How to Hook Your Customers
Customer acquisition is at the top of the funnel. Companies invest lots of time and money into it but oftentimes forget about existing customers and the transformative power of their retention. In fact, a 5% increase in customer retention can lead to up to 95% growth in profits. Besides, only 5–20% of the leads convert in the best-case scenario while your existing customer is 60 to 70% more likely to become a repeat customer. That’s why, retention is particularly important for growth and is worth the effort and investment.
This week I looked at 2 CXL Institute courses on Retention and Google analytics. Now I’m really excited to share what I’ve learned.
Before implementing any strategies to retain customers, it’s crucial to look at this from the financial viewpoint. You need to calculate precisely customer acquisition costs (CAC) as it is key to determining your payback period and ensuring your company’s future profitability.
CAC should not exceed the long term value (LTV) of your customers. Actually, LTV should be about 3xCAC for a viable recurring revenue model.
You need to make sure that you recover your customer acquisition cost within a period of less than 12 months. Otherwise, you’ll need to invest too much capital to enable growth. For this reason, your CAC calculations should be extremely accurate in order for you to set business goals that will generate profit and compensate losses.
To calculate CAC you need to divide your total expenses on customer acquisition by the total number of customers acquired.
CAC = Total expenses for CA/ Total N of acquired customers
The formula is pretty simple. The tricky part though is aggregating the number of your total expenses. Remember to include a number of things such as:
- social media (Facebook, Twitter, Instagram, TikTok, etc),
- Performance marketing costs,
- Content marketing,
- Company’s blog,
- SEO,
- lead scoring,
- data enrichment,
- content management systems,
- website design,
- salaries of account executives, sales director, sales development representatives & marketing team,
- long term compensation, bonuses, overtime and others.
What’s more, think about your “true” customers. Users on free or trial plans cannot be guaranteed to stay and pay after this period. You definitely cannot consider them to be acquired customers while calculating your CAC as they haven’t delivered you a lifetime value. Your goal is to acquire those customers that see your product value for themselves and thus are likely to stay and pay.
Retaining a customer after acquisition is crucial for sustainable business growth. The best thing you can do is create a product that your customers can’t stop using. It seems hard to achieve but there is a way around that. Nir Eyal suggests using the Hook Model, which is a 4 step process that gets us hooked into products. The steps include trigger, action, variable reward & investment. Consecutive hook cycles are intended to prompt user engagement and bring the users back over and over again without spending a fortune on advertising. Let’s look at the steps in the model one by one.
Step 1. Trigger.
Trigger is something that kicks off the circle. A trigger can be a push notification on an app, for example. When triggers build one upon the other, users start forming habits around the product. Things like push notifications or emails sent out allow to bring customers into your product and realise its value.
Step 2. Action.
Once your customers click and get back to your product, don’t leave them alone and help them take action. Don’t rely on them to figure out where to go. Make a clear call to action that will be aligned with their intrinsic motivation to use your product.
Step 3. Variable reward.
Variable rewards are there to create a craving. A variable reward implies that you do not receive a reward every single time. For example, you push the notification, go to the app or website, pick a free trial or make a first purchase. A variable reward could be a discount, a certain product or a product feature that make the user interact with your app or product. The longer customers interact with the product, the more likely they are to develop a habit, stay and become loyal.
Step 4. Investment.
Investment does not necessarily mean payment. The Hook Model aims to create consecutive cycles and habit so that once customers are invested in your product you can leverage them for future experiences. The more they interact with the product, the more you learn about them and can use this information to come up with more triggers that create an action, offer a variable reward and make more of an investment.
Today having a good product is not enough. You customers live in the world of distractions and you really need to engage and retain them over time intelligently. You have to be as engaging as possible and reward your customers for continuing to work with you.
This week I also finished a Google Analytics Intermediate course, which contained more pro-tips on the use of this tool.
I learned a variety of ways of filtering out spam and removing internal traffic. I also looked at cross-domain tracking, which is important for businesses operating on several domains to collect proper attribution data. I also received a better overview of funnel tracking and its representation in the ways funnel visualisation and goal flow reports. Some classes touched upon segments that is how to use the built-in segments, how to create your own segments as well as sequences. Some other important topics included custom reports, dashboards, proactive alerts, channel creation & multi-channel funnel reports. Multi-channel funnel reports are really useful and allow you to see assisted and last click conversions, traffic sources as well as the interaction between channels. I also found out that Google Analytics uses a variety of attribution models, which allow to analyse data in different ways. What’s more, now I know how to collect offline data with measurement protocol and track any behaviour like phone calls or rebills.
The courses were really exciting and in-depth. I look forward to my next week with CXL to learn more about growth channels!
