Customer Retention: Fix Your Leaky Bucket Model

Reading Time: 4 minutes

The foundation of a successful company is based on two aspects, namely, the rate of customer acquisition and the rate of customer retention. Ideally, the latter should be as good as possible, which enhances a company’s brand value and thereby improves the former.

Just envisage your company as a bucket of water, where water embodies your customers. As no business is perfect, let’s assume your bucket is leaky and there is a constant loss of water. In other words, a constant loss of customers, sales, and revenue.

A natural response is to fill up the bucket as much as you can. After all, no water, no business!

How leaky is your bucket?

You need to be honest while sizing up the holes on your bucket.

  • At what rate the water (customers) is pouring out?

  • Does the bucket have few holes only, therefore letting water (customers) leak gradually?

  • Is the bucket perforated with many holes, allowing the water (customers) to leak rather quickly?

No matter what the nature of your business is, you must consider the above questions, to achieve sustainable growth.

The key is to retain as many customers as you can

Besides relentlessly acquiring customers, you need to retain the existing ones. You need to learn the art of customer retention.

If you add customers as if there is no tomorrow, but you don’t have customer retention strategies, you will end up losing in the long run.

Your understanding of customers’ usage patterns plays a crucial role in customer retention.

Once customers’ behavior and usage patterns are mapped, you can figure out the way to push new products or services to customers. Whether you want to inform your customers via emails or via push notifications.

The idea is to make customers habitual of your products or services, so that they don’t switch to something else.

It’s important to keep them hooked onto your product or service. You can create retention loops so that they keep coming back to your offering.

In this regard, the Hook Model is highly effective. It positively influences customer behavior and develops in them, a natural inclination towards your product. The best part of the model is, it doesn’t rely on costly advertising or aggressive marketing campaigns.

It’s a four-step process which includes:

  • Trigger
  • Action
  • Variable rewards
  • Investment

You need to turn your product into an essential element for your customer. It must influence their lives on a daily or weekly basis. A good retention rate reflects greatly on your brand value. This, in turn, can help you create stronger acquisition loops.

Cost of filling Up Leaky Buckets?

Rarely there are companies that are unaware of their shortcomings. They know the bucket is leaky and yet they try to fill it up continuously to compensate for the regular loss of customers.

It can cost 5x more to bring in new customers than to retain the existing ones. Still, companies exhaust their resources just to keep the bucket full at all times and lose their viable customers in the process.

Such a strategy is taxing and business teams tend to wear down rather quickly.

Fixing The Leaks

Customer churn is something that wears down every organization if leaks in the bucket are not fixed in a timely manner. The idea is to identify the holes and put a lid on them once and for all. It’s like giving your bucket a brand new body, having no leaks whatsoever.

It’s never a bright idea to go for patchwork. You need to be pro-active and seek concrete solutions to reduce customer churn and leakage. Customers can always differentiate between damage-control measures or half baked solutions and meticulously planned strategies. This makes customers question your will and intention, which doesn’t fare well in the long run.

Even for a business team, it’s not easy to come up with quick fixes every now and then. Fixing an issue temporarily and facing it, again and again, may wear down any team for the matter.

One of the better ways is to build a brand new bucket. In other words, going back to the drawing board and coming up with strategies that are entirely new.

Another prudent approach is to identify the pain points of the customers who left or are on the verge of leaving. Is every hole in the bucket caused by the same reason? Or Does every ‘hole’ in the bucket has an exclusive reason?

Though tedious but it’s always better to go from individual to individual and determine the respective cause behind the leak.

Ways to permanently fix the leaky bucket model:

1. Customer Journey Mapping

A customer is not a static entity and has his/her own journey to traverse in an organization. You need to understand and trace this journey from start to end.

Is that journey or flow logical and streamlined?

Does that journey provide a consistent and fulfilling experience to that customer?

Such questions can help you understand your product’s relevance and seamlessness of your system. This is how you can create value for your customers and deepen your engagement.

2. Customer Segmentation

Segmentation can streamline your effort to retain customers.

If you can categorize your customers into service or market groups, you can create specific strategies to retain suitable customers. You can read here.

Segmenting customers means that you segment service delivery as well. It helps in utilizing your resources prudently, in case they are limited.

3. Loyalty Programs

At times, you need to recognize people’s loyalties. The classic way is to reward them for their investment in your product.

Therefore, you must ascertain the objectives, positioning, and values of your loyalty programs. Your loyalty programs should relevant to the needs of your customers.

Moreover, the redemption process shouldn’t be tedious or complicated.

This is how you can guarantee a successful loyalty program.

4. Customer Win-Back

The story doesn’t end if a customer leaves, or at least you shouldn’t let it end there.

Make efforts and reach out to that customer. Listen to his/her side of the story. Explain to them about the changes you have made since their departure.

Not just that, you can sit with them and tell them about your vision and future plans. Tell them about your improved loyalty program and get them back on board.

We hope this write gave you valuable insights and guidance regarding customer retention. If you want to dig deep into it, then you can read our another write-up on User retention. Do share your views and queries in the comment section.

Sadanand is a content curator and strategist. He understands the Startup gamut, be it ideation, product development, team building, sales, or marketing, and likes to keep up with the trend. His lucid writing style makes up for an intriguing read. His writeups are greatly followed and admired in various communities.

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