How ‘Loyalty Economics’ Work: An Onboarding Cheat Sheet that Creates Customers for Life

by Brad Smith - Get more articles like this sent to your email here

It’s been called “marketing’s dirty little secret.”

The embarrassingly skewed 92:1 ratio says that marketers spend $92 dollars on new customer acquisition compared to a lowly single dolla’ bill on retention.

That’s not just a problem; it’s a recipe for bankruptcy.

Because new customers are overwhelming unprofitable.

Here’s why, along with a simple roadmap to follow in order to correct it.

How Calendly ‘Flipped the Funnel’ to Skyrocket Growth

That website you’ve got there is beautiful. It’s optimized and primed for customers. All the growth hacking boxes are ticked.

People are coming into your site. And yet revenue’s stagnating. Possibly even in decline.

Calendly didn’t have a problem finding people. They had more than 10,000 users during beta testing.

Where they struggled, though, was in the middle of the funnel: Activation and Retention. So they decided to ‘flip the funnel’… instead of prioritizing Acquisition (like most do), they decided to work backwards. Starting with onboarding.

“You need to live in your own territory before bringing other people into it,” said Claire Suellentrop, who was Calendly’s marketing director at the time. “Today’s world of marketing is over saturated, and that’s only going to get worse in the next few years. Instead, the customer’s experience they have when they get to your website and into your product when you have their full attention is more important than ever.”

Where were users dropping off? What were they experiencing on the site? Claire took a long hard look at their most active customers, and then figured out how to help them and tell their story.

Because the bottom of the funnel? That’s where the real magic can happen.

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The Sobering Math Behind ‘Loyalty Economics’

New customers are expensive.

Like, really F-ing expensive.

In fact, it will cost you five times more to acquire a new customer according to some estimates.

And then it only gets worse for online businesses (without a brick-and-mortar presence), jumping another 20-40% more for new customers.

Those numbers get even worse because approximately 60-80% of satisfied customers will not go back to the original company they used for a product or service, according to a Bain and Company study.

While an even older study on ‘loyalty economics’ found that just a 5% in customer retention rates can increase profits anywhere from 25% to 95%.

These retention numbers are mimicked across industries.

For example, online grocers had to hold on to a customer for at least 18 months in order to simply break even on their $80 cost of acquisition.

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Simply put:

Loyal customers are worth more than new ones.

Like, way F-ing more.

Amazon Prime members, for example, annually spend about $75 billion. Each member will spend about $1,200 a year, compared to just $500 for non-Prime members.

At Adobe, loyal customers have a 9x higher conversion rate than new customers without a purchase.

So if retention is such a big deal, why isn’t it a big deal?!

Instead, you see marketing spend look like this sad little pie chart:

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If that orange Retention slice were an emoji, it would look like this: 😭.

Loyal customers spend more than new customers. They’re less price sensitive. And they’ll help actively promote your products, too.

So, how can you make them feel special and like you haven’t forgotten about them all this time?

How Calendly’s Middle of the Funnel Focus Uncovered New Use Cases

Things snowballed quickly with Calendly’s built-in network effects.

The value of their service multiples with each new ‘sticky’ user. So for them, retaining a single customer is a BIG deal.

To do this, Claire and Calendly dug deep on those happy customers to find out what got them to that place. Who were they? What did they want?

Then they segmented these customers into six buckets. Each group became the ‘poster-children’ for Calendly. And their stories were used to entice others that would eventually fall into similar buckets.

Dozens of customer interviews were conducted over the next few weeks. And each brought new insight that Calendy wasn’t even aware of. Like marketing automation.

Initially they assumed most customers were using Calendly for sales rep scheduling. But they discovered, through these interviews, that it was also being used for lead gen, too.

One breakthrough, for example, came from Sean McVey, Director of Demand Gen at Virtru.

Initially, only about 25-30% of leads were signing up for demos, even though they were responding to “See a Demo” CTAs. (BTW, that’s not bad.)

Instead though, Sean had the idea to embed Calendly right into the confirmation page. This removed the extra follow-up steps it usually takes. While also simplifying life for his salespeople.

That one small update pushed their conversion rate close to 50%.

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McVey then doubled down and added personalization to the Thank You page. When a new person signed up and scheduled using Calendly, one of Virtru’s reps got a notification.

Did that work? Yep. Conversions were up to 61%.

Let’s reiterate: Claire and Calendly (and Sean!) knew that their success wasn’t going to come from large ad buys. At least not initially. It was (and is for most) too cost prohibitive.

This lead Calendly back to produce new content on how their marketing-focused customers were finding success with the tool. They wrote new support docs explaining this use case and helped teach others how to use Calendly in their own marketing efforts to achieve similar results.

This effort was repeated for each group. So that the entire onboarding experience was redesigned to make their product as sticky as possible for these key user ‘buckets’.

And the end result was double digit user growth for over 24 months (and counting).

7 Steps for Attacking Activation and Retention (AKA How to Keep the Money Rolling In for Less)

This all sounds great, right? But how do you get the job done? Here are seven steps to help you move down that funnel.

1. Begin at the Beginning

First and foremost: Where are your current visitors coming from?

The channel, source, or medium tells you a lot about who they are and what they’re looking for.

For example, ‘cold’ visitors from PPC are going to look a hell of a lot more different than ‘warm’ ones coming from your email newsletter.

Which changes everything. Landing pages need to be different. Value props do too.

Google’s Customer Journey to Online Purchase toolset can help you visualize this. It will show you which channels people use along their customer journey (and at what times) based on your size, location, and industry.

Now you can cross-reference this with your analytics. Pull up the last six months or so, and view by Source / Medium.

Now you can start to segment out different types of traffic. Because there will be differences with each (even PPC vs. Organic Search).

The trick to uncovering each is by figuring out what they’re looking for.

2. What (Specifically) are these People Searching For?

Think of ‘conversion optimization’ and what comes to mind first?

A/B testing undoubtedly. Blue buttons vs. green ones.

But guess what? Those fail. A majority of the time.

Conversion optimization is about much more than that. There are other tactics and techniques that more consistently produce results. Like optimizing how users flow through your site.

The User Flow report inside Google Analytics can give you a taste of this. (It’s not perfect, but it’s an easy place to start.)

It will show you where people start on your website. And more importantly, where they’re trying to go.

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That journey or ‘path’ through your site is a clear indication of user intent, and where they are in the sales process.

The first step is identify these ‘user flows’:

  1. PPC > Product Page > Thank You Page
  2. Organic Search > Blog Post > eBook
  3. Email > About Us > Contact Us

Then the next step is to improve each one.

3. Now Optimize these ‘Paths’

Your homepage is important. But not that important.

Not as important as it’s made out to be when every single department wants to weigh in on it.

Instead, these ‘user flows’ and ‘paths’ will clue you into what’s really happening on a website. And then you can work to make each little transition better.

For instance, take a look at these paths from ConversionXL:

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With every step, you can start by reducing friction.

That actually means reducing the steps someone needs to take in some cases. A perfect example is the earlier Virtru + Calendly one.

Not only were they being held back up-front, with the number of people opting-in. But then replacing the standard confirmation page with an embedded schedule reduced the huge lag time in between having to follow up with customers in email or calling to set that appointment manually.

Another example further up the funnel is a simple product search. Someone looks up “womens Toms shoes” on Google, and are met with product photos, including one that offers “free shipping.”

When they click and are directed to the product page, they get the product they searched for and the free shipping message. The conversion scent is maintained.

And nothing derails that purchasing momentum.

4. Stay in Touch Along the Way

Once you’ve got them where you want them, it’s time to hook ‘em. And to do that, you need to be available to answer questions and help further guide them through the funnel.

79% of users prefer live chat for support over email and phone. It’s quick and direct. It’s, “I have a problem, can you help me?” And not, “I have a problem, which number should I select in this never-ending phone call for support?”

Thankfully, live chat doesn’t suck anymore, either.

Drift, for example, found that this direct messaging outlet allows them to reach anywhere from 7-20% of their site visitors.

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Messaging now goes beyond basic support, aiding in lead gen and sales, too.

New messages can be automagically routed to different people or departments depending on what someone is asking about.

And you can even tailor on-site notifications to people based on key events. For example, one for a new visitor who is looking at pricing, another for someone who has been a frequent visitor.

Messages can relate to their web activity, how often they visit, where they are located, and any previous interactions they’ve had with the team.

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Then, these conversations can become a catalyst for future communications. It’ll connect with your CRM, and remember previous visitors so you can pick up where you (or they) left off.

5. Proactively Follow-Up in Multiple Channels

Marketing automation doesn’t meant shoving “Hey $FNAME” onto a template email before it heads out the door.

And it’s not just reserved for emails, either.

Yes. You should be using email sequences to follow up and welcome emails to greet new users.

But… you shouldn’t stop there, either.

For example, average email open rates are… what? Like ~15-25% if you’re lucky?

Meanwhile, SMS is delivering 99% open rates.

Think about the last time you checked your phone. I’m guessing it was very recently. Probably while reading this long-winded article.

You probably now even have an urge to check it again.

Execs reportedly “couldn’t go 10 minutes without responding to a text” according to one study.

Picture this:

Users fill out a form on your PPC landing page, and instead of getting the usual, tired, automated email (that undoubtedly ends up buried in the Promotions Gmail tab somewhere), they get an instant text:

“$FNAME Thanks for your interest in $COMPANYNAME, we’ll be calling you soon.”

Then, based on who does or does not answer the follow-up call, the users will get another message:

“We were unable to reach you. Click $PHONENUMBER to call us now.”

Crazy? Not really. It’s already happening:

You can tailor SMS follow up messages just like emails by using conditional IF/Then automation techniques (the same ones you already have in HubSpot, Autopilot, Infusionsoft, etc.).

TextMagic, for instance, segments contacts based on these responses and runs them through the lead nurturing campaign.

They (and other providers) are also segmenting based on where the users are in the their sales journey.

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6. Drive Engagement with In-App Notifications

In-app notifications are like the main character in any teen rom-com.

The girl starts off as the nerdy next-door neighbor who is smart and fun to hang out with, but just not the type the senior quarterback asks to the prom.

Then, she simply takes off her glasses and wears her hair down, and she’s miraculously the hottest girl in school.

In-app notifications show you just how hot the product can be. (Perfect metaphor, right?!)

Sure, you’ve used the free-trial and weren’t planning on signing up. But in-app messaging can point out the benefits of the product based on how you’ve been using it.

They can drive engagement and push people toward the parts of the product that are most useful to them. After a while, they won’t be able to live without it, and are more likely to ask it to the prom sign-up.

For example, you can use the Kissmetrics Funnel Report to figure out how many people are using different features on the site.

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Then, up those numbers with a targeting login message:

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And don’t forget to go big or go home. You can try the small messages that pop in and out of the corner of the screen, OR you can try a full-screen takeovers to really drive the message home.

(Except maybe, you know, less stalker-ish.)

Finally, don’t just leave it all on the site. Use those brand new emails for additional retargeting campaigns on Facebook with a custom audience campaign. Baby clothes e-tailer, Spearmint Love, saw 991% year over year revenue growth through scaling Facebook and Instagram retargeting.

7. Go Old-School with Direct Mail

We’ve gone high-tech. So now let’s go old-school.

Your mailbox isn’t just for your annual birthday card from your grandma. And coupons for crap.

It’s a way for companies to break away from aaaalllll the things you are getting sent to your Gmail, or that are bombarding you on every other channel.

You can even outsource this with companies like Lob, who will handle the production, management, and delivery of all your mail pieces. (Through a programmable API!)

Just give them the copy and creative goods and they’ll take care of the rest.

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You can also create custom URLs for these pieces to track how a person came to your site. And don’t forget custom 800-numbers and unique area codes to localize the pieces and track phone calls.


New customers cost more.

That’s actually putting it delicately.

They don’t just cost more… they’re unprofitable. For days and weeks and months from now.

Instead, your existing, loyal, and repeat customers are the ones paying the bills. The ones telling their friends about you.

So why, oh, why, have we forgotten all about them?

New acquisition is important, not doubt. But retention deserve at least a little slice of the pie.

Retention starts with the customer’s first interaction with you. And each one afterwards can have a very positive (or negative) effect.

Know what people want before they get there. Help them find it easier. Proactively help them along through multiple channels.

Retention isn’t about locking people into a subscription so they can’t get out.

It’s about helping those people realize value from your product, app, or service, faster and more frequently.

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Now that you’re here…

Why not take a few minutes to see how Webprofits can help you achieve your growth aspirations?

We helped one company grow from $25M to $190M revenue in 4 years, and we work with challenger brands that want to make a serious impact in their industry and have the resources (and the will) to make it happen.

If you want a growth strategy that leads the way in your industry, find out how Webprofits can help you transform your digital marketing.

Brad Smith

Brad Smith

Brad Smith is the founder of Codeless, a B2B content creation company. Frequent contributor to Kissmetrics, Unbounce, WordStream, AdEspresso, Search Engine Journal, and more.

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