If there’s an aspect that every subscription business shouldn’t overlook, it’s customer retention. Did you know that loyal customers can be worth 10 times more than first-time buyers? Additionally, existing customers spend 67% more on average compared to new customers. What does this mean? Repeat business reaps more revenue—so customer retention is key to growth.
That’s why it may be time to consider investing in a team solely dedicated to customer problems and making subscribers so satisfied and engaged that leaving your brand is an unthinkable deed. In short, you must have a retention department. However, the question is… do you build this team in-house, or should you hire external retention specialists?
Stick with us as we dive deeper into the role of a retention department, the benefits of having one, and the difference between an in-house retention department and outsourcing one instead.
What is a retention department?
A retention services department is in charge of maintaining and strengthening the relationship between a company and its existing customers or subscribers. This team is laser-focused on learning why customers stay, why they might leave, and what can be done to keep them happy, engaged, and loyal.
Some of their primary roles and responsibilities include:
- developing targeted strategies to improve customer retention
- analyzing customer data to understand behavior patterns, preferences, and satisfaction levels
- executing retention strategies and campaigns
- addressing major issues that affect customer satisfaction
This department combines the principles of customer service, marketing, sales, and behavioral psychology to understand and influence the customer lifecycle.
But why would you need one?
“I have the customer service team. Why would I need a retention team?”
If this also rings a bell inside your head, let us clarify this for you. While customer service concentrates on resolving immediate customer issues and inquiries so their customer experience is positive, the retention department works behind the scenes to create strategies that are specifically designed to reduce customer churn and retain existing customers.
So, aside from a retention specialist handling the present concerns, you need a retention team focused on preventing customer churn. This team has a more strategic and data-driven approach aiming to understand and influence customer behavior over time.
What can a retention department do for a business?
A dedicated retention department might not be practical for smaller businesses or startups. But if you rely on long-term customer relationships (as subscription businesses do), that’s a different story. Aside from the obvious advantage of reducing customer churn rate, there are many other reasons why having a retention department can help your business succeed.
Maximize customer lifetime value (CLV)
A customer retention specialist is instrumental in maximizing the customer’s lifetime value—which is defined as the total revenue generated by a customer over their entire relationship with the brand. It’s simple math—the longer a customer stays with you, the more they are likely to spend.
A 5% increase in customer retention rates increases profits by up to 95%. When it comes to subscription businesses, subscribers will contribute more to your recurring revenue if they stay longer. For example, a subscriber who will stay with a brand for five years will definitely have a higher CLV than one who will stay for only one year.
Promote cost efficiency
Did you know that it’s actually more expensive to get new customers than to keep the ones you already have? We’re talking 6-7 times more costly. What does this mean? Simple—investing in retention will contribute more to revenue compared to going all in when it comes to acquisition efforts. Hence, your retention department can help you save on acquisition costs by focusing on retaining existing clients and customers.
Gain insights into customer needs and preferences
A retention department is constantly in touch with your customers. The insights gathered during these interactions are valuable data that can contribute to product development, marketing strategies, and overall business operations.
Get and maintain a competitive edge
A loyal customer base makes a big difference in industries where new competitors can emerge overnight. Having a strong retention strategy can be a key differentiator because satisfied and loyal customers won’t just jump ship when there’s a new and “shinier” brand.
In-house retention department vs. Outsourcing customer retention
With these clear benefits in mind, it’s time to focus on implementing the retention department. But how do you go about it? Should you invest in building and nurturing an in-house team, or is it more beneficial to leverage an external service?
Let’s take a closer look at the two options:
In-house retention team: advantages and challenges
An in-house retention department is a team within your organization dedicated solely to retaining your existing customer base. They directly work under your company. However, owning and maintaining an internal retention department comes with its own set of problems and solutions.
Here’s a deeper look into the advantages and challenges of this option.
- An in-house team has an intimate understanding of your brand—mission, values, and culture. This deep alignment ensures that all retention strategies and communications are consistent with your brand’s core values as well as the overarching strategy of the entire business.
- Having an in-house retention department means you have complete control over your retention strategies. That way, you can tailor retention efforts to fit your unique customers’ needs easily.
- Being closely tied to the company and its customer base, an in-house team can quickly adapt and respond to customer feedback, satisfaction scores, and changes in the business environment.
- Establishing an in-house retention team requires significant investment in terms of time, money, and resources. From hiring and training to ongoing management and technology investments, the costs can add up. In fact, benchmarking data from the Society for Human Resource Management (SHRM) shows the average cost per hire at $4,700.
- It’s possible for an in-house team to have a limited perspective. Being deeply entrenched in the company’s internal environment, there’s a risk that the team might develop a narrow and biased focus.
- An in-house team may need leadership and supervision. This translates into either allocating current staff or hiring new managers who possess the right expertise in customer retention and team management. Unfortunately, this is an additional resource commitment, both in terms of time and finances.
Outsourcing the retention department: a closer look
With those factors in mind, it makes sense to consider the alternative of building in-house teams: outsourcing customer retention. Outsourcing a retention department means you’ll hire an external party or company who will then take over your retention efforts. Instead of dealing with specialists and supervisors, you can only deal with a representative or point person.
Truth be told, this option is more budget-friendly. Compared to the expense of hiring, training, and maintaining necessary skills for an in-house team, only a fraction is expected. It’s because outsourcing costs are typically upfront and more predictable with flexible pricing models like fixed fees or performance-based payments.
Additionally, outsourced agencies eliminate the need for direct supervision. This relieves you of the hassles that come with managing your own team, which includes training and performance management. Outsourced retention departments are already experienced and skilled. Sure, they will still need time to get up to speed on your brand specifically, but having worked with numerous brands they already have a few tricks up their sleeves. This way, your company can focus more on core business activities and leverage your internal resources where they are most needed.
Quick tip: Outsourcing your customer service to a specialized team can help your brand provide first-class customer service and retaining customers will be a given. That means more repeat customers, purchases, renewed subscriptions, and five-star ratings just for you.
Comparing in-house vs. outsourced retention on key factors
Let’s now see how each option stacks up in various key categories. Here’s a direct comparison of these two approaches.
In-house: Scaling an in-house team can be a slow process. After all, it involves additional hiring, training, and possible restructuring to meet the growing needs of your business. Expansion takes time and resources—which might not always be readily available.
Outsourced: Outsourcing dedicated teams are already ready to handle scalability demands. They have the tools, the manpower and the processes required to quickly adjust to your changing needs, whether it’s ramping up efforts during peak periods or scaling down in slower times.
In-house: Maintaining an in-house retention team can be costly. In-house employees get equipment, salaries, government-mandated benefits, access to specialized tools, and training. You also need to spend time on regular performance reviews, as well as setting and tracking KPIs. These expenses are ongoing but often change depending on the size and scope of the job and the new team.
Outsourced: Outsourcing can be more cost-effective as this solution eliminates the overhead costs of full-time employees and reduces technology and skills training costs. Usually, they already have these things set in place.
In-house: While an in-house team has deep knowledge about your specific business and customers, it may lack the broader industry perspective and expertise that comes from handling multiple clients and situations.
Outsourced: An outsourced team brings diverse experiences and knowledge gained from working across different markets. This exposure empowers them with the ability to implement best practices and innovative strategies that might be new to your in-house team. Outsourcing to an external department also gives you access to the tools that they already use, plus the additional services and set of skills the team already has. For example, if you need extra services like failed payment recovery, there’s a big chance that they also offer this.
Alignment with company culture
In-house: An in-house team is inherently aligned with your company culture and knows the nuances of your company.
Outsourced: While an outsourced team can learn your company’s culture, they might not fit immediately. However, regular communication and a well-organized onboarding are quick remedies for this.
In-house: Obviously, an in-house retention team can respond faster when it comes to implementing changes. Since the team is embedded within your company, for example, they can smoothly coordinate and make decisions swiftly.
Outsourced: When collaborating with outsourced teams, their reliance on external communication channels can cause delays in responsiveness. The process of exchanging information, plus potential time zone differences, may influence the timeliness of strategy execution. At the same time, they may also be more responsive especially if they offer 24/7 services.
Data security and privacy
In-house: Because your in-house team is directly governed by your company’s policies and oversight, they can be more reliable when handling sensitive, customer information and data.
Outsourced: While outsourced teams are bound by contracts and legal agreements to ensure data security, data handling outside the organization poses an additional risk.
Secure your customer base with a solid retention department
Your brand’s reputation is largely dependent on customer loyalty and satisfaction. If you can exceed their expectations, the better it will be for you and your business. It’s the basic formula to retain them.
That’s why a retention department is a worthy investment for a business to survive and thrive—and outsourcing a retention department may be your best bet to make this happen.
If you’re committed to driving your business forward, professional assistance can be a game changer. Consider partnering with a dedicated team that specializes in customer retention and failed payment recovery to combat both voluntary and involuntary churn. Schedule a free consultation with our retention experts today.