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Marketing vs. Retention Similar but Not the Same

The goal of online marketing is to drive new users to open their wallets and pay for whatever product or service is being sold.  In today’s digital world Marketing Departments are forced to split their efforts between online and offline efforts, but this article is going to focus on the online world where performance matrix is easier to track.

To acquire new users, digital marketing professionals will approach users in a variety of ways such as: SEO, PPC, SEM, remarketing, emails, update their company websites etc. Each effort will be meticulously tracked, and LTV and ROI should be the main performance drivers.  If you are telling yourself that Customer Retention does the same things, you will be correct, but it is only half the story because while these two ducks might quack and walk similarly, they may as well be a completely different species.

 

What is Customer Retention:

To understand the differences between Customer Retention and Marketing, one must first understand what Customer Retention is.

Customer Retention is the profession whereby one-time users are turned into repeat customers while increasing the average purchase amount.

If we relate Marketing and Customer Retention to party event organizers, Marketing is the promoter as well as the outgoing and a welcoming host or hostess. Putting it plainly, once the party goer purchases the ticket and enters the party, Marketing’s job is complete.  Retention is the shy but equally engaging friend who draws party goers into staying and spending money on food and drinks as well as ensuring a good time so you will come to the next party.

 

Goals and KPI Comparison:

Since marketing concentrates on the start of the user lifecycle/funnel and retention focuses on the rest, strategies, tactics, KPI’s and effect on company revenue differs.

The goal of an effective online Marketing Team is to drive new clients while optimizing LTV and ROI to ensure the highest profitability possible.

Since Customer Retention’s purpose is to retain and increase revenue from existing clients, a complex network of data hierarchy is employed to track and optimize user behavior and spending habits. Projects and tasks are then created once the data has been analyzed, and while Customer Retention will run their own campaigns and projects, interdepartmental cooperation mainly with Marketing, Product and Customer Support should come into play.  To tie all these efforts together, User Longevity and Revenue Per Client (both in count and amount) should be the main KPI’s.

 

Comparative Effect and Contribution on the Company:

Having built my career in Customer Retention being objective as to the importance of the role is not my strong suite, however, I will try to put my biased aside to explain how both Customer Retention and Marketing can not only co-exist but thrive together.

So, we know that when a company wants to acquire new clients, they run marketing campaigns. The cost of acquiring new users is expensive and time consuming but important none the less. Here is where retention comes in, cue superhero melody.

While marketing is spending, Retention is optimizing that spend, and if done effectively, Retention will be responsible for most of the overall client revenue within a matter of months from the point Marketing starts driving new clients.

To illustrate the point, a simplified example of how Marketing and Retention would effectively work together has been included. The graph shows a steady stream of 5,000 (the blue line) clients being added every month.  Kindly note, choosing a steady stream of 5,000 users per month is for the purpose of the graph.  In the real world, market caps, growth campaigns, spend and other factors will affect the number of new clients.

For the purpose of this article, to calculate retention, every new user group of 5,000 has been placed in a cohort and the attrition rate set as follows:

 

 

User Base:

The graph clearly illustrates that if Retention is successful, within a short time half of the company’s total client base is from Retention as seen in Month 3 where both the orange and blue lines intersect.

 

Revenue:

To keep things simple, the revenue graph is calculated with each client purchasing an item monthly with a value of $5.  When looking at the revenue graph the impact of retention cannot be underestimated.

 

 

If the differences between Marketing and Customer Retention was unclear before reading this article, hopefully it is clear now. Whether you are thinking of building your own Customer Retention Department, trying to bolster your efforts, or simply looking to better organize your data and KPI’s, Bool is here to help, please do not hesitate to contact me at: dara@boolbiz.com

7 thoughts on “Why Customer Retention and Marketing are not the Same.”

  1. Its like you read my mind! You appear to know so much about this, like you wrote the
    book in it or something. I think that you can do with a few pics to drive the message home a bit,
    but other than that, this is excellent blog. A fantastic read.
    I’ll definitely be back.

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