Depreciating
Catching up with friend of Repeat/friend of the newsletter Zac Cherin yesterday, he described his agency (Sidekick) as being into retention “before it was cool.”
Great line, and has the benefit of being true in a couple of ways.
Rewind a few years and “retention” really meant “subscription.” So did “LTV.” Now, outside of a ZIRP environment, everyone’s talking about “contribution margin,” and first-order break even.
The constant lever, though never cool in and of itself, is retention.
To make it cool, it’s often framed through the lens of revenue quality (profit comes from returning customers) and compounding benefits (if I can get someone back for a second purchase, I’m more likely to get them to come back for a third”).
But retention, compared to acquisition, is also a tricky thing: Harder to measure, requires a bit more patience.
And, through the lens of revenue, falls prey to the law of depreciating returns much faster.
Because the top of funnel is so much smaller for retention, a 4% improvement on a retention effort has far less of a raw value revenue impact than a 4% improvement on an acquisition effort. Since most brands, despite the move to profitability, still score themselves off top line revenue, the bias, then, is to play to the lowest common denominator: improve retention for the easiest to influence group, and move on.
Not because brands want to, but because they need to prioritize their time and resources.
We raise this, not because we don’t think retention deserves to be “cool,” but because it should be cool for the right reasons.
Retention is the underlying component of everything DTC has come to grips with for the last three years: The channel is a loyalty channel. Business should generate profit.
Yes, you need customers in order to retain them. Yes, you need more customers (rather than less customers) in order to make retention’s raw value improve.
But if brands flip from viewing retention as having a depreciating impact on revenue to having a compounding benefit on the health of the business such that they should build a program that compounds on itself, retention has the potential to stay cool.
Otherwise, its status will depreciate in the same way its perceived impact does. And so will a brand’s business.