Customer retention rate measures the number of customers a company retains over a given period of time.
Any company that wants to succeed must keep a close eye on its customer retention metrics. There’s a simple, economic reason why customer retention rate is so important: Keeping your existing customers is a lot less expensive than trying to win new ones.
Loyal customers also contribute to your business’ health by providing referrals, promoting your brand on social media, and giving feedback to improve your product or service. So, it’s critical for companies to keep an eye on their customer retention rate.
While the primary metrics for understanding customer loyalty are customer retention rate and churn rate, these measurements can’t tell you everything you need to know about how and why customers return or leave. There are several other customer retention metrics you can use in conjunction with retention and churn rates to cultivate a loyal customer base.
What is customer retention rate?
Customer retention rate measures the number of customers a company retains over a given period of time. It’s expressed as a percentage of a company’s existing customers who remain loyal within that time frame. For example, if your business starts the year with 10 customers and loses two of them, you have an 80-percent retention rate.
How do you calculate customer retention rate?
To determine your retention rate, first identify the time frame you want to study. Some companies evaluate retention on an annual, quarterly, monthly, or weekly basis. Fast-moving SaaS companies—with user bases that fluctuate rapidly and dramatically—may even look at this data daily.
Next, you need to collect three simple pieces of information:
- The number of existing customers at the start of the time period (S)
- The number of total customers at the end of the time period (E)
- The number of new customers added within the time period (N)
When you have this data, you can plug it into the retention rate formula. [(E-N)/S] x 100 = CRR.
Retention rate vs. churn rate
Your customer churn rate is simply the inverse of your customer retention rate. For instance, if your retention rate is 90 percent, then your churn rate is 10 percent. You can to determine your churn rate by taking the number of churned customers during a given time frame. Then divide it by the total number of customers at the beginning of that same time period, and then multiply the result by 100.
Customer churn rate formula: (Churned customers / Original number of customers) x 100
Again, say a company had 100 customers at the beginning of the year but lost 10 customers by the end of that same year. The business would have a churn rate of 10 percent: (10/100) x 100 = 10 percent.
What is a customer retention strategy?
A customer retention strategy is anything your business does to improve your CRR, whether that’s providing great customer service or offering loyalty programs. Here are some customer retention strategies that work.
Provide a great customer experience
Your customer support team is your secret weapon when it comes to customer retention. Customers expect brands to answer their questions quickly and to their satisfaction, whether that’s through messenger, email, Twitter, webchat, or a phone call.
Create a customer-focused loyalty scheme
The key to loyalty programs that improve customer retention is offering a personalized experience. A generic scheme that offers every customer exactly the same rewards isn’t likely to encourage a customer to choose your brand over a competitor. However, one that is customer-centric and uses real-life data to provide rewards that are genuinely exciting for individual customers could win them over.
Set up a customer referral scheme
Did you know that the lifetime value of a new referral customer is 16% higher than customers acquired through other channels? This is one strategy that actually works, and you can set up the scheme to be anything you like. Choose a reward for referrals that’s related to your business, like a discount or free gift, or offer them something from a local retailer as a thank you.
Retaining your customers using insight
So, how do you retain your ever-important existing customers? A strong customer retention strategy will involve learning more about your customers’ expectations and experiences with you. Using a deep insight into the customer experience to guide your product and service, you can ensure you are keeping pace with customers’ ever-changing needs and are giving them no reason to look elsewhere. Show that you value them, and they will value you right back.
For more tips on how to maximize customer retention contact our team of customer retention experts!
Resources: zendesk.
