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Calculating retention rate is essential for understanding how well you keep customers over time. This blog breaks down the retention rate formula, provides a handy calculator to simplify the process, and shares actionable insights to help you improve your customer retention strategies.
You’ve successfully brought in a new customer and they’ve made a purchase. Now’s the time to shift focus to acquiring the next customer, right? Not so fast.
A lasting, thriving company is not just built on customer acquisition but also customer retention.
Attracting new customers is essential, but your success truly depends on how well you keep those customers engaged and coming back. Retaining customers is not just a nice-to-have metric—it’s a key to sustainable growth and long-term profitability.
Customer retention rate is the percentage of customers a company keeps over a set period, excluding new acquisitions. It shows how well a business retains customers as it consistently provides value and builds long-term relationships. A high retention rate indicates satisfied, loyal customers, whereas a low rate can signal potential problems.
Retention rate is vital because it ties directly to customer loyalty and profitability. Loyal customers make repeat purchases and often promote your brand. This reduces marketing costs and fuels growth. Focusing on customer retention offers several strategic advantages that can significantly impact your business’s success. Consider these key benefits:
For various industries, retention rate reveals how successful a brand is in maintaining engagement. For example, e-commerce businesses focus on repeat buyers compared to SaaS companies that prioritize subscription renewals. Retailers rely on customer loyalty to maintain steady revenue streams over time.
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Calculating customer retention rate is straightforward and gives a clear picture of your brand’s ability to maintain its customer base. Here’s the formula:
Customer Retention Rate = ((E-N)/S) x 100
Where:
– E = Number of customers at the end of the period.
– N = Number of new customers acquired during the period.
– S = Number of customers at the start of the period.
By plugging in these numbers, you can quickly find out your customer retention rate and understand how effectively you’re keeping your existing customers.
If you’re wondering how to measure retention, we made it easy for you. Simply use the calculator below by filling out the necessary fields and you can calculate your rate quickly and easily.
A 70% retention rate is often considered good, but this can vary by industry. In sectors like SaaS, a 70% rate might be below average. On the other hand, it can be quite competitive retail or e-commerce businesses. The key is to measure your retention rate against industry benchmarks and track whether your retention strategies are improving over time.
Generally, a retention rate above 75% is excellent for most businesses, but always consider your own business goals and growth targets.
There are several actionable strategies that businesses can adopt to boost their retention rates. Here are a few:
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Retention rate and churn rate are closely related metrics but focus on different aspects of customer behavior. Retention rate measures the percentage of customers who continue to award the company their business compared to the percentage of customers who have churned. Churn rate, the inverse of retention rate, is the percentage of customers who no longer patronize the business.
Customer retention rate should be a North Star metric — a retention KPI — as it is the basis for the longevity of a sustainable business model.
Oftentimes, the best decisions in business are those that sacrifice profit in the short term but result in long-term gains. The legendary customer service policies at Zappos are a perfect example of short-term losses resulting in long-term customer retention. Their customer retention KPIs are consistently met and exceeded. What’s their secret?
Zappos has become a gold standard for customer retention due to its unmatched customer service. One well-known story involves a customer, Zaz Lamarr, who called Zappos to return several pairs of shoes her recently deceased mother had purchased. Not only did Zappos offer a full refund, but they also sent a bouquet of flowers to the family to express their condolences.
These acts of kindness build customer loyalty that goes beyond the purchase. Zappos maintains a retention rate of nearly 75%, thanks to their dedication to extraordinary service. Word-of-mouth stories from experiences like these have become an integral part of their brand identity, driving both customer acquisition and retention.
Customer retention rate is like a check engine light for your growth machine. If the light indicates a problem, you can start plotting a plan of action. Perhaps that action plan starts with strengthening your customer service strategy with personalized mobile marketing communication.
By measuring and understanding your retention rate, you’re gaining insight into your brand’s long-term growth potential. High retention rates lead to increased profitability, customer satisfaction, and competitive advantage in your market.
One way to ensure long-term retention is to enhance customer experience continuously. Learn more about how you can create an airtight user retention strategy for your mobile app using CleverTap.
Customer retention should be a key focus for any business aiming for sustainable growth. Use our free retention rate calculator to measure your performance. Adopt proven strategies to keep your customers coming back. Businesses like Zappos have shown how powerful retention can be when coupled with great customer service and personalized experiences. Hence, make retention a priority, and watch your business thrive for the long haul.
For an easy way to calculate LTV or CLTV, use our Customer Lifetime Value Calculator.
Case Study: How Boost Uses Personalization to Increase Retention by 5X
Q1: What is customer retention rate?
Customer retention rate (CRR) measures the percentage of customers a business retains over a specific period. It reflects how well a company keeps its existing customers.
Q2: What is a good customer retention rate?
Generally, a retention rate of 80-90% is considered strong. However, this can vary by industry, with some sectors aiming for even higher rates.
Q3: How can I improve my customer retention rate?
You can improve retention by enhancing customer satisfaction, offering personalized experiences, maintaining strong communication, and implementing effective loyalty programs.
Q4: How does churn rate relate to customer retention rate?
Churn rate is the percentage of customers lost over a period, and it is essentially the inverse of the retention rate. Lower churn rates mean higher retention.
Q5: Does customer retention rate vary by industry?
Yes, retention rates can vary significantly by industry. For example, subscription-based businesses often have higher retention rates compared to retail or e-commerce sectors.