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Customer Retention Measurement — Getting It Right

Customer retention measurement is crucial for successful business growth. Ultimately, keeping the existing customers is less expensive than acquiring new ones. A study conducted by Huify shared an insight that retaining the existing customer can cost five times less than acquiring a new one. Loyal customers also contribute to the business’s well-being by promoting it on social media, spreading word-of-mouth to their family and friends, and providing feedback to improve the product or service.

Benediktas Kazlauskas
customer-retention-measurement

While the primary metrics that are helping to understand customer loyalty are retention rate and churn rate, they are not the only ones that are important in learning why customers are being loyal to the brand or decide to opt out.

Today, we dive deep into the fundamentals of customer retention and what marketing professionals can do to help maintain the highest customer retention rate possible.

Understanding customer retention

Customer retention is being measured by the number of customers the business holds over a given period. It’s expressed as a percentage of existing customers who remain loyal within the time frame. For example, if the company has 100 customers at the beginning of the month and loses 20 during, the retention rate is 80%. 

However, customer retention is more than just one formula. It requires a deep look into the whole customer’s purchase journey. Starting with taking care of new customers so they don’t churn without making a purchase and offering loyal clients something that would make them stay with your brand for the long run and make repeat purchases.

Monitoring retention metrics is crucial for a business to maintain a high CLV (customer lifetime value) and better understand what marketing efforts work best on acquiring new customers and retargeting existing ones for repeat purchases.

How to calculate customer retention?

To determine the customer retention rate, businesses need to identify the time frame they want to analyze. Normally, companies measure CR on a weekly, monthly or annual basis. With user bases that grow and change rapidly, companies may even look at customer retention daily.

To get the most accurate customer retention metrics, the analyst has to prepare three types of information:

  • Number of existing customers at the start of the period (S)
  • Number of total customers at the end of the period (E)
  • Number of new customers added within the period (N)

After withdrawing the metrics, put the numbers in the formula and calculate the customer retention rate — [(E-N)/S] x 100 = % of the CR.

So, if the business had 100 customers at the start of the selected time period (S), ended the period with 100 customers (E), and acquired ten new clients over the period (N) — they would have a customer retention rate of 90%.

Extra tip: to save up precious time, we recommend using a visual reporting tool, which automatically gathers all of the most important marketing data, aggregates and presents it in an easy-to-understand report, including calculations of customer retention, customer lifetime value and churn rate, which you can send to your client’s email inbox at the selected frequency.

Other key customer retention metrics you need to know

The most easily measurable metric that businesses can use for customer retention is customer churn rate. CCR can be measured as the percentage of the clients lost within the time period, for example, who have canceled the contract. It’s important to monitor customer churn rate as it suppresses business growth. By determining CCR and finding the solution to reduce it, the company will be able to scale successfully. Study shows that reducing churn by 5% can improve profitability by up to 75%.

Another key customer retention metric is revenue churn rate (RCR). It’s the percentage of profit the business has lost from existing customers in a specific period. RCR is a vital metric, which indicates customers’ health and satisfaction. An RCR range from 5% to 7% annually is average and is acceptable and recoverable. However, it is important to measure it at the end of every month. The revenue churn rate is based on lost contracts, subscription cancellations or plan downgrades. Contacting customers who have churned can outline the main pain points that need to be addressed and fixed to reduce customer and revenue churn rates.

Repeat purchase rate (RPR) is a percentage of customers who have returned to the business to purchase. It directly showcases customer loyalty. To calculate the repeat purchase rate, set the preferred time period, take the number of customers who have bought the product more than once during that time frame and divide it by the total number of unique customers who have purchased this product within the given period.

The customer lifetime value (CLV) metric allows measuring how much revenue the average customer brings to the business. Calculating customer lifetime value is crucial because it provides information on how much the company should be spending on customer acquisition. CLV can be calculated by multiplying the average value by the average yearly discount rate and the average period the customer stays with the company.

Monitoring and analyzing all of the customer retention metrics mentioned above will allow making better data-driven decisions and better understanding the buyer persona.

What influences customer retention?

In the extremely competitive landscape, where every customer matters, launching a good product or service is simply not enough to maintain a good customer retention rate. Here are a few crucial points, which businesses have to take into account when decreasing customer churn rate and increasing customer retention:

  • Price influences retention. When the business’s products or services prices are competitive, the customers are more likely to come back when they need it in the future. However, if your prices are higher than the company’s competitors, customers will unlikely contribute to another purchase.
  • Shipping rates are extremely important if the client is purchasing a physical product. It works wonders to offer the clients fast & free shipping. If the competitors provide the same products with lower shipping costs or delivery rates, the customers won’t be staying with your brand for the long run.
  • Customer service is vital for the business’s success. Providing 24/7 customer support, which is ready to answer existing and potential customers’ questions and solve all of the occurring problems, signifies that the brand cares about its customers.
  • Site performance might be easily ignored, but it’s making a significant impact in maintaining high customer retention. Suppose the customer’s journey to purchase is complicated. In that case, it’s hard to navigate through the website, the checkout process is confusing, or the site lacks speed. Customers will likely search for a business that operates with a clean and easy-to-understand website interface.
  • Loyalty programs are a great way to make the customers brand ambassadors. The rewards program might offer extra discounts, free shipping or complimentary gift after making repeat purchases, and it’s a great tool to increase the customer retention rate.
  • The ability to save details might be surprising, but it shortens a customer’s purchase journey. A study conducted by OuterBox shared an insight that 79% of smartphones users have made a purchase online in the past six months. With so many people making purchases on phones, it’s inconvenient to enter credentials and payment details every time they want to make a purchase. It also reduces cart abandonment rate and with customer consent, the marketers can use the email address and name for email marketing purposes.

Marketing efforts that will help maintain high customer retention

Choosing to focus more on existing customers rather than chasing down new ones will allow marketing professionals to get more value from the marketing budget and waste less time pursuing every potential customer.

The solution that’s proven to work is staying in touch regularly with loyal clients. Some businesses have a very small number of high-value clients and contacting them 1-on-1 is easy. However, for most companies, maintaining that kind of outreach for every customer just isn’t realistic — it requires a lot of in-house staff and it’s extremely time-consuming. That’s where marketing comes in.

Marketers hold the power of the brand’s voice through social media, email and content marketing. Here are some tips on how to reach or maintain high customer retention:

  • Stay in touch with the existing customers. Reserve brand’s loyal customers front row seats. Interact with them through social media, offer them exclusive deals and discounts and appreciate their loyalty now and then. 
  • Take the opportunity to reach out to old customers who have not purchased in years. Email marketing campaigns will help reconnect with old customers and pursue them to make repeat purchases. Coming up with an update on what’s changed will work as a reminder of your brand.
  • Implement influencer marketing. Some marketers might hate it, but influencer marketing is not going anywhere soon. And getting more recommendations and referrals sent your way will promote your brand to the new customers and will give a call back to the existing customers for another purchase.
  • Create content that would be interesting and useful for existing clients. This way, the brand will create an extra value for loyal brand ambassadors and stand a chance to acquire new customers at almost zero cost.

Bottom line

While every customer retention metric is important for one reason or another, marketers should focus on targeting existing customers. Loyal customers already know the brand and its products. Putting focus, time and budget on improving the experience for existing customers and retargeting them in the future instead of acquiring new ones is a powerful way to skyrocket revenues for the store. And, of course — increase customer retention rate.

Ultimately, marketing professionals might ask: how to improve customer satisfaction and retention while maintaining a low churn rate? And the answer is simple — get full control of the customer retention metrics. Monitoring and analyzing retention metrics such as churn rate and customer lifetime value makes it easier to identify bottlenecks, find scaling opportunities and create a loyal clients’ base with the lowest customer churn rate possible. It’s also important to analyze your marketing efforts. Which strategy helped reach out to the existing customers most effectively and what marketing action boosted customer retention.

Published on Jul 27, 2021

Benediktas Kazlauskas

WRITTEN BY

Benediktas Kazlauskas

Benediktas is a detail-oriented writer with a passion for marketing and technologies. Most of the time, you can find him holding a cup of coffee and crafting another data-backed, insights-packed content piece.

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