In the crowded marketplace of subscription services, businesses often face the age-old conundrum: should they focus on acquiring new customers or retaining existing ones? While acquisition gets all the glamour and ad spend, retention is the unassuming powerhouse that keeps businesses afloat. “Our current churn rate ranges from 25-30%, which aligns closely with industry benchmarks, generally around 30%. To reduce churn, we focus on enhancing user experience through tailored engagement programmes and personalised recommendations,” Raja Chakraborty, CMO, Continental Coffee, told BrandWagon Online.
The economics of retent
Acquiring a new customer can cost five to 25 times more than retaining an existing one. This startling figure comes from research published in the Harvard Business Review. Meanwhile, loyal customers tend to spend 140% more than those acquired afresh, according to a Deloitte study. In subscription-based businesses, these economics become even more stark. “The burn for us is not very high as for the costs we spend, the ROI is four times. Typically, the retention spends less than two per cent of CLTV. We are trusted with the highest CLTV in the subscription industry (second to house rental). For example, one of our offerings, UNLMTD gets us a CLTV of 1.1 lacs with average customer tenure of 24+ months,” Ajith Mohan Karimpana, founder and CEO, Furlenco, added. Customers who stay longer have a higher Customer Lifetime Value (CLV), turning each subsequent transaction into a low-cost, high-profit affair compared to the costly process of onboarding someone new.
Subscription models: The playground for retention
Subscription services thrive on recurring revenue, and every churned customer is a direct hit to the bottom line. On average, improving customer retention by just five per cent can increase profits by 25% to 95%, as calculated by Bain & Company. In subscription businesses, this can mean tweaking services, offering tailored discounts, or simply engaging better to keep customers happy and loyal. Take Netflix, for instance. Its carefully curated content recommendations and seamless user experience aren’t just about enhancing user delight—they are supposedly the key drivers in keeping churn rates among the lowest in the industry. Similarly, Spotify uses personalised playlists and annual review summaries like ‘Spotify Wrapped’ to foster emotional connections, locking customers into their ecosystem.
A battle of costs and returns
Experts opine that with customer acquisition costs (CAC) rising steadily due to ad saturation and increasing competition, businesses are finding it harder to justify acquisition-heavy budgets. Retention strategies, on the other hand, are inherently cost-effective. For example, automated email campaigns, loyalty programmes, or referral incentives are inexpensive yet yield high engagement and repeat purchases. “Our customer acquisition cost (CAC) to retention cost ratio is approximately 6:1, with retention efforts. This allocation allows us to prioritise customer acquisition while investing strategically in retention through high-impact channels like WhatsApp marketing. The ratio ensures that while the majority of our budget supports new customer acquisition, we are equally committed to retaining existing customers, which maximises overall ROI and long-term growth,” Chakraborty added.
The loyalty factor
Retention isn’t just a numbers game; it’s about building loyalty. The top-performing loyalty programmes boost revenue from customers who use them by 15 – 20% annually, according to Queue It. Loyalty goes beyond discounts, it’s about delivering value and fostering trust, and subscription businesses that ace this are often rewarded with organic referrals, turning loyal customers into unpaid brand ambassadors. “Our retention strategy involves loyalty initiatives where we offer a special discount to existing customers, early access to premium products, proactive customer support, and regular feedback loops to adapt to evolving user needs,” Chakraborty commented.
Beyond the numbers
Despite its many merits, retention marketing isn’t a one-size-fits-all strategy. Businesses must avoid complacency, assuming retained customers are perpetually happy. The subscription space is rife with options, and a single misstep, whether in pricing, service quality, or transparency, can lead to customer churn. Hence, an agile, feedback-driven approach is crucial for keeping customers satisfied and engaged. “We focus on customer journeys to convey the right message. We also invest in understanding consumer behaviour trends to time our marketing better. Some of our messaging is also based on sentiment analysis and predictive segmentation,” Karimpana added.
In doing so, they not only secure stable revenue but also build a community of advocates who contribute to sustainable growth. The numbers don’t lie: in the race to profitability, retention is the hare that outpaces the tortoise of acquisition. But businesses that blend both strategies, with a clear tilt toward retention, are the ones that truly stand out,” Karimpana added. The numbers don’t lie: In the race to profitability, retention is the hare that might outpace the tortoise of acquisition.