What You Need to Know About Customer Retention

For many studio owners, acquiring new customers is the main thing on the mind. More users equals more business, right? Yet for all those efforts to get people in the door, it is just as important to build a long-lasting client relationship—and keep those clients engaged as forever customers—whether through ClassPass or otherwise. We chatted with Kim Wong, Director of Retention and Engagement at ClassPass, about how you can analyze customer retention at your studio, what you can do to improve upon it, and why it should be a first priority for studio and gym owners.

WHY SHOULD A STUDIO OWNER CARE ABOUT BALANCING CUSTOMER RETENTION WITH ACQUISITION?
Several organizations have done studies on the costs of acquisition versus retention, finding that acquiring new customers can cost as much as five to seven times more than simply retaining existing customers. In a study done by consulting firm KPMG, customer retention is the most significant driver of revenue growth in the retail industry. Additionally, profitability also tends to increase the longer that a customer remains with your business. This makes a lot of sense in any industry, but especially the fitness industry: why spend so much time, effort and money acquiring a customer to not retain them? It’s a big opportunity to analyze your marketing strategies and evaluate ROI.

IS THERE A GOOD METRIC TO GO BY IN TERMS OF MEASURING ACQUISITION RATE VS. ATTRITION?
It’s important to look at how acquisition costs vary by the types of customers you have. Which  customers tend to stay longer or purchase more classes? A key analysis you can do is called a cohort analysis. To do this, take a look at a group of new customers that started in January; some may have come in through a Facebook promotion or similar targeted marketing effort, while others came in organically (through word of mouth or directly from your website). Of these new customers, who is still taking a class with you in February? In March and beyond? The percent of the original group that stays is your retention rate (on the flip side, those who leave bring you to your churn rate).

Once you have your monthly churn rate, you can perform a Lifetime Value Analysis (LTV analysis), which is an estimate of much a customer is worth to you. Calculate this by looking at:

(Avg Monthly Revenue per Customer * Gross Margin per Customer)

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Monthly Churn Rate

From there, you can look into how this number varies depending on the type of customer. The data will then help you to prioritize which types of customers you want to try to acquire through which methods and subsequently how best to retain them.

WHAT ADVICE DO YOU HAVE FOR RUNNING WINBACK CAMPAIGNS?
A key part of trying to win customers back is understanding why they left in the first place. Have you talked to the users that stopped coming to your studio or emailed them a survey to try to understand why they aren’t coming back? Once you have a solid understanding of this, you can start testing messages and/or offers that specifically address their reasons for churn. Testing is really important here: some users are more likely to come back than others. After you’ve sent your campaign, look at the conversion rates by different types of users. Are the users who lapsed 3 months ago more likely to convert than users who lapsed 12 months ago?

WHAT ARE SOME AVENUES TO EXPLORE WHEN IT SEEMS LIKE YOU'VE LOST A CUSTOMER?
Pre-emptive saves are something worth considering if you have a subscription based product or offering (i.e. unlimited members). Are there patterns in the data that can help you figure out signals for when someone might be at risk for leaving you? For example, if you look at customers who left 6 months ago and notice that in the month before they left, they took significantly fewer classes than those who stayed, is there something you can do or offer in the future to customers that start to show a similar pattern? Is there anything that you can build into your website or product when people are cancelling or leaving? For example, if you believe that your customers may be sensitive to price, is there another package you can offer them if the unlimited product doesn’t seem to be working? Or, if you have clients who you know are new mothers taking a few months off for maternity leave, think about how to appeal to them and potentially offer an introductory personal training session or something similar to help get them back in shape when they’re ready. Studying their usage before they leave is key so you can better analyze how to win them back.

HOW SHOULD STUDIO OWNERS THINK ABOUT RETENTION AND LOYALTY FOR CLASSPASS USERS?
While ClassPass users have a limit on how many times they can visit your studio, that doesn’t mean they can’t also be loyal clients who continue to return to your studio each month. Many of our partner studios have very loyal ClassPass users who do consistently attend and hit their studio limits every cycle. It’s important not to overlook these users, who can serve as evangelists of your brand as well with other ClassPass-ers, widening the net for capturing potential clients. Moreover, while acquiring customers can cost 5x what it costs to retain them, the cost of acquisition through ClassPass is free. Your best ClassPass clients will be the ones who continue to visit your studio each month, so think about determining the LTV of your ClassPass customers as well. Through resources like Open Access, ClassPass users can purchase additional classes at a studio once they hit their monthly limit. Studio owners should not be wary to embrace ClassPass clients as their own—often, this is what tips the needle in their favor and encourages ClassPass-ers to build more loyalty both through ClassPass, with programs like Open Access, or outside of ClassPass through additional packages.

DO LOYALTY PROGRAMS WORK? WHAT EVIDENCE IS THERE AROUND THIS?
Building a loyalty program for the sake of building a loyalty program is not very fruitful, but having a smart loyalty program that strategically rewards customers who behave the way you want them to can go a long way.

At the heart of it, a good loyalty program builds upon a deep understanding of your customer: what are the moments and milestones that really matter to them and what is a meaningful way you can reward or incentivize them? Is it a big moment for them when they hit their 10th class with you? When they hit 10 within a month? Or that they’ve been with you for 10 months? Is a simple congratulatory email enough to celebrate this? A free class? A discount on a 5 pack? A badge that can encourage gamification?

These are critical questions to consider before launching a loyalty program. Consider small scale tests (to a limited selection of users) before investing in a larger scale loyalty program, so that you can understand the longer term benefits and costs involved for your business. For further reading on loyalty programs:

The 30 Major Factors Behind a Successful Customer Loyalty Programme
How to Turn New Customers into Repeat Customers

IN YOUR OPINION, WHAT ARE THE MOST COMMON CONTRIBUTING FACTORS FOR POOR CUSTOMER RETENTION FOR ANY BUSINESS?
The contributing factors for your studio or business can be very different than the common contributing factors in other industries or other studios. That being said, some of the more general contributing factors for poor customer retention are:

1. Customers feeling like your brand is indifferent to their needs, thoughts, or wants
2. A poor experience with your service or product or poor customer service
3. Competitive dynamics

Personalizing your touchpoints with your customers, showing them some love, and ensuring they have a amazing experience in the classroom or out, can really go a long way to increase your studio’s customer retention.

WHAT KIND OF STEPS CAN A STUDIO TAKE TO PROACTIVELY IMPROVE CUSTOMER RETENTION?
Customer service is key. People tend to remember negative experiences much more so than positive ones. Make sure your front desk staff and instructors are courteous to all your clients, and especially so to new customers, those coming back from an injury or pregnancy, or those who have been very loyal to your studio. Ensure that your customer service is consistent and friendly across all channels. Try to be fast too: 41% of consumers expect an email response within 6 hours, but only 36% of U.S. companies respond that quickly (source). Don’t underestimate the power of social media for customer service and retention. Almost half of consumers expect a brand to have customer service capabilities via Facebook, but only a quarter of brands actually provide this (source). Be ready and able to respond to your customers’ comments and feedback on Facebook, Twitter and Yelp. Furthermore, invest efforts in building a help center or FAQ page on your site. Most customers will check your website first for quick and self-service solutions before emailing or calling you. By having clear, thoughtful responses at their disposal, you’ll show upfront that you care about clients’ needs and are proactive about responding to them.

Last but not least, I can’t emphasize enough the importance of data when it comes to customer retention. If you know your customer, what they like, what they don’t and what makes them tick, it can go a very long way in helping you launch scalable solutions to meet their needs and go above and beyond to surprise them.

Kim Wong is the Director of Customer Retention and Engagement at ClassPass. Prior to ClassPass she was in Product Marketing at Google, Brand Management at Disney, and Marketing Consulting at Rosetta. While attending business school at Wharton, she fell in love with group fitness and started teaching spin classes, a passion that she maintains today as a part-time spin instructor at Equinox. When not on the bike you can find her at HIIT classes and bootcamps all over NYC!