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March 4, 2022

Customer Retention – Easy To Overlook, But You Better Not With Valentin Radu

Customer Retention – Easy To Overlook, But You Better Not With Valentin Radu

This episode features guest Valentin Radu, Founder and CEO of Omniconvert. Omniconvert is a company which is disrupting the eCommerce space on how brands should perceive growth (where the norm is 100% focus on acquisition and massive neglect on retention).

As the price of acquiring customers continues to increase, discover why the survival of a company may depend on how well they are able to retain their customer base. Radu shares his strategies based on 16 years in the eCommerce space what works when retaining customers and why many companies overlook the importance of customer retention.

Find out what percentage most companies spend on customer retention vs. customer acquisition. In addition, this episode reveals the key metrics a company should be measuring when tracking customer retention and the three pillars of customer retention (what you say, what you sell and what you do as a company).

Episode Action Items:

If you are interested in working in learning more about the Customer Value Optimization Methodology, check out Valentin's course on Make Each Click Count University - How To Use Customer Value Optimization For eCommerce Growth

ABOUT THE HOST:

Andy Splichal - Make Each Click Count PodcastAndy Splichal is the World's Foremost Expert on Ecommerce Growth Strategies. He is the acclaimed author of the Make Each Click Count Book Series, the Founder & Managing Partner of True Online Presence and the Founder of Make Each Click Count University. Andy was named to The Best of Los Angeles Award's Most Fascinating 100 List in both 2020 and 2021.

New episodes of the Make Each Click Count Podcast, are released each Friday and can be found on Apple Podcast, iHeart Radio, iTunes, Spotify, Stitcher, Amazon Music, Google Podcasts and www.makeeachclickcount.com.

Transcript

Andy Splichal  0:02  

Welcome to the Make Each Click Count podcast. This is your host Andy Splichal. We're happy to welcome this week's guest to discuss today's topic which is retention easy to overlook, but you better not. Today's guest is the founder and CEO of Omniconvert a company which is disrupting the Ecommerce space on how brands should perceive growth where the norm is 100% focused on acquisition and massive neglect on retention. A big welcome to Valentin Radu. Hi Valentin.

 

Valentin Radu  1:16  

Hi there Andy and thanks for having me. And thanks, everyone, for listening to this.

 

Andy Splichal  1:22  

Now, let's start with defining customer retention strategies, and why customer retention strategies are so important for the success of a company.

 

Valentin Radu  1:34  

Well, the first reason is that you can't find more customers if you go to another planet. So mainly there's, there is a limited amount of customers that you can acquire. And on the other hand, the customer acquisition costs are through the roof. So only in the last year, I've looked over some statistics and the customer acquisition cost on Facebook has grown grown 92%. While on YouTube, it's even more than that is one return a person. So that means we are being forced as marketeers to keep the customers that we already acquire because at the end of the day, we are in the game of being profitable and staying on black. And we can't do that, unless we are Amazon. And of course, we are getting a lot of outside investment to acquire market share. But my guess is that most of the ecommerce companies and companies out here are not looking to acquire market share, but they want to build a healthy and profitable business.

 

Andy Splichal  2:39  

So what are some of the strategies that you apply to retain your current customer base? 

 

Valentin Radu  2:47  

Yeah, I think one of the most overlooked, let's say, forces to improve customer retention is to simply use your ears more than you use your mouth as a company. Because if you don't listen to your customers, you can't retain them. So, my understanding after 16 years in the E commerce space is that companies are neglecting this aspect because they are having these habits and they are also not aware about the E commerce growth firewall. So there are two flywheels, one is the normal one. So you acquire customers, and then you ship the products and then you pay again to acquire more customers who are the other flywheel is you acquire customers, you make them come back, and then they spend more money on your brand. And moreover, they help you achieve the network effect, which means you are getting more from the same customers that you have acquired. So the first strategy that I recommend is to simply pay attention, if you've done your job as a company, are the customers that you've acquired, happy about the products and about the services and about the whole customer experience or not. If they are not happy about it, then you need to fix what's broken. While most of the companies are not fixing what's broken and they fall into this trap of acquiring more customers that never come back. And that's the first, the first strategy simply do customer research monitor things like the MDS, and if something is broken, repair it.

 

Andy Splichal  4:30  

You know, the term flywheel. The first place I ever heard that is is through Jim Collins. Is that where you heard it as well? Or did it come from somewhere else?

 

Unknown Speaker  4:39  

Yeah, from Jim Collins from from Good to Great

 

Andy Splichal  4:42  

Good to Great. And, you know, I always think of customer retention that if I'm an Ecommerce company and I, I do a good job, I give them what they want and the timeframe, they ordered it. They're a good product, that they'll come back. But is it more you need to do more than that is that what you're saying?

 

Valentin Radu  5:03  

You need to do more than that. I think we are in a position here. I mean, let's look at the market, Andy. We have a market where the cookies are being deprecated. We are in a context where a lot of traditional retailers are putting money into online, we are in a market where the customer acquisition costs are through the roof, and a lot of new players are getting each year. Each year in the Ecommerce game, I looked over some data, we have 2 million more companies, yet 2 million more ecommerce websites being activated in the last 12 months alone, which means the competition is fierce right now. So mainly, that's why we need to focus on customer retention. And if we don't do that, the risk is to become obsolete, because the customer has more power than ever. I mean, we are both customers right? Back, I don't know two years ago, if we had these habits of going and buying from some stores or the others. Right now we are we have been forced for months in a row to buy online, which means right now we have more options than ever. And the good news is that according to Benedict Evans, most of the CPGs, for instance, most of the consumer packaged goods sold online are coming from small and very small companies, while in the traditional retail most of the CPG are being bought from large and very large companies.

 

Andy Splichal  6:39  

You know, given the importance of customer retention, then why do you think that most companies overlook it?

 

Valentin Radu  6:47  

Well, the I think the first problem is that we as companies are being hypnotized. And we are in the game of the in the customer retention game of media. Companies like Facebook, like Google ads, they are being, let's say, training, everyone over there. CTRs are over there. CPMs is like everything you need to do to thrive as a company's acquisition. And nobody has a vested interest here in making you retain your customers. Because at the end of the day, if you retain all your customers, why should you be paying so much to acquire new customers? Anyways, it's not like, you need only customer retention, you need customer acquisition, when you need customer, you need conversion, and you need retention. So the whole customer value optimization chain. But the first problem is that all of the marketeers out here are being, let's say drained by Facebook, by Google, by these companies which have this interest. The second thing is that they they, they stop and there is no formal education over over these things. They stop at the first step at acquiring customers generating traffic. And they have this, let's say bad interpretation of our own ecommerce growth. Like they think all they need is traffic multiplied by the conversion rate multiplied by the ARV. But in order to thrive as a company, you need customer lifetime value and, and healthy relationship with the customer acquisition cost. However, these things are not are not being taught anywhere.

 

Andy Splichal  8:28  

You know, I find that that you're absolutely right. And that mostly marketing is about customer acquisition. When you are talking to different companies, what percent do you see most companies spending on customer acquisition versus customer retention?

 

Valentin Radu  8:45  

Yeah, we actually made a research and if you can believe it, because we we've got into this space into customer value optimization. And we want you to understand if A. our customer or company is aware about the importance of customer retention B. are they having someone from the company responsible and see how much of their budget goes to customer retention. And what we found is that companies which are having less than 50,000,000, 50 in annual turnover, are allocating less than 5% of their budget into customer retention. Now, what is also funny or ironic is that more than 50% of the revenue is coming from the customer retention. So there is this paradox, right? You have more than 50% of the revenue coming from returning customers, but you allocate less than 5% on all retaining customers. And the problem is that they think customer retention is like gravity right is like a constant you can't affect it, but you certainly can affect it. But however you can't improve what you don't measure and most of them are not even aware about customer retention. How, how was customer retention? Last year then versus last this year? That's a question that few ecommerce leaders can respond to.

 

Andy Splichal  10:12  

Let me ask you something, do you think that customer lifetime value? is really a key metric? Or is it too far out? I guess when I'm looking and I run paid ads for customers, and I'm really I look instead of customer lifetime value, I'm looking at customer annual value in seen if you're bringing people in, how much are they going to spend over the next 12 months compared to forever? What what are you using? When you're looking at customer retention? Are you using the lifetime value? Are you using a shorter time period?

 

Valentin Radu  10:46  

Yeah, that's a great question. And I think what is important here Andy is the business model. So is this is in a straight relationship with the purchase frequency and the purchase cycle, right? If you if your business, if you're in the business of selling coffee, or tea, for instance, where the purchase frequency is quite high, then you need to focus on lifetime value, because it's kind of hard, or your lifetime value should be quite short, right? Because the it takes around, let's say 90 days to for a customer to churn. But if you're selling fashion, or if you're selling electronics or books where the purchase cycle is longer, so you don't buy shoes every two weeks, right how you're buying for instance, coffee. So if your purchase cycle is longer then you, you will need to look at CLV for 12 months, or for the total customer lifetime value. So mainly, the suggestion here is to take a close look at purchase frequency and purchase cycle. We are seeing this for instance, at companies which are selling mattresses like Casper and Purple, we've looked at over their data. So the they are in a long game. So they don't need to focus on retention too much. But they need to focus on acquisition, right, because if you buy a mattress every seven to nine years, then you maybe will be out of business until your customers are buying again from you. So it's all a matter of how important it is. The higher the purchase frequency in your vertical, the more you should be looking at. Things like customer retention, and customer lifetime value should be on a shorter lifespan.

 

Andy Splichal  12:42  

So let me ask you, we'll say I'm a prospective client, and I come to you and I say Valentin. Hey, I haven't been doing anything on customer retention. I know it's important. I know, that's where 50% of my business is coming from? Where should I start?

 

Valentin Radu  12:59  

Yeah, the first, the first thing that you should be starting off is to look at the customer retention impact. So you, you, you can't do everything, right. And it's a it's a thing from from the math, right, if we remember from the fifth grade, or something like that is the order of operations. So the first thing would be to understand if customer retention should be on your priority. Because if if it's not the if it shouldn't be on your priority list, you should be stopping. So one thing that we are doing is to look at the customer retention impact. And on the benchmark, we've built a benchmark based on 2500 different ecommerce stores that are using our technology. And we've looked over there and you can see if you're buying toys if you're selling toys for instance or if you're selling CPG or if you're selling beauty and cosmetics you can see if you're within the last 25% or within the first 25% in terms of purchase frequency customer retention customer lifetime value. So how how are you against your peers which are selling the same products are pretty much the same product as you are selling.

 

Andy Splichal  14:13  

And how does that work? I mean, there's different of course there's different average price average value is that taken into consideration when you're looking at average customer lifetime value you're the I mean you know somebody's selling Matchbox cars for 299 is not going to be the same as somebody someone's swing sets for three grand right?

 

Valentin Radu  14:35  

Yeah, that's why we don't look at things related to the price but we are saying looking at things related to the customer behavior. So if your customers are having a purchase frequency of 1.2 and another shop has 3.2 and both of you you are selling beauty and cosmetics products, you might have a problem. Okay, you the idea is to look How often are customers buying from your store and another very important thing is the customer segments distribution, we are using something which is called RFM segmentation, which stands for recency, frequency and monetary value. And the rule of thumb says that you need at least 8% of your customers to be having the highest score, set recency, frequency and monetary value. In other words, you need super consumers, right. And these type of super consumers are the ones which are carrying the are doing the heavy lifting in terms of your margin as a as a business. But if you don't do this type of segmentation, that's going to be the second thing that you should be doing. So the first thing, look at the customer retention impact, look at the benchmarks and CRS 10. And if you're, if you're not doing too well, in terms of these type of metrics, go out there and do customer segmentation to see if you have a problem in terms of the capacity to retain customers, and in terms of the stickiness of your products. And once you know all these things, then we we focus on the three pillars of customer retention, which are the first thing is in order to improve customer retention you need to in with to analyze, and to fix if it's broken, what you say is a company, which is marketing, what you sell, as a company, which is product assortment, or what you do as a company, which is customer experience, what kind of services are you offering? So mainly, the next step is to look at these types of pillars, and then to analyze what's broken, so we eliminate possible problems.

 

Andy Splichal  16:45  

Wow, that's a lot to unpack there. Now, a couple things. I love the term super customers. That's, that's fantastic. I'm going to use that. And the other. Let's say you go to a store, and you look at the customer retention impact numbers. Yeah. And you're way above normal. Yeah. Are you saying you wouldn't need to concentrate on retention? I mean, I would still think there would be room if you've never concentrated on it to improve, right?

 

Valentin Radu  17:16  

Yeah, of course. So if you look at, let's presume that you're in the top 25%, in terms of how well you're retaining customers, but then you look at the financial impact of your customer retention. So what's going to mean for your business in the next 12 months, if you improve the customer retention, by only 1%. And if that result is, let's say, a couple of hundreds of 1000s of euro or dollars, then that means you will have disproportionate impact in by doing this. If you invest in customer retention and customer retention costs are not that high. I mean, if you if you can understand that there are brands out there which are investing 150 to $200,000, every month on customer acquisition, but they haven't invested 10,000 US dollars, to do customer research to understand why the customers are buying or to look at their customer segments. Imagine that. With this, you're not improving not only the customer retention, but the virtuous cycle is that you improve acquisition because you'll understand why customers are buying, what kind of expectations they have, and how they are verbalizing the benefits of your product so that you can improve the way you are doing customer acquisition, you will improve your creatives, your ads, and so on. So mainly, that's how we how it works. So mainly, it's all a numbers game. If your business is at in these less than seven figure, let's say, and you can't afford to pay $10,000 on customer research. You can't afford to pay a couple hundreds of dollars every month to do segmentation with some technologies like ours or others, there are plenty of tools out there. So if if you can't afford it, and if you're if your Ecommerce growth formula, because we have that nearly we want someone is installing our app we instantly show was the customer retention impact. So if it's if it's $10,000 in the next year, and you need to invest something like 50,000 in the next six months, of course you shouldn't be stopping but it's all a matter of priorities and Ecommerce leaders should diversify the their opportunities and I think what they are not doing is they when they are budgeting for instance now it's the end of the year maybe they are doing some budgeting when they are doing their budgeting they are not taking a few steps back and they are not understanding if their ecommerce can grow by using other levers then improving CPC or CTR whatever,

 

Andy Splichal  19:57  

Right. Yeah, no, that's a great point. Hey, let me ask do you have a favorite success story of one of your clients and you'd be willing to share?

 

Valentin Radu  20:04  

Yeah, of course, we have plenty, plenty of them. One of it's actually the first success story that convinced us that we need to move into this, this space. We, we've started as an conversion rate optimisation company. So we had an arm, which was doing consulting, and we have had our own technology, we still do have our technology to do A/B testing. And we worked with them for two and a half years. And at some point, they their growth has stopped. I mean, in terms of the conversion rate, that was that we couldn't move the needle anymore. So mainly, when you do AB testing, you tweak the website, you do some persuasion stuff, you fix the UX, but it wasn't paying for them to pay pay us further to do this type of AB testing. And we we understood that they had an issue with one of their competitors, they wanted to invest a couple million in TV campaigns. It's a large player here in Central and Eastern Europe. And they've said we can't do conversion rate anymore. And we need to focus on acquisition because we, we have customers migrating to our competitors. And instead of doing that, we convince them to do some customer research. We've run RFM segmentation, we've understood who are their best customers, these super customers. And the surprise was that 60% of their revenue was coming from 18% of their customers, which were not in large cities, they were in small and medium cities, because they haven't gotten those shopping malls. And another finding after doing this RFM segmentation and identifying their super customers was that they felt that they are selling to young people, but their best customers were more than 40 years old. And they were super customers. Exactly. And they were more than 40 years old. And they were buying shoes, not only for them, but for their kids as well. So those types of customers were their best ones. And their marketing started to focus on on them. And they've started to do this type of onboarding campaigns differently. Fact is that after only six months in, in this game, so after working with them for six months during doing this type of research, and then coming up with different email onboarding sequences, different remarketing campaigns, we ended up improving the customer retention by 30%, which was huge for a company as large as theirs because they had 400,000 customers. So mainly, the impact was fantastic. And it sticks because you have this compound effect, if you understand how to keep your customers how to stop sharing how to reactivate your customers, this is going to have a huge impact in the future.

 

Andy Splichal  23:01  

You know, those are fantastic results for sure. Now, I was looking at your website earlier, and I see where you're stressed stop spending to just spend, instead concentrate on conversion and retention. When you start working with a client, do they end up spending less in the long run when they start focusing more on retention and less on acquisition? Or what is it with this philosophy? How does that translate to the bottom line?

 

Valentin Radu  23:29  

Yeah, the bottom line is that they actually increase their budgets. I mean, that's the effect. Because if you if your customer lifetime value is going to be higher, that means your marketing efficiency is going to be better and your budget is going to be higher because they realize, hey, we could we can spend more on acquiring the customer. So that's the effect of improving the whole customer lifetime value.

 

Andy Splichal  23:56  

Are there any challenges that you struggle with and getting results for clients?

 

Valentin Radu  24:00  

Yeah, the the main struggle is to obtain alignment with the agencies, right. Most of the agencies which are doing PPC, they have their recipes, but I guess that's going to become obsolete in the future. Because they have all their campaigns, they do this ad groups, they get into this bidding into this tweaking some creatives and they think that's it. But when we come with data to support a different position in different ad campaigns, most of them are resistant to change. So mainly the main thing is to align all the players, right? You need to align the PPC agency, the email agency and you let the customer support right. So because you need to do things differently. For instance, one of the strategies or tactics that we have is to monitor the NPS and to give better treatment to your bet best customers. We have a company that To improve the NPS, they got to 92. So mainly, it's a huge NPS by applying this type of type of tactics. So the main problem is to obtain this type of alignment, internal alignment and also external alignment, because you need to orchestrate a different customer journey, which means that all the touch points with the customers should be consistent right to have consistency throughout the customer journey.

 

Andy Splichal  25:27  

You know, earlier in the interview, you mentioned Jim Collins book, but I always like to ask in my interviews, are there any business books out there that you can attribute to your journey as an entrepreneur?

 

Valentin Radu  25:38  

Yes, so one of the best books that I that had a huge impact on on me is Seven Habits of Highly Effective People. I think that should be the that's the Bible, actually to not only to to improve your own work, but to understand the game you're playing. So those principles like six seek first to understand then to be understood, begin with the end in mind, these are encrypted in how, how I work, and why I recommend it to any entrepreneur or any professional out there.

 

Andy Splichal  26:15  

Now, I forget, but I think this is Jim Collins write a foreword in that so I think they're they're kind of connected. Yeah, between the Dr. Covey book in the and the Jim Collins book. So that's Yeah, yeah. No, that's a great book. I completely agree. Now,

 

Valentin Radu  26:28  

By the way, Jim Collins has a new book, a new book, it's, it's Be 2.0, I don't know if you if you know about it. It's edited last last year with Jim Collins and B last year.

 

Andy Splichal  26:44  

I'll take a look at that. Now let's get back to Omniconvert what services do you offer you had mentioned to us to do conversion optimization. Are you still doing that? Or retention. So what are all the services you offer? And how are you standing? Standing apart from the competition?

 

Valentin Radu  27:03  

Yes. So the the best decision that we we made was to start to educate so mainly our our first thing that we are doing with build an academy which is called customer value optimization Academy, we took a few book authors and experts. So we have eight experts in email marketing in customer experience in the jobs to be done. methodology with Bob Mercer, we build this CVO methodology. And we're helping ecommerce companies to understand how an Ecommerce grows. And we are certifying people over there, there is a risk like a mini degree where certifying people, and those professionals are making a difference. So we already have something like 400 students. So that's the first thing that we're doing, then we are now training agencies in our methodology, so that we can match them with our own customers, because we've realized that we build the technology. But is that saying that a fool with the tool is still a fool, right. So it's not about the tool itself, but it's how you use it. So mainly, we want to do this type of we are doing this type of matchmaking between agencies. And we are shadowing and we are working with agencies to apply these type of principles. And then we have of course, our own services for large, large companies. And we have the technology which is the backbone of everything we are doing, we have a survey tool and AB testing tool, we have the segmentation tool, which is called reveal, and we have this freemium model. So mainly we give it away for smaller companies and we we are charging only the larger the larger companies based on their based on their size. So many, that's how we stand out from the competition. And in the next year, our plan is to build the the standard, the gold standard when you are doing an x ray to an Ecommerce. So mainly, we together with Dennis Yu, we are building an Ecommerce grader. So imagine getting data from your Facebook ad account from your Google AdWords from Google Analytics, from your Shopify or from your Klaviyo account. And all of this data is being crunched is being compared to other peers from your industry. We are looking at year over year growth we are looking at if the company should rather focus on acquisition or should rather focus on conversion or on customer retention. And then we give a great and we also give insights and recommendations with the people which know the game that they are playing. So if the company has an email problem, we're gonna have an expert in email, which is going to give away this kind of insights for them. 

 

Andy Splichal  29:56  

Wow. Well, I can't wait to see that. Now. You mentioned you guys work with larger clients on the agency level if they want to work with you, who is that perfect client for your agency? What what how much do they need me spending per month to work with? 

 

Valentin Radu  30:11  

Yeah, the the perfect customer should have at least 10 million in recurring in annual turnover. And another another aspect they should be open minded. So mainly we are in this position to fire customers. And we we've decided that the best the best relationship should be with the companies which they do need this type of RFM segmentation, they are at the level where they are open minded and they want to learn. So mainly we are we are stepping in and we are working only with this this type of of companies.

 

Andy Splichal  30:51  

And how can an interested listener out there learn more about working with you?

 

Valentin Radu  30:56  

Well, the easiest way is to look at our website omniconvert.com. I'm really, let's say, involved in this education. So you can find more on our academy on an academy.omniconvert.com and also on on LinkedIn, because I'm really, really a LinkedIn person. I'm posting there every I had this pledge this year to post every day and I managed to do it.

 

Andy Splichal  31:27  

That's great. Well, thank you for joining us. Is there anything else that you would like to add before we wrap it up today?

 

Valentin Radu  31:33  

Well, the last thing that I want to share with you if you're an Ecommerce entrepreneur, if you're an Ecommerce professional, gather most the most knowledge that you can, so nobody's going to be able to steal know how from you so mainly, my own story is a story of a poor kid from Bucharest, Romania. And I've always learned I've always learned and I've been, let's say persistent and resilient into learning because you never lose if you're learning. So I think that's the the advice that I could share with you.

 

Andy Splichal  32:08  

Well, that's a great closing advice. Now for listeners. Remember, if you liked this episode, please go to Apple podcasts and leave an honest review. And if you're looking for more information regarding Omniconvert or connecting with Valentin, you will find links in the show notes below. In addition, if you're looking for more information on growing your business, check out our all new podcasts Resource Center available at www.makeeachclickcount.com we have compiled all the different past guests by show topic and include each of their contact information in case you would like more information on any of the services I've discussed during previous episodes. That's it for today. Remember to stay safe, keep healthy and happy marketing and I will talk to you in the next episode.