Netflix lost 970,000 subscribers in Q2 and now they are asking:
- Why did will lose so many customers?
- What are we going to do to reverse the trend?
- What are we going to do to replace the loss in revenue?
For Netflix, everything is on the table:
- Pricing (especially with more competition in their space, like HBO-max, Disney+, etc.).
- Product strategy and specifically the content they produce (is it aligned with the desires of their audience).
- Additional revenue streams, like adding ad-supported streaming.
- Focus on distribution efforts to other global markets.
A core problem that Netflix needs to answer is “How do we retain our customers”. And for all marketers, we must focus on how to retain customers. The old rule of thumb is that it cost 5X more to get a new customer than it does to keep an existing customer. In the real world, that number depends on your industry and your specific company, So maybe your number is 4X, 7X, or 10X. Regardless of the number, it is MUCH LESS EXPENSIVE to retain customers than to find new customers.
A new study, The State of Marketing and Sales Alignment, by the research firm Ascend2 and SharpSpring, found that the #1 KPI to gauge marketing and sales alignment is customer retention. If an organization is aligned on the product, strategy, messaging, technology, and data, the customers will be happy, and retention will be maximized.
(Download the 24-page research report, The State of Marketing and Sales Alignment 2022.)
Looking just at cost is probably not the best measurement to gauge customer retention and more companies are looking at Customer Lifetime Value (CLV) to determine the difference between acquiring a new customer versus retaining an existing customer.
Here are a few of the benefits of using CLV to gauge performance:
- It helps to evaluate customers by specific segments. Not all your segments/sources will have the same CLV, so if you want to optimize your marketing spend, understand your CLV.
- It is a direct connection to customer loyalty and retention. Customers with high CLV are loyal customers and are your best brand evangelists.
- It increases overall profitability. By keeping your current customers, you avoid paying the higher cost of customer acquisition the second time.
- It helps you predict churn. Customers with high lifetime value as less likely to churn.
- It helps to align marketing and sales on a common goal of maximizing the value of each customer and when you improve CLV, everyone wins.
The calculation for customer lifetime value is:
CLV = Customer Value * Average Customer Lifespan.
To find CLV, you need to calculate the average purchase value and then multiply that number by the average number of purchases to determine customer value. Once you calculate the average customer lifespan, you can multiply that by customer value to determine customer lifetime value.
Use your marketing and sales technology stack to determine the following:
- Average purchase price
- Average purchase frequency
- Average customer lifespan
Learn more about what technology is needed to determine CLV and other critical marketing and sales analytics that are needed to improve customer retention.