m Flashcards
(22 cards)
What is the primary focus of retention strategies?
To reduce customer churn and improve long-term value.
What does CAC stand for?
Customer Acquisition Cost.
Why is retention often neglected by companies?
Companies prioritize short-term KPIs, retention improvements take longer, and there is immediate pressure to reduce CAC.
How does retention impact acquisition?
- Reduces pressure to acquire new customers by lowering churn
- Improves Customer Lifetime Value (LTV)
- Allows for higher CAC tolerance
What is a healthy LTV:CAC ratio?
3–5:1.
What was the financial impact of reducing churn by 15% in the retention scenario?
Saved £149k in marketing costs and improved LTV by 17.65%.
What is Customer Lifetime Value (CLV/LTV)?
The total revenue a customer generates during their relationship with a company, adjusted for costs.
What are the drivers of CLV?
- Number of orders
- Average order value (AOV)
- Retention rate
- Referral behavior
What are the three steps to optimize CLV?
- Segment high-value customers
- Tailor strategies to retain them
- Measure happiness via Net Promoter Score (NPS) or reviews
What is the effect of churn reduction compared to CAC reduction?
- Requires fewer new customers to hit growth targets
- Improves LTV and profitability
- Allows for scaling even if CAC increases
What are some drawbacks of CAC reduction?
- Savings are temporary
- No improvement in LTV
- Higher operational costs
What strategies can be used to convince stakeholders to focus on retention?
- Use scenario calculations
- Highlight secondary benefits such as referrals and brand loyalty
What is the importance of tailoring messaging for different stakeholders?
- For profitability-focused: Emphasize cost savings and LTV gains
- For growth-focused: Show how retention reduces acquisition pressure
What is the churn rate?
The percentage of customers lost over a period.
What is the target LTV:CAC ratio for sustainability?
3–5x.
What does Net Promoter Score (NPS) measure?
Customer loyalty.
What is A/B testing used for?
To optimize onboarding and retention tactics.
Fill in the blank: A healthy LTV:CAC ratio is generally considered to be ______.
3–5x.
True or False: Retention strategies provide immediate financial benefits.
False.
What secondary benefits can result from improved retention?
- Referrals
- Upsell opportunities
- Brand loyalty
What was the effect of focusing on churn in the example provided?
Saved 3,733 customers and £149k while boosting LTV:CAC from 5.07 to 5.96.
What was the financial outcome of focusing on CAC in the example?
Saved £209k but required the same number of acquisitions with no LTV gain.
