Learning from Failure – Customer Retention leads to Sustainability

A lot of startups plan out their customer acquisition very well. However, a lot of them do not put in as much focus on retaining customers. A business cannot indefinitely keep acquiring new customers without having strategy to retain the existing ones, especially in a business model which thrives on repeat purchases. Retention tends to be much cheaper than acquisition and hence drives profitability and sustainability of the business.

HomeJoy was a on demand home cleaning startup which faced problems owing to this fact. It started off by  acquiring customers using deep discounting on deal websites like Groupon. It was able to acquire customers but was not able to retain them. Only about a quarter of the customers usesd the service after a month and only about 10% used it after 6 months. The startup started racking up steep losses and this resulted in low investor interest in the startup, which eventually closed down.

Advice – Invest in acquiring customers but also invest in retaining them as retaining existing customers is much cheaper than acquiring new ones.