Understanding customer retention models: Strategies for sustainable growth

Customer retention models are frameworks that predict the likelihood of a customer buying from you again. This makes customer retention models necessary if you want to build a base of loyal customers.

By understanding who’ll turn into repeat customers, you can target the right individuals, improving returns and reducing marketing spend. So if you’re looking to grow your business without having to attract new customers all the time, this mini guide is for you. Below, we’ll cover everything you need to know about customer retention models.

3 things you need to do before selecting a customer retention model

Before you choose a customer retention model, we recommend considering these three factors, as it’ll tailor your model around your business needs:

• Understand your customer retention goals
• Collect the necessary customer data
• Identify what makes your solution useful

1. Understand your customer retention goals

The first thing you should do is look at your business goals. If you own an ecommerce store for example, and you’re trying to boost average order value, you could implement a run model since it’ll give you an understanding of how to increase checkout totals.

Or, if your main focus is upselling and cross-selling, a next-best offer model can help identify products your customers will like.

2. Collect the necessary customer data

Next, it’s time to use a CDP to collect data and stitch them together. This structured data will provide predictive insights into how you can improve retention.

Using the example above, if you want to increase average order value, you could collect data on:

• How much your average customer buys
• What products customers are most likely to buy again
• How often certain customer segments buy from you

You can then feed this information into your customer retention model and find patterns of behaviors that repeat customers have.

3. Identify what makes your solution useful

The last step is finding out what makes your product or service useful.

Customers will stick to your solution once they have experienced its main value. To ensure customers experience this value, you should understand what actions make this possible. Maybe they need to sign up for your email newsletter, or read a certain blog post.

From here, you can visualize the customer journey and encourage customers to take this action along their journey. For example, if you have a 3000-word blog post explaining the value of your product, you could emphasize driving traffic to this web page with ads, backlinks, and email marketing.

4 customer retention models to consider

Once you’ve analyzed these three factors, it’s time to choose a customer retention model. Here are some options that might suit you:

1. Response model

The most common customer retention model is the response model.

It works well because it uses past behaviors and customer feedback to calculate the likelihood of someone responding to your marketing. This response could be buying your product or service, signing up for your email newsletter, or liking your Facebook page.

2. Uplift model

If you sell a subscription service, you want to focus on retaining customers with a high risk of leaving but who’d like to stay if you offer them a discount or upgraded package.

This is where the uplift model can help. Uplift retention models identify at-risk customers and predict how easy it is to save them.

3. Logistic regression model

A logistic regression model is a statistical model that measures the relationship between two events and plots the results on a graph. 

In customer retention, we use logistic regression to compare customer shopping habits and churn actions. For example, if someone is following your Instagram page, does it mean they are less likely to opt-out? Or, if someone learned about your business through your referral program, does it increase the chances of them being a long-term customer?

4. Next purchase model

The next purchase model shows you the likelihood of a customer buying from you within a specific timeframe.

This is perfect if you’re running an ecommerce store. For example, let’s say you’re selling coffee beans. With the next purchase model, you’ll understand how often a customer buys espresso beans from your store. You’ll have your light coffee drinkers, who’ll order a bag of espresso beans every six months. You’ll also have moderate and heavy drinkers, who’re drinking espresso every day to help meet deadlines. You can then conduct data analysis and segment these customers, allowing you to personalize your brand messages around their coffee drinking habits.

What are some methods to improve customer retention?

Have you already implemented a customer retention model? Great! To improve customer loyalty even more, here are some best practices to consider:

• Promote user-generated content (UGC): User-generated content is an effective way to improve retention metrics because it provides social proof and reinforces trust in your brand.
• Create a loyalty program: You can’t go wrong with a loyalty program since the rewards and cashback will encourage customers to continue buying from you.
• Collect customer emails: If you aren’t collecting customer emails, you’re leaving a lot of money on the table. This is because purchase frequency is the foundation of customer retention and sustainable growth. And one of the best ways you can stay in contact with customers and encourage them to buy again is through email marketing.

Boost customer retention for lasting loyalty

Customer retention models help you predict which customers will stay with your business and which will leave. With this information, you can improve customer lifetime value by focusing on personalization and creating a good customer experience.