Monthly Archives: August 2023

Choosing Customer Retention Metrics for the Supplements Business

Jim answers questions from fellow Drillers

Topic Overview

Hi again folks, Jim Novo here.

Today’s question is from a fellow Driller who understands customer retention really well but just can’t decide on the best metrics to measure retention in the supplements business. Should he use Customer Retention Rate? Customer Churn Rate? Hurdle Rate? Ahh, to make the right choice here the gory details will need to be visited – so let’s get to the Drillin’ !

Q: Hi Jim,

I am here choosing all the metrics I will use in the coming days to evaluate the health of my business and learn a little bit more about it. I will begin analyzing some basic metrics and then (just after being completely comfortable with the “basic metrics”) I will do some more sophisticated analyses like LTV and RF Grids. (Jim’s Note: RF Grids are advanced customer LifeCycle tracking tools described in my book).

Now I am trying to decide which is the best metric to measure my site’s ability to retain customers. There are three metrics that come to my mind. Customer Retention Rate, Customer Churn Rate and Hurdle Rate.

Customer Retention Rate would be the easiest to measure but the least precise. I could be doing a great job retaining customers but if I am attracting a lot of new customers this metric could give the wrong impression that we are doing more poorly than the last time we measured.

Customer Churn Rate is very easy to calculate when you have a “subscription model business.” If the customer cancels the contract it means a defection. But in my case there is no contract. We sell products. If the customer does not purchase in 30 days it doesn’t mean necessarily that he defected.

The Hurdle Rate based on Recency (45 days for purchase seems to be a good number for the products we sell- natural supplements, based in Brazil) seems to be the best metric I can choose to measure our ability to retain customers over time.

What metric do you think I should be using to measure our ability to retain customers?

A: I think you are one of the smartest IT guys on the subject of database marketing, that does not do database marketing for a living, I have ever met (?) ! Where did you learn this stuff? Did you read a book or something? ;)

Your analysis is absolutely correct on every point, and the approach is on target. If you start simple and work towards more complexity, you will learn more about your customers. And assuming most of your products are roughly a 30 day supply, 45 days is an excellent cut-off for a Hurdle Rate analysis. Simply track the percentage of customers who have made a purchase in the past 45 days over time, perhaps monthly to start. If the percentage is rising, you are getting better at retaining customers. If it is falling, you should be looking for reasons why this is so.

Continue reading Choosing Customer Retention Metrics for the Supplements Business

Measuring Distributor / Agent Loyalty in Service Businesses

Jim answers questions from fellow Drillers

Topic Overview

Hi again folks, Jim Novo here.

Today we have a fellow Driller looking to compare the “loyalty” of sales / distribution agents for insurance products and use this information to manage business with the agents more effectively. In this case, knowledge of the business is exceedingly important because segmentation of business lines across regions will dramatically improve predictions.

Let’s do some Drillin’!

Q: Hi Jim,

I happened upon your site and found the information there very valuable – so much so that I ordered your book (customer is referring to Drilling Down).

A: Well, thank you very much for that!

Q: I’m a marketing manager with an insurance company that distributes its life, auto, home, and business insurance products through independent insurance agents.  These agents represent our company as well as others.

I’m interested in techniques for measuring agent loyalty – which I think would be demonstrated by the agents choosing to place business with our company instead of another company they represent for policies.

A: I’m not sure in this case anything is too terribly different from the scenarios used in the book. Essentially, agents or consumers demonstrate loyalty though their actions, and if you can track their actions, you can spot increasing or decreasing loyalty.  Your business is more complex in many ways than retail, but to the consumer (in your case agent), there are always choices to be made between alternatives, and changes in the purchase patterns agents or consumers generate often precede customer defection.

Continue reading Measuring Distributor / Agent Loyalty in Service Businesses

When Do Former Best Customers Become a Lost Cause?

Jim answers questions from fellow Drillers

Topic Overview

Hi again folks, Jim Novo here.

This time, a Real World question from a practitioner who wants to prove to management they have to spend less to make more money. Spend less to make more? How could that be, and what kind of person would want to go down this road? A real world Driller, of course …

Q: I’m a “long time listener, first time caller,” and a big fan of your site and your approach to data-driven marketing.  I also have two copies of your book – one was not enough.

A: Well, thanks for your kind words. I love the talk radio reference, that is so funny.  Never though about it like that, but makes perfect sense!  Glad to know I’m actually helping people with the book too.

Q: I have a question relating to some work I am doing now with our best customers that other users of your site may have.

I work for a medium sized DTC company selling skincare products (high margin) via space ads, direct mail, and online. Our best customer “Gold Club” has about 8000 members at the moment, although members are being promoted and demoted all the time.  

According to my initial analysis, if a member does not purchase a product for more than 60 days, the chances are that they are defecting. I would like to attempt to bring them back with an offer, and leave those that don’t reply for at least 6 months for a deeply discounted “kickstart” offer (although the logistics of sending out very small mailings are a pain.) 

A: This is a common and logical approach, particularly for “renewable products.”  You don’t say what the product is, but if it is “typical” skincare product, it has a sales cycle very tightly tied to product use.  In this case, Latency usually makes more sense to use than Recency as the primary trigger for a campaign.

Continue reading When Do Former Best Customers Become a Lost Cause?