Startups Struggle

Why So Many Startups Struggle With Customer Retention

Customer retention is vital if you want your company to grow, but many young startups struggle to get customers to stick around. Before they realize it, customer churn spikes, they begin losing as many customers as they’re gaining, and eventually, the startup collapses. It’s a repetitive pattern that unfolds time and time again in startups that don’t master customer retention early on – but why is that the case? And is this customer retention-related collapse syndrome preventable?

The High-Level on Customer Retention In Startups

Let’s jump in with a high-level assessment of why startups tend to lose out on customer retention and customer loyalty. Generally speaking, there are two paths to securing long-term paying customers: customer acquisition and customer retention. Customer acquisition is all about investing in sales, marketing, and advertising strategies to increase awareness of your brand and bring more customers to it. By contrast, customer retention is all about making sure your existing customer base is happy and satisfied with your product, so they continue paying for it or buying more things.

Because startups disproportionately invest in customer acquisition and either ignore or underestimate the importance of customer retention, they end up with imbalance. Their lack of investment in customer retention leads to a gradual weakening – and eventual loss of customers, sometimes to a degree that renders recovery nearly impossible.

Why Customer Retention Is So Valuable

So why is customer retention so valuable?

Customer retention is focused on keeping your existing customers around. But more than that, it’s about perfecting the customer experience so it can more easily spread to new customers currently unacquainted with your brand.

Consider the benefits:

  • Longer subscription rates: If your startup works on some kind of subscription model, your customer retention strategy can help you ensure you can keep your customers subscribed to your business for as long as possible. Even 1 additional year of revenue, per subscribed customer, can be game-changing for your business. Ideally, you’ll be keeping many of your customers around for a lifetime.
  • More purchases: Customers who appreciate your retention strategies will also be inclined to make more purchases with your brand. That could mean loading up an online cart with a couple of extra items, or returning to your store for more purchases more frequently in the future. Either way, your business will be generating more revenue.
  • Higher customer loyalty: Eventually, even the most original startups face competition. When your biggest competitors begin to emerge and threaten the customer base you’ve built, you can rest on your customer retention strategy; with the right retention strategy working in your favor, your customers will be more steadfast and more loyal to your brand. In other words, they’ll be less prone to switching to competitors, even with a compelling offer on the table.
  • Reviews and testimonials: When customers are satisfied with the service they’ve gotten, or when they’ve had an exceptional experience, they’ll be more likely to leave good reviews and write testimonials. Together, these glimpses of your customers’ psyches can help convince entire generations of new customers to give your brand a try.
  • Brand evangelism: If you amplify your customer retention strategy and go out of your way to give your customers great experiences, eventually you could end up with customers so loyal they become evangelists. Your biggest fans will think so highly of your brand, they’ll willingly and proactively recommend it to others. In other words, they become a walking advertisement – and proof that your startup truly cares about its customers.

The Pull To Customer Acquisition

Those benefits should be attractive to any startup entrepreneur. So why do so many professionals neglect it?

Part of the reason is a strong pull to customer acquisition, almost instinctively.

  • The growth mentality: For startups, the culture in most startups tends to focus on growth. Startup entrepreneurs are often enamored with the idea of growing to massive heights and getting rich – and the best way to do that is to get new customers in the door. If you’re too focused on growth, of course, you can become myopic – and miss out on counterbalancing that growth with customer retention.
  • The appeal of novelty: Human beings typically overvalue novelty. Why watch an old movie for the 100th time when you could see a new one? Whether they realize it or not, most people in the startup world intuitively overestimate the value of new customers while underestimating the value of existing ones – simply because new ones are “new.”
  • Pitching and reporting value: Let’s face it. It feels good to report strict growth and new users. When you get to tell an investor that your company has seen signups from 10,000 new people this month, it makes you optimistic about the future of the company – and will likely convince your investor that you’re on the right track. But these numbers sometimes overstate growth trajectory because they don’t account for whether those customers stick around.

Why Customer Retention Gets Neglected

On the other side of the equation, customer retention also gets unfairly neglected.

  • Overconfidence in the product: Your product may have high growth potential, but that’s not a guarantee of its ability to retain customers. Too often, entrepreneurs assume that once someone tries your product or signs up for a subscription to your services, they’ll be so satisfied they’ll never want to leave. That may happen occasionally, but it’s no reason to skimp on your customer retention strategy.
  • Underestimation of value: Some professionals simply don’t realize just how important and powerful it is to have a customer retention strategy in place. They’ve never led a startup that’s benefitted from a good customer retention strategy and they’ve never sat down to do the math. All they know is that “more customers is better.”
  • Lack of expertise: If you don’t have anyone on your team who’s advising you to invest in customer retention or telling you how to do it, it shouldn’t be surprising when the strategy gets neglected. If you’re going to be successful in this area, you’ll need to hire someone – whether it’s a full-time, in-house expert or an agency that can help you with a variety of services.
  • Lack of creativity: In some cases, a startup understands and values the idea of customer retention, but they just don’t have the creativity to come up with strategies that will keep people around. Some approaches are straightforward; for example, your intuition will tell you that great customer service will encourage customers to stay with a certain brand. But others require more thought and novel thinking to be successful.
  • Total ignorance of the possibilities: If you’ve never heard about the importance of customer retention, could you come to the strategy on your own? Without a solid understanding of the role of customer retention in a startup’s success, or the figures related to its quantitative value, you’d never formally pursue the strategy.

The Path To Higher Customer Retention

Fortunately, there are many potential tactics you can include on the path to higher customer retention. You can invest in a customer loyalty or rewards program to keep your customers subscribed. You can provide better customer service. You can routinely update your product and provide customers with additional features and perks. What’s important is that you have a way to figure out what’s important to your customers – and then provide it to them consistently for as long as they’re a customer.

It might be exciting to think about how your startup could explode in growth in just a few months, or even the course of several weeks. And it might truly have the potential to do that. But all that growth is going to mean nothing if the new customers you recruit end up leaving your company for a competitor. Make sure you’re investing just as heavily in customer retention as acquisition – if not more so.

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