Wednesday, 31 May 2017

Why Snapchat Marketing Stinks Big Time
Poor analytics and expensive ad costs are at the top of the list.
Why Snapchat Marketing Stinks Big Time
With the implosion of standardized media into a fragmented network of varying niche-focused platforms, digital marketers must be constantly on guard and aware of burgeoning social tools for distributing brand messaging. Given the quantity of social media, blogs and content curation sites, marketers must be shrewd in discerning what platforms best serve their needs and connect with their target audience. After all, there are simply too many outlets available to spend time marketing on all of them.
One of the latest up-and-comer social platforms to gain attraction from marketers is the photo and video-sharing app Snapchat. Snapchat allows users to upload photos and videos, which they can share with their friends. What makes the app unique is that the content “self-destructs” after viewing, vanishing without a trace. This is the app’s appeal.
Given the horror stories that arise from boss’s stumbling across old Facebook content, or celebrities receiving backlash over something they tweeted five years ago, it’s no wonder why the ephemeral nature of Snapchat’s messaging is appealing to millennials who desire free expression without having their every whimsy and off-hand comment inscribed in stone.
But, while the short-lived snaps appeal to users, it’s not the best for marketers. Nevertheless, many brands have started using Snapchat for marketing ventures. The tool does have its benefits. It allows brands to engage in one-on-one communication with their audience. It’s also still seen as cool and can help humanize a brand and make it seem more authentic. Taco Bell has also demonstrated the tool’s viability as a successful channel for contests and giveaways. Plus, the majority of Snapchat users hail from the coveted millennial demographic, with 41 percent of 18- to 34-year-olds using the app.
While Taco Bell and others have achieved big things with Snapchat, there is also a vocal group of digital marketers, myself included, who find Snapchat less than ideal. As the CEO of a digital marketing firm, I am constantly exploring new venues for audience engagement. I initially found Snapchat to have a lot of potential. After all, visual content is huge right now, as is all things mobile. Also, in Snapchat’s defense, they have recently attempted to remedy some of their major issues, such as re-sharing content (Snapchat memories), the short life of content (Snapchat Stories) and poor means of promoting discovery (new search function). Even though Snapchat is moving in the right direction, in my opinion, the app still doesn’t cut the mustard.
Let’s take a look at some of the biggest problems still plaguing Snapchat marketing.

Poor analytics reporting.

For a platform to be useful as a marketing channel, there must be a simple way of calculating ROI and measuring the success of a campaign. This is not the case with Snapchat. To gauge success and glean metrics from Snapchat requires a lot of manual calculations -- which for larger campaigns results in a huge time cost.
As Snapchat continues to grow as a marketing platform, it is likely it will provide a means of analytics tracking, but in the app’s current incarnation, it’s simply not useful. You don’t know the number of people following you or viewing your snaps. So if you can’t measure engagement or a snap’s success, what’s the point? The lack of information provided not only makes it difficult to determine ROI, but also inhibits evolution of content strategy within the platform.
Third party apps for tracking Snapchat analytics, like Snaplytics, do exist, but plans are subscription-based and expensive. Considering the cost of content creation, ads and analytics tracking, successful marketing on Snapchat quickly becomes expensive. Which brings me to my next complaint.
Advertising on Snapchat is super expensive.
Snap Ads campaign rates begin at $10,000 per month. This obviously does not include the cost to create the content or third party analytics tracking.
Aside from basic Snap Ads, Snapchat also offers brands the option to sponsor lenses and purchase premium ads positioned at the top of the app, which they call Snapchat Discover Ads. Pricing breakdown for the sponsored lenses and Discovery ads are as follows:
Sponsored lenses (lasts 24 hours)
  • $450,000 a day (Sunday – Thursday)
  • $500,000 a day (Friday and Saturday)
  • $700,000+ (Holidays and events)
Discover ads
  • $50,000+
Needless to say, advertising on Snapchat isn’t for the faint of heart.

10 second video max.

While users may appreciate the 10-second cap on video content, as a marketer, I do not. Relying on 10-second video clips to engage and build an audience seems like a self-inflicted handicap, especially considering what other platforms like Instagram (60-second cap) and YouTube (unlimited time cap) offer.
The 10-second length makes it extremely difficult to create stand-alone content. Providing context to a clip will often require you to create multiple videos, which only adds to the financial and time costs. And given that the average Snapchat ad view time is less than 3 seconds, providing a focused piece of content that achieves anything at all becomes a very real challenge.
Even with Snapchat’s Stories feature, the 24-hour lifespan for photos and video leave it lacking as a strictly content marketing tool. These time restrictions also make content curation nearly impossible, although there are several workarounds for this issue, albeit manual and time-intensive.
While Snapchat does allow you to get in front of a large audience, it does little to facilitate actual communication in any way.

Limited search and discovery capabilities.

Before January 2017, Snapchat only allowed users to search for other user accounts. This limitation did little to facilitate the discovery of new content. They’ve since rolled out a new universal search bar. While this addition is a huge improvement and does help users better locate what they’re looking for, it still does little to promote the discovery of new content.
Unlike Facebook or Twitter, Snapchat has no means of enabling friends to suggest content to other friends. This makes it very difficult for a company without wide scale brand recognition to build an audience.
No outbound linking.
In Snapchat’s current form, there is no opportunity to drive traffic away from Snapchat by means of outbound links. Thus Snapchat is somewhat useless aside from top-of-the-funnel efforts such as audience engagement.
Personally, I don’t see the point in marketing on a platform that makes it so difficult to drive traffic to your site. While this limitation can be overcome by strong and captivating CTA’s, given the aforementioned short attention span, this is easier said than done.
Thankfully, Snapchat has rolled out a “deep link” feature for beta testers in January, which allows users to swipe up and select a URL provided by the content creator. But this feature has yet to be rolled out across the board.
While I am not a fan of Snapchat marketing in it’s current state, I will certainly keep an eye on the improvements and updates they make. If they unveil a more robust analytics reporting system and drop the cost a bit, maybe I’ll reconsider marketing on their platform. But as it stands, Snapchat marketing just isn’t there yet.

3 Ways Brands Can Accelerate Their Reach Beyond Ad Blockers
3 Ways Brands Can Accelerate Their Reach Beyond Ad Blockers
Consumers’ use of ad blocking technology is on the rise, which could spell trouble for both online publishers and advertisers. Jayson Dubin, CEO at Playwire shares tactics brands can take to accelerate their reach beyond ad blockers
Ad blocking is on the rise. Eleven percent of internet users globally downloaded ad blockers last year, representing a staggering 30 percent annual increase. Perhaps more troubling for brands is that among global users, two out of three U.S. Millennials, a group that represents more than $600 billion in annual spending power, use an ad blocker on a desktop or mobile device.
When we look at why this is, the reason is not surprising: people feel bombarded by intrusive, disruptive, and irrelevant online advertisements. But there is a bright spot. A large majority of online users (83%) believe that not all ads are bad, and instead of opting to block all ads, they would prefer the option to filter out ads that are offensive or not relevant to them.
We also know that when users do click through an online ad, it’s most often because the ad interested them in the moment; they need new sneakers and a Nike ad happened to be served.
By bringing together what we know makes users click (relevancy, timeliness) and what we know makes users block (intrusive, disruptive), brands can begin to formulate better ways to accelerate their reach beyond ad blockers. At a high level, viewers will be more receptive to advertising if brands--and publishers--invest in creating seamless ad experiences that fit naturally within a viewer’s online experience. What does this look like in practice? We’ve outlined three methods here.
In-app advertising
Eighty-four percent of all smartphone time is spent in-app, making engagement here critical for brands, and a recent study conducted by IHS and commissioned by Facebook Audience Network suggests that third-party in-app native ads will account for $8.9 billion by 2020, growing at an annual rate of 70.7%. Compared to other formats, native ads tend to produce higher levels of engagement, shares, and up to 3x user retention.
Native ads are a natural fit for in-app, as they can be tailored to align naturally within the content of the app. When brand advertisements actually become a part of the app, they become immediately relevant to a user. Similarly, in-app advertising allows brands to very specifically target users, ensuring that ads served are relevant.
Remember, in-app doesn’t just mean mobile. A number of users engage within apps via desktop as well, providing an opportunity for brands to experiment with new creative and ad formats.
In-game advertising
Online gamers tend to be more accepting of advertisements served in-game because they are presented fluidly, as part of gameplay. Generally speaking, if a game is free users are more accepting of advertising, but it needs to uphold the tenets of good advertising: non-intrusive and seamlessly sewn into the game experience. For example, if watching an ad gives a user free “cash” in EA’s Madden Mobile, the user is incentivized to watch an ad to completion. Another creative approach to in-game advertising is creating a game within a game; if the ad is a mini-game, it is less likely to be viewed as intrusive or disruptive.
In-store advertising
Here we are talking about the “third-screen” experience, when retailers have their own programming networks in-store. Typically, this type of out of home advertising feels very native and seamless because it’s hyper-relevant to the consumer already in the store shopping. Think about it, if CPG brands are advertising in Target’s in-store programming, it’s likely that those ads will drive sales as shoppers are already shopping for their products. Similarly, if video game brands are advertising on GameStop’s TV network, those ads will reach users who are already interested in gaming.
For brands to combat ad blockers and reach their target audiences, it really comes down to serving relevant ads in a manner that fits with the medium. That means advertisements that don’t disrupt or intrude on user experience, and ideally, enhance audiences’ brand perception. As the industry as a whole works toward creating better brand advertising experiences, in-app, in-game, and in-store advertising all represent avenues brands can take to accelerate their reach beyond ad blockers.

20 eCommerce UIs That Make Shopping Easier
If two billion people will likely make some sort of mobile transaction in 2017, you should probably consider if your mobile eCommerce experience is designed well enough to attract some of them.
If you’re not crafting a delightful mobile experience for your eCommerce site or app, you are losing customers and revenue. It’s as simple as that.
Great mobile eCommerce design concerns everything from finding products, managing shopping carts, and checking out. The ability to easily see and understand your products is critical for customers to make a purchasing decision. Users can’t buy products they can’t find or understand.
Whether you’re a designer for a new eCommerce app or a business owner, creating a phenomenal customer experience is critical to its success. For any project, checking out some phenomenal design inspirations can be useful, which is why I curated some of the best mobile eCommerce designs from around the web.
Credit: Virgil Pana

Credit: Ramotion

Credit: Isil Uzum

Credit: Ghani Pradita

Credit: Robert Berki

Credit: Gabe Becker

Credit: Yuan Chen

Credit: Flying Bisons

Credit: Eleken.

Credit: Adiatma Bani

Credit: ThomasEngebrand

Credit: Ivan Bjelajac
Credit: Farzad Ban

Credit: Nikhil Surendra

Credit: Andrey Saprykin

Credit: Alim Maasoglu

Create a Delightful Shopping Experience

If you want to take advantage of 2017’s potential two billion mobile shoppers, then you need a great eCommerce experience for your users. I provided a range of application types and design styles to get you started on creating or updating your eCommerce product.

Tuesday, 23 May 2017

Deliver An App-Centric Experience, Enable An Innovative Ecosystem
By Paul Verhoeven

Apps have transformed the ways we consume products and services. Today, from a simple app, you can order a ride with complete end-to-end visibility into your journey and gain access to quoting, pricing and billing in a single instance, on-demand and across much of the globe.
Enterprise employees have come to expect the same seamless experience from networking.

I believe that this app ecosystem provides a large opportunity for channel partners to effectively meet new customer demands. An “app-centric channel" would allow partners to make a variety of services available to customers, all via mobile-app-store-type models. Enterprises would gain simple access to a tailored portfolio of services; bundles could include anything from networking and cloud communication to storage and backup. Customers will benefit from a rich and growing ecosystem where they can access on-demand connectivity services that are agile and flexible. They will be able to rely on networking to support their growth, no matter where it is happening.

Through the combination of cloud, virtualization, on-demand connectivity and back-office automation, channel partners eventually should be able to connect, deploy and manage these services all within an app store-type environment. We’ll use APIs to deliver an on-demand ecosystem that brings together different communications services into a single location.

Overall, the communications market will be more vibrant and exciting than it has ever been. An app-centric model will provide a foundation for a new era of innovation, where the channel accelerates access to new applications and services, new levels of performance and new experiences in ICT.
[App Centric Demands NFV: The mechanics behind an app-store model? NFV and SDN. Services delivered in a software-defined model — from firewalls to UC to SD-WAN — represent significant opportunity for channel partners. In this free Report, we provide a primer. Download now!]
Let’s face it, today networking is impeding innovation within the channel model rather than enabling it. Capitalizing on the explosion of cloud, real-time communications, machine-to-machine communications and the Internet of Things (IoT) demands network services that go beyond what is being offered by the traditional networking model.
The network is the weak link that is slowing services development and putting barriers up that limit channel partners’ growth.
The Benefits of Change
I see five unique ways that channel partners and their enterprise customers will benefit from this new model:
  1. Accessibility: Making networking services available via mobile app store-type models enables channel partners to provide their enterprise customers with limitless accessibility. Eventually, customers will be able access all of their applications and services directly from their smartphones, anywhere around the world.
  2. Simplicity: By creating an app-centric channel, the complexities inherent in the current model will be removed. Channel partners will have the option to cherry-pick from a number of different networking solutions, selecting those that best suit their enterprise customers’ needs. The whole procurement and deployment process is simplified to a few simple finger taps.
  3. New agility: Partners are able to compete with new efficiency and grow their businesses outside a particular geography or vertical. With a minimized need for close operational management, partners regain critical time to focus on other core areas of their businesses, like customer service.
  4. Rapid time-to-market: With the ability to connect, procure and manage via a centralized app ecosystem, channel partners are able to deploy new applications and services within the marketplace faster and with greater efficiency. That will allow them to meet new customer demands quickly, while staying ahead of competitors in the same space.
  5. Reduced customer churn: By providing a centralized app-ecosystem for all enterprise customer needs, channel partners can reduce churn. Customers will be able to get everything that they need from a single location and will no longer have to manage multiple supplier relationships.
Applications that provide on-demand access to everything networking are the future. When speaking with suppliers, it’s time to ask when they will remove inefficient manual processes from procuring services.

The Importance of Customer Retention — An Empirical Study

As a startup founder or entrepreneur, you’re hyper focused on growth. This growth typically leads to the following results (in order): 1) more customers, 2) more revenue, 3) more employees…and repeat. Yet often times, founders approach customer growth at almost any cost. Founders and Venture Capitalists alike tend to accept a high monthly burn as long as new customer acquisition is making healthy headway.
The principal reason for the above is that, at their core, startups are intended to be growth machines. “Startups,” in the more modern sense of the word, are attempts at disrupting an industry by grabbing market share as fast as possible. This obsessive focus on speed is arguably a recent phenomenon, and one borne out of the needs of the Venture Capital funds’ time horizons. Startups are built to grow at tremendous speed, hence the focus on growth at all costs.
I’ve shifted my own career from investment banking into the tech ecosystem and have no regrets. However, if I may be so bold, I’ve found that there seems to be too much focus on growth and too little emphasis on healthy growth.
Some break the mold and look for a lower burn, knowing that this will translate into a more realistic customer growth trajectory. Yet a commonly overlooked aspect of company health is customer retention. Getting a customer in the door is the first step, but customer turnover, or “churn rate,” can be a quiet killer of a company’s potential.
The above conclusion is borne out of my own personal experiences, as well as from research conducted by reputable sources. In particular, I was drawn to an insightful HBR paper by Frederick Reichheld of Bain & Company (the inventor of the net promoter score) and Earl Sasser of the Harvard Business School that shows increasing customer retention rates by only 5% increases profits by 25% to 95%. After reading the paper, I decided to model it out using a B2B SaaS business model as a starting point, and the findings inspired this paper.
The headline results of my exercise are the following:
Focusing on customer retention can increase revenue over an 18-24 months period by as much as 80%+, reduce customer acquisition costs by 30%+, and increase total customers by 1.5x.
This article is meant to serve as a guide to the key benefits that one can reap from focusing on customer retention, and is supported by the findings from my model.

My Model Assumptions

Before diving into the results of the model and the key takeaways on the topic of customer retention, let’s quickly review the fundamental building blocks that I used for the model that underpins this article.
Below are the assumptions that are driving this exercise. Each assumption is meant to be a generic starting point, as I’m fully aware that there are endless variations of each line item below. - Starting churn rate is the same in both scenarios, but in the Retention scenario it has a “floor” of 3%. In the Status Quo scenario it remains constant at 15%. - New customer growth is lower in a customer retention focused strategy to account for the team’s reallocation of time. - Employee cost (monthly) assumes an average salary of $80k across the startup. - I grew the number of employees at a lower pace than customer growth and focused on getting customer turnover rate below employee growth (see growth rates further above). - Technology costs includes things such as server costs and “other” (remember, B2B SaaS).

Key Finding #1: Retention Increases Revenue

Keeping customers for longer can have a meaningful impact on your top line. The benefits, as shown in the chart above, are not realized immediately. I emphasize this because it will take fortitude as a founder to explain why so much of your team’s time is being focused on keeping existing customers, which means that your “new customer” number will take a slight hit. But this is ok! Stick with it, as you’re likely to see a payoff in the 12-24 month period, which may seem far away but really isn’t if one considers the average lifetime of a company.
These findings are borne out in various studies and real-life examples. In a recent report by Sailthru, which was inspired by a global study of 300 CEOs and media and retail executives, one of the biggest findings was that “Retailers and publishers that increased their spending on retention in the last 1-3 years had a near 200% higher likelihood of increasing their market share in the last year over those spending more on acquisition [of new customers].”
The reasons why focusing on customer retention improves your long-term revenue prospects are several, but are primarily down to three phenomena:
  1. Focusing on retention decreases churn, which means you need fewer new customers to still increase your customer base.
  2. Loyal customers spend more per order.
  3. Loyal customers have a much greater customer lifetime value.
I look at these in turn below.

Focusing on Retention Decreases Churn

The first way in which focusing on retention increases long term revenue is the most obvious, and is through its effect on churn. Churn refers to the loss of customers, or customer attrition.
Since keeping existing customers is often easier than acquiring new ones, controlling one’s churn rate can be vital. In my model, one of the key drivers of success in the retention-focused strategy was clearly a reduced churn figure (Chart 2).
Chart 2: Model Results - Number of Clients
My model’s findings are also reflected in other industry studies. As mentioned in the Sailthru study, “45% of [retention-focused companies] did not have increases in churn over the last year, compared to just 33% of [acquisition-focused companies].”
Ensuring that one’s customers receive a good service, and therefore by consequence reducing churn, is a surefire way of increasing revenue. A recent HBR study found that positive customer experiences correlate with strong increases in future revenue (Chart 3).
Chart 3: Annual Revenue Increase per customer based on Customer Experience
And yet, while the above seems obvious, so many startups forget to actually focus on this. Many struggle to decrease churn rates as they continue to grow their business. And this is usually down to the obsessive focus on growth rather than company health.
The simple fact is that a retention-focused strategy will reduce churn over the long term. And lower churn results in more returning customers which in turn results in higher longer-term growth prospects.

Loyal Customers Spend More

Another of the principal reasons why focusing on customer retention increases long-term revenue is that loyal customers tend to spend more than those who are not (or new customers).
In a recent study by Echo for American Express, researchers found that “customers will spend more with companies that provide excellent customer service.” The findings are summarized in Chart 4, but the key takeaways are below:
  • Two thirds of consumers state that they are willing to spend more with a company they believe provides excellent customer service, compared to a slightly higher seven in ten in 2011 (66% in 2012; 70% in 2011).
  • They are willing to spend 13% more, on average.
  • Three out of four consumers say they have spent more with a company because of a history of positive customer service experiences, similar to last year (75% in 2012; 73% in 2011).
Chart 4: How much more would you be willing to spend with a company that you believe provides excellent customer service?
The above comes out of several other studies on the subject. For instance, a study by Bain & Company found that “Repeat purchasers spend more and generate larger transactions. In our study, the longer their relationship with an online retailer, the more customers spent in a given period of time.”
Chart 5: Average Order Value by type of Customers
The above therefore highlights a key point: Loyal customers spend more per order than customers who are new (or not loyal). This means that your average dollar return per order, per customer, will be higher if you focus on ensuring that your customers come back to shop with you again.

Loyal Customers Spend WAY More over Their Lifetime as a Customer

The other key reason why focusing on customer retention increases your long-term revenue has to do with customer lifetime value.
Customer lifetime value measures the total value of a customer throughout their lifetime with your company. As mentioned above, focusing on retention results in lower churn. This in turn results in a longer lifetime per customer. This by itself leads to greater customer lifetime value.
However, while the logic above may seem obvious, what isn’t so obvious is the magnitude of the difference in customer lifetime value between a loyal customer and one who isn’t is quite impressive.
Returning to the RJ Metrics study, one of the principal findings was that “the top 1% of eCommerce customers spends 30x more than the average customer. The lifetime value of these customers isn’t just a little better, it’s dramatically better.”
Chart 6: Customer Lifetime Value by Percentile
The incredible difference in lifetime value between loyal and unloyal customers is quite staggering. What it shows is that loyal customers don’t just buy more with you throughout their lifetime, they buy WAY more. In other words, as customers become more loyal, they will tend to become “addicted” to your service and their frequency will increase logarithmically with time as opposed to linearly (chart 7). This effect is of course compounded by the fact that on a per order basis, loyal customers spend more (as we described above).
Chart 7: Likelihood of Another Purchase after 1, 2, and 3 Purchases

Key Finding #2: Retention Increases Profitability

The section above was focused on showing how a retention-focused strategy helps you make more revenue over the long run. However, the other key side of the coin is that a retention-focused strategy also helps increase the profitability of your company.
There are three main reasons for the above:
  • A retention-focused strategy helps keep your fixed costs under control
  • Loyal customers are better at word of mouth and so your customer acquisition costs decrease
  • It is easier to upsell to loyal customers than to new ones

Focusing on Retention Keeps Your Fixed Costs in Check

One of the most important ways in which I’ve found that a retention-focused strategy helps improve profitability over the long term is the effect it has on your company’s fixed cost base.
For instance: a strategy focused on growing fast by acquiring new customers often results in the need to hire a sales team quickly. But the issue is that labor is expensive! People are your best asset, but also your most expensive. In many startups, employees make up the majority of expenses. Instead of building out a large sales team, try slowing that employee growth at a pace congruent with your churn rate. The more you can avoid hiring sales people to hit the same revenue growth numbers, the better.
If you focus on growth too early (at any cost), chances are you’re trying to scale before you’ve reached product-market fitIt’s pointless to build a sales team for a product that customers aren’t sticking with. As a founder, please be thoughtful and cautious not to fall into this trap.
You might go to the large organizations such as Oracle, Goldman, or Target and hire people from their sales programs. Let’s even assume that your new sales team actually meets the metrics/goals of bringing more business in the door. However, due to churn, you’re bleeding customers and might overlook your churn rate’s significance in whether your company is being built to last.
Don’t hire a sales team just because “that’s what you do” when you want to scale. I’d strongly suggest that founders put a strong focus on the health of their company, their product and, of course, their immediate team in order to build a company that lasts.
Looking at Betterment as an example, it’s interesting to see how they positioned their customer success team (focus on the customer experience, a.k.a. “retention”) right next to their product team in order to ensure the product development was directly solving clients needs. If you’re looking to build out your customer service, here are a few ways to get started.
Hiring people also takes a considerable toll on your time as a founder and that of your team. Slowing hiring to a rate consistent with your company’s retention success will have even further returns as your employees will be spending more time pushing the business forward.
If you’re a ten-person startup, you as a founder should be heading out to clients to increase retention. If you’re a 50-100 person startup, get your sales team off the phones and send them to clients to visit in person (less time hiring, which is exhausting, and more time with your clients), or spend more time working with their clients on feedback, experience, or upselling. A thoughtful re-allocation of time is the key here, not a full upending of the status quo.
In this article, the CEO of OnDeck speaks about three key reasons why startups should be having more face time with their clients. He decided to visit four cities in four days and learn as much as he could about his customers, their needs, and how to improve the product. Time well spent.

Better Retention Lowers Your Customer Acquisition Costs

The other way in which a retention-focused strategy helps improve profitability is through its effect on customer acquisition costs. Customer acquisition cost (CAC) can be defined as the cost associated in convincing a customer to buy from you and would include all costs related to such activity, including marketing costs, sales costs, research, etc.
The issue is that acquiring new customers can be expensive. CACs vary significantly by sector, as can be seen in Exhibit 1 below, but the overall takeaway is clear: Acquiring new customers costs a lot of money.
A retention-focused strategy can be an effective way to improve your CAC figures. One way in which it does this relates to what was discussed above about hiring. If CAC is calculated including the cost of your sales team, a retention-focused strategy helps to keep your sales force efforts under control and therefore lowers your CAC. A leaner, more efficient sales team results in more new customers for every dollar of headcount expense.
The other way in which a retention-focused strategy improves CAC is through its effect on word-of-mouth, perhaps the most effective form of marketing (Chart 8). A recent study by Referral Candy found that “surveys show word-of-mouth influences every other purchase decision” and that “customers acquired through word-of-mouth spend 200% more than the average customer and make 2x as many referrals themselves.”
Chart 8: % of Customers Who Trust...
The key point to consider is that loyal customers are much more likely to talk positively about your company and your brand than those who are not. A recent study showed that satisfied customers on average tell nine other people about a positive experience. The reverse is also true: Dissatisfied customers are likely to tell 22 other people about a negative experience.
A retention-focused strategy is therefore possibly the most effective marketing strategy one could embark on. If loyal customers become brand ambassadors, and if referrals are the cheapest and most effective form of acquiring customers, then clearly CAC will be lower if you have a greater number of loyal and satisfied customers. And this finding was borne out in my model: Your CAC can take as much as a 40% decrease over a 24 month period if you focus your team, capital, and efforts on retention (Chart 9).
Chart 9: Model Results — CAC Comparison, Retention Focus vs. Status Quo
Mark Zuckerberg sums it up nicely: “People influence people. Nothing influences people more than a recommendation from a trusted friend. A trusted referral influences people more than the best broadcast message.”

Upselling to Loyal Customers Is Much Easier Than to New Customers

The final key way in which a retention-focused strategy can improve profitability is because it is much easier to upsell new or additional products and services to loyal customers.
Most business will likely tack on extra or additional product offerings to their core products. This is one of the most important ways to improve profitability. According to a Forrester research analyst, “product recommendations like upsells and cross-sells are responsible for an average of 10-30% of eCommerce revenues.”
If upselling is so important, then it is vital to consider that conversion rates for loyal customers are dramatically better than for new customers. A study by Marketing Metrics found that the probability of converting an existing customer is 60%-70%, while this number drops down to only 5%-20% for new customers.
Chart 10: Probability of Selling to an Existing Customer vs. a New Prospect
Rather than focusing on selling new products to new clients, upselling to existing customers is a much more profitable strategy. So a retention-focused approach helps improve profitability in the long run by increasing the base of loyal customers you can upsell to.

Practical Tips for Improving Retention

The bulk of this article has been focused on showing you why focusing on retention is a good idea. The natural next question would be, “Well, how can I do that?”
The ways in which you can implement a retention-focused strategy are many, and are frankly beyond the scope of this article. But for now, let me leave you with a few practical tips on how you could achieve this:
  • Launch loyalty programs for existing customers, having the degree of benefits directly correlated with the length they’ve been a customer.
  • Convert “sales people” into relationship managers. Perhaps split your current sales team in half, increasing the number of people focused on current customers and keeping them on the platform.
  • If you have to focus on acquiring new customers, instead of hiring sales people, put more money into digital marketing, which is much easier to turn on/off than it is to hire/train/fire people.
  • Communicate with your investors and show a thoughtful, calculated, and monetary reward for emphasizing a retention strategy. This should be accepted by investors who are truly rooting for your success and not looking for a quick exit.
  • Get on a plane, take a quick five-day trip, and visit as many customers around the country as you can.
  • Retention likely isn’t an issue with not having enough sales people or not spending enough on marketing. It’s probably your product. Fix the core issues with your product and look for product/market fit.
  • Implement ways to measure and analyze retention. For instance, measure customer satisfaction. There is a plethora of metrics to measure this, but a common metric is the net promoter score (NPS), which is used by many startups in their investor pitch decks for follow on capital or even on their websites.

Conclusion: Retention Pays Off, Focus on it Early

Startups have a lot to focus on, and it’s no secret that founders have the pressure of being excellent at an inhuman amount of tasks. But in a world in which the proverbial hockey-stick chart is the norm, it becomes nearly impossible not to place growth above everything else at all costs. Taking a thoughtful and disciplined approach to your company’s growth will actually create the “hockey-stick” trajectory that founders & VCs dream of. Looking down the road, any exit for the founder will come at a higher valuation if the underlying metrics of the business show healthy growth that has been built to last. Whether the valuation is based on an EBITDA, revenue, or even a “total users” multiple (e.g., Facebook or Snapchat), you are guaranteed to receive a higher multiple for a higher quality company.
And yet, as the founder of my own tech startup as well as a startup consultant, I see time and time again how other founders neglect vital business metrics and functions at the expense of new customer acquisition. So often, I see companies with great potential fall by the wayside principally due to the obsessive focus on growth. What I’d like to convey in this article is that a smarter, longer term strategy is one that is focused on company health as well as on growth.
And when it comes to company health, arguably the most important driver of this is customer satisfaction and retention. A satisfied, loyal customer is worth immensely more than one who is not. As Katherine Barchetti famously said, “make a customer, not a sale.” I sincerely hope that this article has helped hammer this point home, and should you have any follow-up questions, feel free to reach out.