Like a pool of water that fills and empties, your customer base also rises and falls with the accumulation of new customers and the loss of churned customers. Every so often, you need to assess the current level of active customers in your customer pool, verifying that there is the right balance between your customer acquisition and retention efforts.
Your end goal is the creation of a pool that continuously flows with live customers, and for that pool of customers to continuously grow over time.
While working towards this goal, it’s a good idea to take a step back regularly and ask: Are the total number of accumulated new, active, and reactivated customers in our pool greater than the number of customers who churn? If the answer is yes, then you are successfully maintaining active growth in your customer base. If, on the other hand, the number of churned customers is rising, or the number of new or reactivated customers is decreasing, then your current active customer base has shrunk, signaling a leak in your customer pool.
This post will take you through a high-level approach to regularly measuring your customer pool and identifying leaks that may be causing your customer base to shrink.
Assess the Level of Your Customer Pool
When calculating the level of your customer pool, it is important to distinguish between “live” customers (your currently active customers), and customers who recently became live (your new and reactivated customers). Live customers indicate the current level of customers in your pool, whereas customers who became live are indicative of a recent rise in the level of the pool. How do you know what actions resulted in these recent additions, or which are contributing to the level of customers in your current pool?
As a first step in assessing the number of customers in your customer pool, you’ll need to segment your customers according to their customer lifecycle stage. Typical customer lifecycle segments include new, active, churned, and reactivated customers. You can read more about this in, Customer Segmentation for Personalized Retention Marketing.
After dividing your customers according to their different customer lifecycle stages, you’ll want to measure several different metrics over a specific time period to have an indication of the success of your marketing efforts. First, you’ll measure the level of churned and re-activated customers, which can indicate issues with the effectiveness of your customer retention efforts. Secondly, you’ll want to measure the increase in the number of new customers over that same time frame in order to assess the effectiveness of your customer acquisition efforts.
Let’s take the example below, in which we track the level of the customer pool of an online business over a period of three months. The blue line indicates the level of live customers.
An increase in the red bars (churn customers) or a decrease in the green bars (new and re-activated customers) indicate a fall in the level of live customers in your customer pool. These measurements can help you identify a leak in your customer pool, due to either customer acquisition (green bars) or customer retention efforts (red bars).
Analyzing this example on the macro level, the number of live customers increased steadily from the middle of November until the middle of December. The specific increase in the number of live customers from the beginning of December to mid-December is a result of the number of new and reactivated customers entering the pool being greater than the number of churned customers leaving it. After mid-December, however, the level of the customer pool fell as a result of a decrease in the number of live customers. This decrease in live customers was due both to an increase in the number of churned customers and a decrease in reactivated and newly acquired customers.
Once you’ve determined that a leak exists in your customer pool, the next challenge is to learn how to accurately determine what caused the leak.
Determining the Cause of Your Leak
You’ll identify the source of your leak by determining whether or not the decrease in your pool level came from an increase in churned customers, a decrease in the number of newly acquired customers, or a decrease in the number of re-activated customers.
After determining the exact source of your customer leak, you’ll need to then drill down further to determine its cause.
In the example above, for instance, we want to know: What caused the increase in the number of live customers in the middle of December, followed by a sudden decrease two weeks later? Our experience has shown that, oftentimes, a sharp increase in live customers is followed by a significant decrease. One possible cause for this phenomenon is a particular marketing strategy implemented during that time – perhaps an advertising campaign or a series of generous offers that successfully reactivate customers temporarily, only to have them churn again a short time after accepting the offer. Using advanced cohort analysis, we can investigate this further by tracking how many of the churned customers were recipients of this marketing strategy and reactivated and then re-churned only a short time later. If that number is high, it could be worth replacing generous offers given during that period with campaigns that stimulate more long-term engagement.
Other possible explanations for the leak in the customer pool and the increase in churned customers could be the quality of customers coming from a specific region, or an aversion to a specific online platform, product, brand or acquisition source.
Going back to our example above, we were able to drill down further using cohort analysis to discover that the proportion of recently churned customers from a specific affiliate was 10X higher than the general proportion of the recently churned customers in the entire population of live customers. We were therefore able to associate the cause of the leak with a specific affiliate during that particular timeframe.
After discovering a leak in your pool and analyzing its cause, you can take steps towards finding a solution.
Constantly Monitor Your Customer Pool
Making the commitment to regularly measure the level of your customer pool enables a better understanding of how and which of your efforts contributed to the success of your customer acquisition and customer retention efforts. It also provides you with the ability to quickly, easily and efficiently identify a leak, plug it before it becomes too late, and keep the number of live customers constantly climbing.
Varda is all about the customer. With more than 10 years helping customers improve their businesses by making the best use of their data, Varda is the perfect blend of energy and efficiency, equipped with a bright personality and exemplary professionalism. She holds a Bachelor’s degree in Economics and Business Administration.
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