and engaging content. She’s written for great websites like Airdroid and Shift4Shop. You can find her on LinkedIn.

Scopophobia is the fear of being stared at. We’ve all experienced this before. Picture the scene: you’re standing in front of the queue in a busy shop, trying to hurriedly pay for your items. Then come the dreaded words on the card machine: PAYMENT DECLINED.

Well, this problem is not limited to brick-and-mortar stores. If you’ve ever run an online store you will know that transaction errors are pervasive.

And whilst online transaction failures might not induce scopophobia, they are certainly frustrating for businesses and customers alike. In Europe alone, e-commerce transaction failures cause an estimated annual €82 billion loss for businesses.

Understanding why payments fail will put your business in a stronger position to retain willing customers. In this article, we’ll show you how to calculate payment acceptance rate, and our top tips for improving it.

What is payment acceptance rate?

Payment acceptance rate is simple to calculate. You only need to know the number of successful transactions compared to the number of attempted transactions.

But what is a good payment acceptance rate?

The answer to that question depends entirely on the context of your business. Generally speaking, you’ll want to aim for an 80% acceptance rate at least.

Why? It’s one of the key test execution metrics for assessing the customer conversion rate of your online store. After all, if you can’t accept payment from customers, then you can’t do any business with them.

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Why do some payments fail?

Unfortunately, there’s not a simple answer to that question. It may be for lack of funds in the customer’s bank account. Perhaps they incorrectly input their details on your payment form. Or it could be that your acquiring bank hasn’t allowed the transaction (we’ll get to that later).

That is not to say that your business cannot take steps to reduce failed transactions. In this article, we’ll outline 9 tips for remedying this problem.

What can you do to boost payment acceptance?

Create the perfect checkout

Once your customers have reached the checkout page, the decision to buy a product or service will have already been made.

Now all that’s left is to ensure the customer’s payment goes smoothly. If it fails the first time, the likelihood is that they’ll lose patience and willingness to try again. In fact, online merchants lose 62% of customers after the first failed transaction.

In the competitive world of online commerce, there is a firm expectation that your checkout is free of barriers or complications. So, let us share our top tips for achieving this:

Stick to simple

Above all, your checkout needs to be intuitive. Overwhelming your customers with a plentitude of forms and menus is a no-go. A CXL study found single-column forms were filled out on average 15.4 seconds faster than multi-column forms. In short, simple checkouts are faster, meaning a higher conversion rate for your business.

Focus on the information you need by limiting the number of fields and indicating the optional ones. Lastly, arrange your payment form so the most time-consuming fields are at the bottom. Once the easy part is done, your customers will happily follow through with the rest.

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Focus on user-friendliness

Now the basics have been covered, you’ll want to make a few accessibility improvements.  It’s essential that your customers feel cared for and appreciated. Minor changes like showing the total cost at each step will help eliminate doubts about payment.

An often-overlooked addition is the humble progress bar. This visual reminder will assure your customers that finalizing their payment is just a few clicks away.

You may also want to add an auto-complete feature. For example, the customer inputs their zip code, and your checkout fetches the full address for them. Any mechanism for saving time and effort will push up that coveted customer conversion rate.

Reduce waiting times

Online commerce is all about convenience. If a page takes too long to load, there is a very real risk that your customers will leave and never return. According to LoadStorm, even a 1-second delay reduces customer satisfaction by 16%. 

As such, it’s imperative that you regularly test your site’s loading screens. If load times are excessive, you may need to declutter problematic pages or avoid linking to external sites.

This principle applies far beyond the checkout page of your online store. Customers will quickly become irritated if they feel that your customer service responds in inadequate time. Building a team structure that responds to high-priority inquiries will mitigate this concern. 

Fail to do this? You’ll test your customers’ patience and ultimately risk losing their business.

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Offer delivery information

For goods that require delivery, every customer’s question will be: when?

The convenience of online shopping is deeply diminished if that question has the answer: not for a long time. Therefore, the best online stores will focus on achieving fast delivery times, then advertising that fact to their customers.

Investing in a solid inventory tracking system can help with calculating delivery costs and times at an earlier stage. This will boost customer confidence before they reach the checkout, helping to drive up sales.

Don’t forget mobile UX

Since 2016, the majority of e-commerce sales have come from users on mobile devices. Today mobile users have a 72.9% market share of the industry.This has allowed businesses to accept payment from billions of people across the world. However, it has also come with its own drawbacks. One such challenge is that mobile customers are more likely to abandon their shopping carts.

For this reason, it’s more important than ever to build a checkout that is mobile-responsive. Mobile website checkouts should be cross-channel, appearing largely similar to the desktop version.

You may even consider developing a mobile app for your online store. App checkouts will foster higher conversion rates and customer loyalty over their site-based equivalents.

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Choose the right acquirer

If you run an online store, you’ll have to find an acquiring bank to process card transactions on your behalf. The acquirer is responsible for communicating with the customer’s bank before a transaction can be made.

This is the point at which many transactions fail, either because the acquirer cannot authorize or authenticate the payment. As such, choosing the right acquiring bank is an important decision for any online store to make. Factors you should consider include:

Geolocation of your customer-base

Firstly, you must think about where in the world your customers are based. Different acquirers will offer support for local languages, currencies, and payment methods.

If most of your customers are from the EU, you’ll want to partner with a European acquiring bank that is adapted to local regulations. For example, they’ll follow adequate risk assessment procedures (such as 3D-Secure verification) to ensure compliance.

Conversely, if you have an international customer base, you may consider partnering with a single payment provider. This can save you the money and headache of trying to select multiple acquirers for different regions.

Tokenization

Another consideration is to look at which services offer ‘tokenization’. This is a way of saving your customer’s payment data so that it may be automatically filled in on future visits.

There are many advantages to using tokenization. Namely, lower costs and improved security. It’s cheaper for your business as PCI compliance will be accounted for by your payment partner. It also encrypts your customer’s data and prevents it from being stolen by fraudsters.

Accept different payment options

Offering alternative payment options is an attractive method of enticing customers from around the world. Visa and MasterCard are standard in online commerce, and you must accept these forms at the very least.

Increasingly however, online stores are accepting PayPal or mobile payment options from customers. Mobile apps are particularly easy to integrate with Apple Pay or Google Pay. The convenience of pressing a single button to make a payment cannot be understated. It offers a far more timely result for the customer than filling in an entire payment form.

Of course, you may notice that problems arise more often using certain payment methods than others. In this case, you may find using regression testing services helps identify the root cause.

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Communicate with your customers

Failed payments are part and parcel of online commerce, even if you follow every precaution on this list. That does not mean to say that all hope is lost. Often, reaching out to your customers after a failed attempt will prompt them to try again.

Having systems in place to automatically detect and respond to failed transactions will surely improve your customer conversion rate. This could be a simple follow-up email, or invitation to talk via voice over IP intercom.

Of course, the result will come down to the individual case. Generally speaking though, the faster you attempt to communicate, the greater the chance of success.

Conclusion

This article was written to help you understand the many facets of payment acceptance. By now you should have a good idea of why payments fail, and how to remedy those cases.  Following the tips outlined above should assist in increasing customer conversion rate on your online store.

Kate Priestman – Head Of Marketing, Global App Testing
Kate Priestman is the Head of Marketing at Global App Testing, a trusted and leading end-to-end functional testing solution for QA challenges. Kate has over 8 years of experience in the field of marketing, helping brands achieve exceptional growth. She has extensive knowledge on brand development, lead and demand generation, and marketing strategy — driving business impact at its best. Kate Priestman also published articles for domains such as VMblog and Stackify. You can connect with her on LinkedIn.

Any business thrives on its loyal customers. Most big ecommerce brands attempt some kind of loyalty program that keeps people coming back. Nearly every B2B company has a small number of key accounts bringing in most of the revenue. 

If you don’t have that stable of repeat buyers, you’re missing out. Not only do you lack that consistent source of revenue, but it might also suggest you’re not doing enough to earn those loyal customers.

Work from home platforms have changed the world and people are shopping online more than ever, too. This is a great time to be in ecommerce. With people more willing to buy online, customer acquisition costs should be falling. When you know how to turn those first-time buyers into brand evangelists, the opportunity is huge.

But how can you do that? Let’s go over ten tips you can use to turn first-time buyers into loyal customers.

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What is customer loyalty?

We should make a distinction between “repeat buyers” and “loyal customers”. Repeat buyers will come back to you again and again when you announce new products or seasonal offers –  you have their number and you don’t need to sell them hard on new campaigns.

Loyal customers are fully-engaged brand evangelists. They splashed out on a Peak Design backpack once and now they wouldn’t consider anyone else’s. They won’t buy a computer that doesn’t have an apple on it. In a B2B context, these would be the key accounts that the sales team knows on a first-name basis.

Not only are these the most financially valuable customers, but they’re also the core audience which the business should work to serve. What’s good for your most engaged customers, is good for the rest of them, and what’s good for them is good for the business. Listen closely to your most loyal customers, and you can’t go wrong.

You’d be lucky to turn even a small proportion of your customers into loyal customers. However, the benefit of trying to convert as many people as you can is that these loyal customers can become brand evangelists who’ll do your marketing for you. If they spend a lifetime recommending your product to everyone they talk to, your customer acquisition costs trend a little bit closer to zero.

With some simple incentives and easy-to-use referral tracking software, you can encourage and reward brand evangelists without the work of running a whole affiliate program.

How, though, do you inspire loyalty from one-time shoppers? Here’s ten top tips:

1. Use email

Most ecommerce companies are collecting customer emails to send receipts and to get in contact if something goes wrong in the shipping process. But how many of those companies are using that email to build a relationship with those customers?

Many companies don’t go beyond simple, transactional emails with titles like “Get 10% off now”. Consider how you could email more “brand marketing” content like short blogs or articles on the way you do things, and what makes you different from your competitors.

Think about what a dedicated email flow for that would look like – how you should introduce yourself to first-time buyers once they’ve ordered, and what you think they need to know about who you are. You can iterate and A/B test that flow until you get it exactly right, just like any other marketing effort.

You can also weave your brand story into those transactional emails. If you add a little bit of that messaging into your order confirmation email, customers will be seeing it every time they buy from you.

2. Create great experiences

People aren’t going to become loyal customers unless you provide a great experience. It’s why Apple put so much effort into their Apple Stores, from the staff who are paid to focus on educating customers rather than selling, to the cash registers and cables hidden inside the tables.

For an online store, creating a great experience means conducting a mobile usability test on all platforms like iOS, Android, etc. If you want to turn a first-time buyer into a loyal customer, you have to make sure everyone’s first impression of your site is flawless.

And it doesn’t stop there. When your customer gets their package delivered, make sure this is a great experience too. Sending your products in nice, branded packaging is just the start. Think about the whole experience.

Make sure you’re providing any helpful information the customer might need. Track the delivery and as soon as they receive it, send them an email or SMS with a friendly message and a link to useful pages on your site.

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3. Offer discounts

Discounts are a tried and true tactic for boosting sales in ecommerce. It’s also very easy to personalize those discounts to specific customers. Every positive interaction a buyer has with your brand is an opportunity to turn them into a repeat customer, so you want to encourage as many of those interactions as possible.

4. Be proactive

Proactively following up with customers is a big part of customer care. If you wait until there’s a problem and the customer comes to you, then their only interactions with you will be when there’s something wrong. Over time, that builds up negative associations with you and your brand.

When your customer receives a tracked delivery, you could send them an email a few days later asking how the product is and if they have any comments or questions.

As well as building relationships with customers, this is a great way to gather data you can use to improve your product or service. More simply, it’s a great way to catch a product issue or computer bug that you might not notice in QA.

5. Exceed expectations

From internet service to energy providers, people are used to a poor level of customer service, especially over the phone. By exceeding expectations in every interaction, from your online store to customer service, you can surprise and delight users whether it’s via a customer support chat or in a virtual healthcare waiting room.

6. Use a loyalty program

A customer loyalty program won’t turn visitors into brand evangelists, but it can turn one-time buyers into repeat customers. That repeated exposure to your company gives you more opportunities to build up brand recognition and turn repeat buyers into loyal customers.

You can also use the loyalty program to offer a more personalized service. This could take the form of discounts on customers’ birthdays or other personalized offers based on their buying activity.

7. Use retargeting ads

Retail is a seasonal business, and for ecommerce stores, there’s a lot of value in turning seasonal buyers into repeat customers. Retargeted ads on social media can follow those users around Facebook and Instagram based on what they’ve done in your app, allowing you to get them back onto your site for a second or third time. Retargeting reduces the cart abandonment rate by 6.5% and can increase online sales by up to 20%.

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8. Leverage seasonal marketing

When you do have a seasonal peak, one with an influx of new customers, it’s an opportunity to turn people into repeat customers. Seasonal marketing strategies like limited-time discounts and special offers for your loyalty program can help make repeat buyers of people who have bought from you before.

You can think of your first-time-buyer-to-loyal-customer pipeline like any other marketing funnel. Once you have your “bottom of the funnel” activities figured out, you can focus your seasonal marketing on attracting new first-time buyers knowing you’ll convert a number of them to repeat buyers in the future.

9. Use data

To turn your one-time buyers into loyal customers, you need to understand them. And you can’t understand your customers at scale without good data.

One of the reasons why a mobile app is a must have for small businesses is that you can collect more detailed data on the way customers interact with you.

Whether you’re an ecommerce giant or a small coffee chain collecting people’s favorite orders, even a relatively simple app can give you valuable data while improving the customer experience.

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10. Make it personal

Personalization is one of the most powerful ways you can create memorable experiences for your customers, with 90% of consumers surveyed finding marketing personalization appealing.

One of the advantages of an ecommerce mobile app for your online store is that you can offer a high degree of personalization, from recommended products to push notifications on offers you know they’ll be interested in.

Personalized experiences could be as simple as recommending products you think they’d like. You can also use your marketing emails or mobile app notifications to send them offers you think they’d like at the time they’re most likely to buy.

Using the customer loyalty funnel to boost sales

With a combination of some of these ten tips, you can start to turn more of your one-time buyers into loyal customers. Just like any other marketing funnel you can learn from your successes, double down on what works, and use this knowledge to boost your sales in the long run.

Matthew Cooper – Marketing Automation & Operations Manager, Global App Testing
Matthew Cooper is the Marketing Automation & Operations Manager at Global App Testing, a best-in-class software testing company that has helped top apps such as Facebook, Google, Microsoft, and Craigslist deliver high-quality software at speed all over the world. Matthew has over 14 years of experience in the I.T Networking, Software & Services Industries. He is highly skilled in Search Engine Optimization (SEO), Content Marketing, Digital Advertising, Social Media Management, WordPress, Email Marketing, Marketing Automation, CRM, and People Management. You can find him on LinkedIn. He has also written content for DZone and BigCommerce.

We all know the old saying: ‘if you want to make money, you need to spend money’. This may be true, but it isn’t always clear just how much money we need to spend, especially when it comes to customer acquisition. 

Customer acquisition is a crucial process for any business, and with the multitude of marketing techniques utilized by companies today, it’s one that is becoming more and more complex. To generate outbound leads most companies will run several campaigns at once.

All of this comes at a considerable cost, and with such high budgets it’s vital that spending is balanced out by paying customers. But how can we ensure this? How can we reduce risk?

Luckily, we live in the age of data and there are some incredible tools capable of simplifying this process. But, before you can start using them you need to understand: what exactly is customer acquisition cost?

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What is CAC?

Customer Acquisition Cost (CAC) is a metric used by businesses to calculate the investment required to bring in new customers. It takes into account your total spending over a set period of time and compares that to the actual number of new customers acquired, eventually giving you the average amount spent on acquiring one new customer. 

The top companies get even more specific than that, running this technique across all of their marketing methods individually. This allows them to compare the cost of each and show which is most profitable, fine tuning their marketing strategies and driving profit.

How to calculate CAC

​Now it’s time for some math! But don’t be afraid, calculating your acquisition cost is actually very simple. All you need to do is add up all of your spending in marketing and sales over a certain time period. Then you divide that number by the amount of new customers gained over that time.

For example, if you spend 2,000dh and you acquire 500 new customers your CAC sum would look like this: 

2,000 / 500 = 4dh per new customer. 

That’s it! Obviously these figures will differ greatly depending on the size of your company and what you are selling, but this gives you a good idea of how the formula works and how powerful a tool it can be for companies.

What to include when calculating CAC

When calculating your CAC there are several categories of spending that you must take into account. The more specific you get, the more accurate your CAC formula will be. This may be the most time consuming part of calculating your CAC, especially for larger companies. Here is a short list to help you get started:

Advertising spend

Social media ads, email campaigns, pay per click ads, affiliate marketing, paid influencers – whatever method of advertising you are using, it all needs to be included.

Salaries

This will include all sales and customer service staff and the marketing team. Don’t forget warehouse staff and distribution costs if you’re selling a physical product – obviously this will depend on the company. 

Technical costs

This covers any technology that your marketing and sales team is using. Don’t forget to include software or services such as: POS (point of sale) systems, sales reporting software, marketing automation software, customer service satisfaction surveys.

Content production costs

This includes anything that you spend on creating content for marketing purposes, such as product photos, photo/video editing software, or freelancers hired for production purposes.

Customer Lifetime Value (LTV)

An important metric you may also want to consider when looking into CAC is customer lifetime value, or LTV.  This is the amount that your company is predicted to make from one customer over their entire shopping lifetime with you. To calculate LTV accurately you will need to collect data from several sources:

• Average Purchase Value – you can calculate this by dividing your company’s total revenue over a set period of time by the number of purchases.

• Average Purchase Frequency – we calculate this number by dividing the average number of purchases over a set period of time, by the number of customers.

• Customer Value – calculate this by multiplying your average purchase value by your average purchase frequency.

• Average Customer Lifespan – we can calculate this by looking at the average number of years a customer purchases from your company.

And finally that should give us two numbers, one representing Customer Value, and the other, Average Customer Lifespan. To find our LTV we must multiply them together. This should give us a good estimate of the revenue we can expect to gain from the average customer over their shopping lifetime.

LTV to CAC Ratio

If you really want to get into fine tuning your company’s spending, you can use both your LTV and CAC calculations in unison. 

The best Shopify stores compare these figures as a ratio, and use it to inform spending in marketing, sales and customer service. It can give you a valuable insight into what a customer is worth to your company, compared to what you are paying to attain them. 

As a general rule we should be aiming for an LTV to CAC ratio of 3:1or higher. This means that the lifetime value of your customer is three times the cost of what you spent acquiring them.

If your ratio is lower, for example 1:1 This means that you are spending the same amount on acquiring new customers as your customers are spending on your products. In other words you will break even, but make no profit.

If your ratio is higher, 6:1 for example, you are making much more than you are spending! However, excellent as it may seem, it could also suggest that you’re actually not spending enough on acquiring new customers. If you make a big profit from one customer then maybe you can afford to spend on acquiring two more, and then from those two, four more, and so on. With more investment your company will grow and expand much faster.

Minimizing expenses

The process of calculating customer acquisition cost requires a thorough examination of your whole sales cycle. This gives us a great opportunity to find out where we are spending too much, or maybe not spending enough. Here are some ideas on how to reduce your CAC:

Play to your strengths

Breaking down spending for each individual advertising channel is probably the best place to start. You might find, for example, that your Facebook ads are providing a greater return than Instagram ads. In which case you would transfer some of your Instagram budget over to Facebook, decreasing your CAC and boosting profit. 

Encourage customer referrals

Get your customers to do the work for you! Offer a small incentive to existing customers every time they refer your product or service to a friend. For example, 10% off their next order or free shipping. If the warm lead they give you converts, then the CAC of that new customer will be very low, or even nothing, depending on your referral program.

Listen to Customers

A great way to add value to a customer is to ask them their opinion on your service. You can do this through surveys. Remember to also keep an eye on your customer satisfaction score (CSAT).

Often the information we gather from existing customers can be used to shape the way we go about finding new ones. Knowing what a customer expects from your service and what their shopping experience was like is absolutely invaluable information for companies looking to grow and expand their business. Can your customer service techniques be improved? 

Be user friendly

It’s important that customers have a user friendly experience when shopping online. The easier something is to buy, the more likely someone is to buy it. So, streamline your websites and invest in better website developing tools if you have to. Ecommerce sites in particular are using data and website personalization tools to give customers a unique and individual experience based on their previous purchases and browsing behavior.

Ensure that people have the option to switch between multiple devices while shopping, enjoying the same high level of customer experience across all platforms. Offering an easy to use seamless online experience can really reduce CAC – not only is it often cheaper than running a physical shop on the highstreet, but it can also help improve conversion rates. Rather than having people struggling to find what they’re looking for and leaving empty-handed, a well-designed website will lead them right to what they want, and encourage a purchase. 

What now?

When you’re next updating your productivity plan for the year, make sure to include time to assess your CAC. Reducing your CAC will increase the economic sustainability of your company, and help you to see a greater return in profit. 

Make sure to accurately record anything you need to include – from salaries to new technology costs – and keep a close eye on the ROI of any campaigns you do as well. Staying on top of these metrics throughout the year and responding quickly to any changes is the best way to stay at the top of your field.

Jessica Day – Senior Director, Marketing Strategy, Dialpad
Jessica Day is the Senior Director for Marketing Strategy at Dialpad, a modern business communications platform with integrated call routing that takes every kind of conversation to the next level—turning conversations into opportunities. Jessica is an expert in collaborating with multifunctional teams to execute and optimize marketing efforts, for both company and client campaigns. Here is her LinkedIn. She has also written for GetGuru and Tapfiliate.

So, you’re a business owner in today’s competitive world.

You’re looking to grow your customer base, and you’re always trying to find new markets. Having a second look at current customers might be one of the most efficient ways to do that. The main aim for many companies is to acquire new customers, but we should never forget those who helped us along the way.

Retention is everything these days. According to The Hubspot, retaining customers is five times cheaper than acquiring new ones. One of the best ways to retain your customers is through a well-executed marketing strategy, including marketing automation and customer relationship management (CRM).

We’re giving you the low down on one of the most effective retention strategies out there: customer cohorts. We’ll help you make sense of these customer groups and show you how to use them in your retention strategy. So grab yourself a pen and paper and a lovely hot cuppa, too. It’s time for reading, writing, and learning. Let’s begin!

What Is Cohort Analysis?

In the marketing world, a cohort analysis is used to show how different market segments perform over a predefined period of time. In other words, it’s a way to analyze user behavior and performance as groups. By looking at two or more cohorts, you can identify many key metrics, such as activation rate and retention rate.

Let’s say you’re a software company providing tech to streamline remote call center management. At the end of a particular month, you have acquired 100 customers. You can then split these into two cohorts: 50 customers who all signed up within the first week and 50 who signed up towards the second half of the month.

By doing this, you can compare the behavior of each group and use it to understand user behavior. If your customers who signed up in the first week had a higher activation rate than the second cohort, then you know for sure that acquiring customers early in the month is more effective.

How to Run a Successful Cohort Analysis

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Be Specific About Your Cohorts

You can split up all of your customers into different groups, but you should be focusing on a single metric at a time. For example, if you’re looking to improve retention rates, focus on that in one report.

If you’re a company that holds a weekly web conference to advertise your services to businesses, you could create a cohort of “weekly web conference attendees” and measure the increase in retention rates throughout the week.

Alternatively, if you wanted to measure your shopping cart abandonment rate, you could create a cohort based on “customers who added an item or items to their cart before 3 pm” and measure how shopping cart abandonment rates change over time.

Build a Strong Foundation

Diving straight into the cohort analysis without knowing what you’re looking for is unhelpful, risky even. Spending time, in the beginning, to find out where your customers are coming from and when they joined can really help when creating cohorts in later reports.

Let’s say you want to see a higher retention rate on your guided selling platform on your ecommerce store. Make a plan. You’re likely to need to know how many customers joined each site and when the first order was placed on each platform. This way, you can create a cohort based on a common point in time, such as when they all joined or the date of their first purchase.

Focus on Retention

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While cohort analysis can provide valuable information, it is most useful when thinking about retention. Make sure that you not only look at the numbers but also try and understand why they occurred and how these customers compare to others.

For example, if you’re a cloud based communications company, you might find that people are more engaged on a Thursday than on a Friday. You’ll want to consider why this is. Maybe it’s because you send more promotional material on Thursdays, or perhaps it’s because your support team is more responsive on this day of the week. This will help you to better target your customers and improve retention.

How Does Cohort Analysis Improve Customer Retention?

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Now you know what a cohort analysis is, it’s time to look at the results. There are two main ways that a successful cohort analysis can help improve customer retention:

Higher Churn Rate for New Customers

One of the most important metrics you should consider when doing a cohort analysis is your churn rate. Put simply, a churn rate is the percentage of customers who have left your company for a particular period.

For example, if you acquire 100 customers in a given month and then 30 left within that same period, then your churn rate is 30%. A high churn rate can be very costly to a business as you’re constantly spending money on new marketing campaigns while also losing revenue from customers who leave.

A way to keep your churn rate low is to use cohort reports. These show you the churn rate of each group of customers during a certain time period, which can be particularly helpful when looking at monthly or quarterly comparisons. You can then work on strategies to increase revenue and brand loyalty.

Customers Become Less Engaged Over Time

Another common goal for doing a cohort analysis is to improve engagement rates by looking at how they vary over time. Essentially, you want to keep customers engaged with your business as long as possible so they will be more likely to buy from you again and recommend your product/service to a friend.

To do this, you can look at how your engagement levels change over time. This could be measured in terms of subscriber activity, such as logins and posts, or it could be the number of shares and clicks for a social media campaign.

Takeaway

Successful cohort analysis can be very helpful in identifying and understanding the needs and behaviors of your customers. This makes it easier for you to create effective retention strategies that will help to reduce churn rates while also increasing engagement levels.

It’s important, however, to understand what this data is telling you and how you can use it to inform your strategy before you start making any decisions. If you do this, you’re more likely to be successful with your cohort analysis and achieve the results you want!

Good luck and happy analyzing!

Jenna Bunnell – Senior Manager, Content Marketing, Dialpad
Jenna Bunnell is the Senior Manager for Content Marketing at Dialpad, an AI-incorporated cloud-hosted unified communications system that provides valuable call details for business owners and sales representatives. She is driven and passionate about communicating a brand’s design sensibility and visualizing how content can be presented in creative and comprehensive ways. She has written for sites like CrocoBlock and LuckyOrange. Check out her LinkedIn profile