In a nutshell
Customer Retention is important component of any viable marketing strategy. Getting new customers is a must do (certainly for a growing business) yet if you loose all these customers (they stop to purchase or subscribe) rapidly, your business won’t be sustainable because your customer base will not grow and you will spend all your acquisition budget for nearly nothing. So, do you know the lifetime of your users/customers? Are you able to influence it?
In the Marketing Canvas
In the Marketing Canvas, we have identified 6 main categories for building your Marketing Strategy: Customers, Brand, Value Proposition, Journey, Conversation and Metrics. Each of these categories, have 4 dimensions which means that a total of 24 dimensions (6 by 4) are defining your Marketing Strategy.
Lifetime is one of the 4 dimensions of the Metrics category.
How to use it?
Customer Retention has gained a lot of traction with subscription-based businesses. The idea of keeping your subscribers as long as possible with you becomes a necessity if you want to generate profits. The old adage is saying that keeping an existing customers is much cheaper that getting a new one (1 to 6 ratio). Whatever the ratio, you can agree with me that you will spend money to get a new customer than keeping an existing one but at the end the effect is the same on your customer base (+1 customer -1 lost or avoiding that 1 customer is leaving you). We also use the notion of churn (or attrition) to measure the number of customers leaving you during a period.
Customer churn is the percentage of customers that stopped using your company's product or service during a certain time frame. You can calculate churn rate by dividing the number of customers you lost during that time period -- say a quarter -- by the number of customers you had at the beginning of that time period.
Lifetime is another way to see it. Lifetime is the number of months a customer is staying with you. This definition is specified by each industry. In mobile business, customers should have at least receive or made a call/sms/data transaction during the period. One way to estimate the lifetime is to divide 1 by your churn rate percentage (the percentage of lost customers within a specific time frame). Lifetime shows how successful you are at satisfying existing customers.
In the Marketing Canvas, we consider this metric (Lifetime) as a very important metric. It is linked to your goal. How?
Imagine you do 1000€ a month thanks to 1000 customers spending 1€ each. If you lose 10% customers each month, your revenue after 1 month will be (1000-100) customers * 1€ so 900€, next month it will be (900-90) customers * 1€ so 810€. You see, you will have to acquire new customers to first compensate these lost customers before you can think about growth. Direct impact on your goals.
Another dimension is the Cost of Customer Retention which is the budget needed to keep one customer. This cost is similar to the COCA (Cost of Customer Acquisition). I won’t discuss this here but it is important to understand that these metrics are linked.
So if the lifetime of your customers is below market average OR not improving compared to last year, It means that you are not capable to keep your existing users as long as your competitors can. It is a Brake.
Is the Lifetime of your users helping you achieve your goals?
HUBSPOT, What is customer churn, https://blog.hubspot.com/service/what-is-customer-churn