About Customer Retention
Customer retention is the rate at which customers stay with a business. This is often called the churn rate and is a key metric for practically all B2B and B2C businesses. Retention is the ability of a company or product to retain customers. A high customer retention rate means that customers tend to return to, continue buying from, or in some other way not defect to another product or business, or to non-use entirely. Let us explain further with an example.
CleverTap
Clever Tap’s real-time analytics, powerful segmentation engine, and engagement tools give your team everything they need to retain users. Why do branded enterprises choose CleverTap? Here’s why.
- Behavioral Analytics: From cohort analysis and conversion funnels to profile data and uninstall tracking, our platform contains all the behavioral analytics you could hope for.
- Powerful Segmentation Engine: User groups and perfect audience targeting are necessary to create powerful user experiences.
- Lifecycle Optimization: Most users are moved from one stage of the customer lifecycle to the next. Automate your campaigns to turn casual users into loyal customers.
- Omnichannel Engagement: With messaging campaigns across 12 channels including push, email, in-app, WhatsApp, and more, deliver the ultimate omnichannel brand experience.
- Built for speed, security, and scale: We can process 20 billion data points and send 2.8 billion messages a day.
Retention Rate Formula
To calculate your customer retention rate, you can use the following simple formula:
It appears as follows:
CRR = ((E-N)/S) x 100.
Customer retention rate (CRR), the customers you have at the start (S), at the end (E), and customers acquired during the period you’re measuring (N).
The customer retention rate is the percentage of existing customers who remain customers after a given period. Your customer retention rate can help you understand what keeps customers with your company, as well as identify opportunities to improve customer service.
Retention rate is one of the most important metrics when working in the software as a service industry. A high retention rate would show that the business has a low rate of turnover.
Your SaaS company’s retention is never going to be static, so you need to pay constant attention and put in the time and effort to calculate and optimize it. By understanding the nuances of your customers’ retention, you’ll gain valuable feedback about the decisions you make.
Importance of Customer Retention
The cost of acquiring new customers is much higher than retaining existing customers. Customers who are retained are also more likely to engage in word-of-mouth marketing or become brand ambassadors.
- A 5% customer retention rate increase can boost your profits by 25% to 85% When you let those customers slip through your fingers, you’re waving goodbye to serious profit gains.
- If you have a loyal customer who has been with you for years, they are more likely to recommend your company to their friends and family. That new potential customer is more likely to follow through on a purchase with you if they trust their friend. Your customer acquisition strategy now includes your customer retention strategy.
- The more time a customer sticks with your brand, the more they will spend. So, you should try to retain your customers for longer because each customer’s value will then increase.
- It is often between 5 and 20 times cheaper to obtain repeat purchases from existing customers than it is to obtain new customers. That means that retained customers will be cheaper and easier to persuade into another purchase than potential new customers.
Customer Retention Rate industry wise
Here are the top Customer Retention stats in 2022
- Media and professional services have the highest industry retention rates (84%)
- The hospitality/travel/restaurants industries have a retention rate of just 55%.
- Financial/credit and cable have the highest churn rates in the US (25%).
- The top delivery method used for retention is email (89%).
- 60% of people believe that good customer service is key to customer retention.
Customer Retention management strategies
Listen to your customers – To tackle churn problems at your company, you should start by actively listening to what your customers are saying about their experience. Use your customer’s feedback to restructure your systems in a way that will achieve your goals.
Notice churning signs in advance – The most obvious way to ensure customer retention is to avoid losing customers. If you pay attention, you can detect the signals of a customer’s departure.
You should identify key variables of customer behavior, such as purchase patterns, product usage, and history of customer service enquiries. You will then need to analyze these signals and take action to prevent your customers from churning.
All this is possible with a CRM system.
Target customers with special offers – Customer relationship management software allows you to view a customer’s purchase history, so that you can make an offer that will be the most appealing to each individual and increase relevancy, which will keep your brand on your customers’ minds.
Right now, your biggest concern should be figuring out ways to rekindle their interest and turn it into an actual purchase! You could achieve this by offering them special discounts or additional value for your product.
Automate emails via trigger – based events – After your customers makes a purchase, if you can properly send out emails at the right times you can take advantage of opportunities to strengthen relationships and reduce customer churn.
Studies have shown that triggered-based emails tend to have 5x higher open rates and 15x higher click-through rates.
Reward your most profitable (VIP) customers – The information gathered in the CRM software can help you determine which of your accounts are your most profitable. These are your key customers, the ones you don’t want to lose. Let’s refer to them as the VIPs.
Knowing which customers bring you the most revenue allows you to allocate your time and resources efficiently, as well as increase your chances of cross-selling or up-selling.
Personalize your follow-ups – A relationship is something that is established between people. CRM software makes it easier for you to see your customer as a person and not just a number.
When you register a new customer in CRM, use the information given, provided it’s with the customer’s consent, so you can personalize future communication. The more information you have, the easier it will be to develop tailored follow-up strategies.
Keep your follow up premises – Honoring your commitments is the ultimate indication of professionalism in business.
The scheduling features in CRM software allow you to create advance scheduling for follow-up calls or emails, or assign follow-up tasks to members of your team. By taking this step, you will be able to keep track of your appointments and fulfill any tasks you said you would complete by a certain date.
- Decreased Revenue Churn Rate – The revenue churn rate is defined as the rate at which an organization or a business loses their revenue due to customers leaving their business or downgrading their plan. It is also commonly referred to as the MRR churn rate. By monitoring your revenue churn rate, businesses can easily keep their customer retention rate in check. Organizations should ensure that their monthly recurring revenue churn rate is a negative value.
The calculation is as follows:
Revenue Churn Rate (Monthly) = [(MRR at the beginning of the month – MRR at end of the month) – MRR in Plan Upgrades for that Month] / MRR at the beginning of the month.
- Increased loyal customer rate – It is a crucial part of your business and it simply means the level of willingness among customers to purchase your products or services again. Loyal Customer Rate is defined as the total number of customers who have made repeated purchases with your business over some time. A positive LCR value is an indicator that you have a stronger loyal customer base. Customer loyalty rate not only includes the number of purchases made by your existing customers, but also includes the number of purchases made by your new customers. When you understand your loyal customers, it’s easier to improve the retention rate.
The calculation is as follows:
Loyal Customer Rate = Number of Customers Making Repetitive Purchase / Total Number of Customers.
- Lesser product return rate – Businesses that sell products and not services are more apt to use the concept of Product Return Rate. Companies that sell products use the Product Return Rate as one of the factors to measure customer retention. The product return rate is defined as the percentage of orders that have a product return. It is the percentage of products that have been returned. An increased product return rate is not a reliable indicator of a business’s healthy operation. A zero product return rate also means that your customers are happy with your product, which gives you a greater chance of retaining their purchase with your company.
The calculation is as follows:
Product Return Rate = Number of Sold Units Returned / Total Number of Units Sold.
- Reduced time between purchases – The time taken by an average customer is calculated by Time Between Purchases. This is one of the metrics used to measure customer satisfaction and happiness with your products and services. A decrease in the time between purchases is an indication that your products are good.
Calculation is as follows:
Time Between Purchases = Total Number of Individual Purchase Rates / Number of Repeat Customers.
- Customer Lifetime Value – Revenue generated by a customer during their lifetime is known as the customer lifetime value. An increased Customer Lifetime Value shows that your business is on the right path. The Customer Lifetime Value is a sign that your customer is getting smaller or falling back on some level. This could be because you are bringing in customers that are not a good fit for your company, or because your products are faulty and are not meeting customer requirements.
Calculation is as follows:
Customer Lifetime Value = Average Purchase Rate * Average Number of Purchases * Average Customer Lifespan