Startup OS #3 | Why 9% churn will destroy your brand 💀

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At every high performing DTC startup there’s a retention rate target.

This is because churn is the secret killer of any business.

Online businesses suffer from churn, especially, because there’s so much competition from new brands - the barriers to entry to start a brand on Shopify is $1 → the cost of the 3 month trial.

So, what is churn and how can you improve retention?

Why Retention is Critical for a DTC Brand

Customer retention is the foundation of long-term profitability in any DTC business. Acquiring customers is often the most expensive part of running an eCommerce brand. You’re paying for ads, influencers, and content strategies to bring new customers to your store. However, the real value lies not in that first sale but in how often a customer returns to make additional purchases.

When customers come back and make repeat purchases, they increase their Lifetime Value (LTV)—the total revenue they generate for your brand over their lifetime. The higher the LTV, the easier it is to justify the cost of acquiring those customers in the first place. More importantly, it costs significantly less to retain and re-engage existing customers than to acquire new ones.

Retention turns your marketing spend from a one-time cost into a long-term investment. Each returning customer increases the return on your acquisition efforts, creating sustainable growth.

Poor Retention Leads to High Churn

So, what happens if you don’t focus on retention? That’s where churn comes in.

Churn refers to the percentage of customers who stop buying from your brand over a specific period. While every business experiences some level of churn, high churn rates can be damaging because they erode your customer base faster than you can grow it.

Here’s why poor retention and high churn are particularly dangerous for a DTC brand: if your churn rate is 9% per month, you will lose 100% of your customer base within a year. Churn compounds over time—each month, you lose a portion of your remaining customer base. Even if you’re consistently acquiring new customers, you’ll end up replacing your entire base within 12 months.

At a 10% monthly churn rate, the situation is even worse—you could lose almost your entire customer base in less than a year. This constant leakage can make it impossible to grow, regardless of how much effort you put into acquiring new customers.

Techniques for Improving Retention

Now that we understand the importance of retention, let’s explore how to actively improve it. These are five actionable strategies you can implement:

1. Subscription Models

A subscription model is one of the most effective ways to boost retention because it creates a predictable revenue stream. Subscriptions reduce friction by eliminating the need for customers to manually reorder every time they run out of your product.

How to Implement:

• Target Consumable Products: Subscriptions work best for products that customers regularly consume, like coffee, skincare, or supplements. Start by identifying products that customers are likely to reorder frequently.

• Offer Flexible Subscription Plans: Give customers options to choose the frequency of deliveries (monthly, bi-monthly, or quarterly), so the subscription suits their consumption habits. Flexibility reduces cancellations due to overstocking or irregular use.

• Incentivize Subscriptions: Offer first-time subscribers a discount (e.g., 15% off their first month) or exclusive perks like free shipping or a free product sample with every delivery. These incentives encourage customers to subscribe rather than make one-off purchases.

Example:

A skincare brand could introduce a subscription model where customers receive their favorite cleanser or moisturizer every month at a discounted rate. To add more value, the brand might send subscribers exclusive samples or tips on skincare routines. This approach locks customers into regular purchases, reduces churn, and builds loyalty over time.

2. Loyalty Programs

Loyalty programs incentivize customers to return by rewarding them for repeat purchases. They create an ongoing sense of value and can encourage higher spending and repeat business.

How to Implement:

• Use a Points System: Implement a points-based system where customers earn points for each dollar spent. They can then redeem these points for discounts, free products, or exclusive perks. Ensure the points system is simple, transparent, and rewarding.

• Introduce Tiered Rewards: Build levels into your loyalty program that provide better perks to your best customers. For example, customers in the highest tier might receive 15% back in points or early access to new products.

• Reward Non-Purchase Actions: Don’t limit points to just purchases. Offer rewards for referrals, social media engagement, or leaving product reviews. This creates a more holistic customer experience and keeps them involved with your brand even outside of purchases.

Example:

A fashion DTC brand could design a loyalty program where customers earn points for every dollar spent. These points could be redeemed for discounts, free shipping, or early access to seasonal launches. To further engage customers, the brand could reward points for activities like sharing on Instagram or writing a review—building both loyalty and advocacy.

3. Post-Purchase Engagement

The period right after a purchase is critical for building long-term relationships. Properly engaging customers after their purchase can foster loyalty and set the stage for repeat business.

How to Implement:

• Send a Thank-You Email: Immediately after a purchase, send a personalized thank-you email that includes order details and delivery tracking information. This simple gesture reassures customers and builds excitement for their product.

• Provide Product Education: Once the product is delivered, send an email with tips on how to use it effectively or offer tutorials on how to get the most out of the purchase. Educating customers ensures they understand the full value of your product, increasing satisfaction and repeat purchases.

• Recommend Complementary Products: In your post-purchase emails, suggest complementary items based on what the customer bought. For example, if they purchased a skincare product, offer a related serum or moisturizer to complete their routine.

• Ask for Feedback: After a few weeks, send a follow-up email asking for feedback or a review. Customers who feel heard and appreciated are more likely to stay loyal.

Example:

A fitness equipment brand could follow up a dumbbell purchase with a series of workout guides or video tutorials to help the customer get the most out of their product. After a month, they could send an email suggesting additional fitness tools (like a resistance band or kettlebell) to complete their home gym. By continuing the conversation after the sale, the brand keeps customers engaged and encourages repeat purchases.

4. Personalized Marketing

Customers are far more likely to return if your marketing is tailored to their preferences. Personalized marketing shows that you understand their needs, making them feel valued and increasing their likelihood of staying loyal.

How to Implement:

• Segment Your Customers: Use your data to segment customers based on their purchase history, browsing behavior, and engagement levels. For example, segment customers who frequently buy skincare versus those who buy fitness products.

• Send Tailored Offers: For each segment, create personalized offers. For example, if someone regularly buys skincare, send them emails highlighting new arrivals or offering a discount on products they’ve previously purchased.

• Cart Abandonment Emails: If a customer adds items to their cart but doesn’t complete the purchase, send a reminder email with the items left behind. Include an incentive like free shipping or a small discount to encourage them to complete the purchase.

• Milestone-Based Emails: Celebrate key milestones like birthdays or the anniversary of their first purchase. Offering a special birthday discount or exclusive product can make the customer feel appreciated and encourage further engagement.

Example:

A DTC apparel brand could use segmentation to personalize emails for customers who have shown interest in athleisure. They might send a personalized offer featuring a discount on workout gear or a preview of the latest fitness collection. This level of customization shows customers that the brand knows what they like, making them more likely to come back and buy again.

5. Improving the Overall Customer Experience

A seamless customer experience, from browsing to post-purchase, is crucial for building long-term loyalty. If customers encounter any friction—whether it’s a slow website, confusing checkout, or poor customer service—they are more likely to churn.

How to Implement:

• Optimize Website Usability and Speed: Ensure your website is fast and easy to navigate, especially on mobile. Slow-loading pages or a confusing interface can frustrate customers and lead them to abandon the site before completing a purchase.

• Offer Flexible Payment and Shipping Options: Provide various payment methods (e.g., credit cards, PayPal, Apple Pay) and shipping choices to give customers flexibility. Offering free shipping or easy-to-understand return policies can make the buying decision easier.

• Simplify Returns and Provide Clear Policies: Make returns simple and transparent. Offering free returns, a clear return policy, and a hassle-free process can increase trust and reduce hesitation in making repeat purchases.

• Provide Real-Time Customer Support: Offer live chat or chatbot support to assist customers with questions or concerns while shopping. Fast, helpful support can make the difference between a completed purchase and an abandoned cart.

Example:

An online home décor brand could optimize its website by making product search intuitive, loading pages quickly, and offering real-time support for customer inquiries. By providing flexible payment options and a seamless return process, they ensure that customers feel confident buying online, reducing the chances of churn due to friction in the shopping experience.

The LTV Ratio – Understanding Profitability

One of the most important metrics for DTC brands is the LTV ratio. This ratio helps you understand the relationship between the Lifetime Value (LTV) of your customers and the Customer Acquisition Cost (CAC).

• LTV (Lifetime Value): The total revenue a customer generates for your brand over their entire relationship with you.

• CAC (Customer Acquisition Cost): The cost to acquire a new customer, including marketing, advertising, and sales expenses.

For a healthy business, your LTV should be at least three times your CAC (a 3:1 ratio). If your LTV ratio is 1:1, you’re barely breaking even, and scaling will be difficult. Improving customer retention directly raises your LTV, which boosts the LTVratio, allowing you to spend more on acquisition without damaging profitability.

Why Churn is Dangerous and When It Becomes a Threat

At what point does churn become a major threat to your DTC brand?

• A 5% monthly churn rate means you’ll lose nearly 46% of your customer base within a year.

• At 8% churn, you’ll lose around 60% of your customers annually.

• At 9% churn, you’ll lose 100% of your customer base within a year.

If your churn rate hits 9-10%, you’re essentially replacing your entire customer base every 12 months. This becomes a significant growth killer because you’re constantly spending on acquisition without building a sustainable base of loyal customers. Keeping churn below 5% is crucial to maintaining a healthy, growing business.

Final Thoughts

Retention is the driving force behind profitability for any DTC brand. High churn can cripple your growth, even if you’re acquiring new customers consistently. The lower your churn, the higher your Lifetime Value (LTV), which leads to a stronger LTV ratio. Implementing strategies like subscriptions, loyalty programs, personalized marketing, and optimizing the customer experience ensures that customers stick around and continue to generate revenue over time.

By managing churn effectively, enhancing retention, and continually optimizing the customer journey, you’ll build a strong foundation for sustainable growth and long-term success in the DTC space.

So that’s why understanding retention is so important.

Thank you for reading. I hope this becomes useful reading before the work week starts again.

Feel free to DM me here.

Have a great week,

Robert