Customer retention = Frequency of Need X Fulfillment X Mind share

High customer retention is the holy grail of most businesses. If customers keep coming back to your business, it increases lifetime revenue per customer (LTV) and you earn more per cost and effort of acquisition. 

Customer retention may be hard to execute, but really simple to understand. There are three main factors that impact retention: 

Frequency of Need 

Users use products to satisfy a need. Some needs recur on a daily basis, like the need to eat, sleep, talk to people, hear the news, commute, or shopping. Some needs recur on a monthly or yearly basis, like doctor visits, car maintenance, or vacations. Some needs are episodic and happen a few times per lifetime, like dating, wedding planning, home or car purchase, teeth alignment, or funeral services. 

If you are serving a need that's recurring frequently, you have more potential for retaining customers. If it's less frequent, it's likely that customers will only come back infrequently or just try a different solution next time the need arises. If the need is episodic, then it's likely that the customers never come back. 

It's possible, but very hard to manufacture a need or increase the frequency of a need. So if you are gunning for high retention, serve a frequent need. If you are serving a low-frequency need, then you should charge higher or have a large addressable market. You can try to improve retention by serving more adjacent needs. For e.g. Linkedin's B2C product was serving the need to find jobs, which happens every few years. But they expanded to an adjacent need to learn about the industry and network updates, which is much more frequent. Linkedin also expanded to Sales and Recruiters who have a much more recurring need. Amazon expanded from selling just books to selling everything. 

Fulfillment 

If your business fulfills a customer's need, then they are more likely to come back when the need arises again. There are three dimensions of fulfillment: 

  • Speed: Customers have to experience the fulfillment or "aha" moment as quickly as possible. 
  • Quality: Better the experience compared to their current or any alternative, the more likely customers are to come back
  • Consistency: The need has to be consistently fulfilled every single time. Even better if there's more fulfillment (or lower effort) over time, because customers' expectations only increase over time as they get used to a certain quality of service. 

Mind share

Lastly, you need to stay in touch with customers so they remember to come to you when the need arises again. Dominos advertises new flavors of pizzas not because those flavors sell well, but just to remind customers about pizza. Subscriptions, social media, email newsletters, advertising, notifications, cool launches, seasonal promotions, etc. are all ways of retaining and increasing mindshare. 

Retention is one important aspect of growing your user base and you can read about other aspects of growing your userbase in my previous post