The Wrong Way to Measure Retention

You’re proud of that customer retention rate, huh? But what if I told you there’s a hidden story—and it’s costing you…

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So I like to challenge your thinking on retention.
You know, a lot of people that I work with measure retention on how many customers stay with you, right? Or how much growth do we get from our customer base.
But they ignore those customers that stay with you and have their value eroded.
In other words, you’re earning less and less profit from a specific customer.
And I’m not sure that that’s a good retention.
Because what it’s signaling is that every time your customer wants to buy something new, or if they have to renew, you’re offering a discount.
And you’re earning less and less, their lifetime value of the customer is shrinking in terms of margin.
And that could signal a problem with your sales team.
And it could be something that’s going unnoticed if you’re only measuring retention by saying, well, we had 100 customers this year and we have 100 this year, so we’ve got 100% retention.
But if 90% of those customers are worth because we’ve discounted our prices or they’re shrinking, then that’s a huge issue.
So take a look at that this year and make sure you get in front of it.
It could be a skills issue or a leading indicator of something.
You’ve got to pay attention to in the marketplace.

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