What is customer retention rate?
Customer retention rate is a metric that measures the percentage of existing customers a company retains over a period of time.
It is a percentage of a company’s existing customers who remain loyal within a given time frame. Customer retention rate is simply the inverse of the customer churn rate.
How to calculate customer retention rate?
To calculate the customer retention rate, first determine the reporting period you want to take into account.
Next, subtract the ‘number of new customers gained’ during the reporting period from the ‘number of customers at the end’ of the period.
Then divide the result by the ‘number of customers at the beginning’ of the period and multiply by 100.
Formula for calculating customer retention rate
Real-life example of customer retention rate
For example, you are measuring your customer retention rate for a month. You had 500 customers at the beginning of the month and 600 at the end of the month. During the month, you gained 200 new customers.
Plugging the data into the formula, your customer retention rate will be: (600-200) / 500 x 100 = 80% retention rate
What’s considered a good customer retention rate? (benchmark)
The best CRR is 100% but that can be too difficult to achieve. It’s better to aim for at least 25% or higher depending on your industry and business model.
A retention rate of 80% or above is phenomenal.
For SaaS industries, an average customer retention rate of 35% is good enough.
So, in a nutshell, you should not go below a 15% retention rate else, you have some serious issues with your product or service.
Ways to improve your customer retention rate
- Constantly improve your product/service: One reason why you may have a high churn rate and a low retention rate is due to shortcomings in your product/service. Engage with your customers and try to improve your brand.
- Listen to your customers: Listening to your customers, answering their problems and queries, and providing them with the best customer experience is what makes them stay. When deciding to make a purchase, 81% of customers say that trust is an important factor in their decision.
- Provide personalized experience: 75% of Americans consumers say they’re more likely to be loyal to brands that understand them on a personal level. Offer relevant and personalized solutions to each customer so they are most useful and relevant to their problems.
Also Read: Related Metrics
- Net Promoter Score
- Customer Churn Rate
- Customer Lifetime Value
- Repeat Purchase Rate
- Customer Satisfaction Score (CSAT)
- Renewal Rate
- Customer Acquisition Cost
- First Contact Resolution Rate (FCR)
- Free Trial Conversion Rate
- Daily Active Users (DAU)
- Monthly Active Users (MAU)
- Average Revenue Per User
- Referral Program ROI
- Upsell Rate & Cross-sell Rate
- Viral Coefficient
- Participant Share Rate
- Invitation Conversion Rate
- Net Dollar Retention
- Product Adoption Rate
- Sessions per User