Top 10 Customer Retention Metrics & How to Calculate & Improve Customer Retention Rate 
Existing customers contribute around 65% to a business’s revenue. A loyal customer base not only promises consistent revenue increase but also becomes the source of word-of-mouth advertising. Furthermore, they are the key to growing the customer base of a business without actually investing in customer acquisition.
This is what customer retention deals with. It focuses on keeping the customers loyal to the brand for a prolonged period of time. But what is customer retention? What are the top 10 customer retention metrics which businesses must track? How can businesses improve customer retention? This detailed blog post on customer retention metrics will answer all these questions in detail.
What is Customer Retention?
Customer retention is a metric which indicates the ability of a business to keep its customers glued to it or its products for a specific period is called Customer Retention. In simple terms, customer retention involves retaining the customers by winning their trust.
The main goal of customer retention programs is to build a loyal customer base for the business, who bring repeat purchases and more customers to the business. It starts right when the customer interacts with a business for the first time and continues throughout the time they stay connected to it.
Now, why is customer retention important? It serves as the base for fostering brand loyalty and maximising profitability. Retained customers not only contribute to recurring revenue but also serve as brand advocates, amplifying a positive word-of-mouth reputation.
By prioritising customer retention, businesses cultivate a deeper understanding of their customer base, tailoring products and services to meet evolving needs. The cost-effectiveness of retaining existing customers, compared to acquiring new ones, underscores its financial significance. Satisfied customers become a stable revenue stream, reducing the reliance on constant acquisition efforts.
Moreover, customer retention enhances resilience during market fluctuations, providing a buffer against economic uncertainties. The emotional connection formed through consistent, positive interactions strengthens a brand's position in the market.
Customer Retention vs Customer Loyalty: Key Differences
Although customer retention and customer loyalty sound similar, there are still some differences between them. Let's explore them in detail.
- Customer retention notes whether the existing buyers or clients are continuing to use a company's products and services or not. On the other hand, customer loyalty refers to the engagement level of a company or a product with its clients or customers.
- If a customer is using a specific product for a very long time, it is not because he/she has any strong commitment to the product's company but because he/she is not considering a change to the usual routine. In this scenario, the retention rate gets a boost, but loyalty does not get any points.
- Customer retention is usually binary, whereas customer loyalty is scalable. In simple terms, it means that while customer retention just shows if a customer clings to a product or not, customer loyalty has varying degrees.
Top 10 Customer Retention Metrics Which Businesses Must Track in 2024
A business needs customer retention metrics to successfully reach the zenith. The market heavily depends on and is directly affected by these metrics. So, let's explore the top 4 customer retention metrics of 2024.
1. Customer Retention Rate
Customer retention rate basically refers to the rate at which customers or clients mark their presence with a business over a given period of time. It is the most important customer retention metric for almost all B2B (business-to-business) and B2C (business-to-consumer).
It measures the average number of retained customers to a company in a provided time. The retention rate is conveyed as a specific percentage of the old customers who stay loyal to a company in a time frame. There's a basic formula to calculate CRR (customer retention rate).
The formula is CRR = [(E-N)/S) x 100] , where E refers to the number of customers at the end of the period, N refers to the number of new customers in that period, and S refers to the number of customers at the beginning of the period.
For example, let's say a company has 130 customers at the start of a month, and in the same month, the company loses 9 of them and gains 23 more. So, the CRR will be calculated as:CRR = [(E-N)/S) x 100] CRR = 144-23/130*100CRR = 93%
2. Churn Rate
The next customer retention metric is the churn rate. The churn rate is the annual percentage rate of customers who discontinue using a business's services. Therefore, a company's reputation and revenue hugely depend on the changes in its churn rate. A company can measure its churn rate daily, weekly, monthly or annually.
The churn rate of different industries shows different numbers. For example, the Ecommerce industry has a churn rate of more than 21 per cent.
The formula to calculate the churn rate is expressed as (Lost Customers ÷ Total Customers at the Start of Time Period) x 100.
For example, let's imagine that a company had 100 customers at the start of the month, but at the month's end, the number of customers became 90. So, the churn rate can be calculated as:
Churn rate = 10/100*100
Churn rate = 10%
3. Customer Lifetime Value
Customer Lifetime value generally refers to the net financial profit from a customer that a company makes throughout their relationship. This customer retention metric includes factors like a customer's repeat purchases, average time period of engagement with the company, etc.
The formula to calculate customer lifetime value (CLTV) is (CLTV = (CV * ACL)), where
- CV stands for customer value
- ACL stands for average customer lifespan
For example, let's say that a customer visits a restaurant once every month and spends 17 US dollars on every visit over an average lifespan of 10 years. In this case, the CLTV can be calculated as:
CLTV = (171210) dollarsCLTV = 2040 dollars. There are a few benefits of considering CLTV because it increases revenue gradually, finds issues through honest feedback, helps reduce customer acquisition costs, etc.
4. Loyal Customer Rate
Loyal customer rate refers to the rate at which a customer is willing to continuously deal with a brand or company over a period of time. It is the customer's commitment to a product or company. A loyal customer is not bothered by the marketing competitors of his/her preferred brand.
Instead, he/she promotes the brand to others, which in turn raises the brand's revenue. The brand also gets its advertisement through the same. Therefore, companies should always look after their loyal customers.
Customer Loyalty Index (CLI) involves a survey of gauging NPS (Net Promoter Score), upselling and repurchases. The average of these three scores determines the actual CLI.
The formula to calculate LCR (Loyal Customer Rate) is expressed as LCR = Number of repeated customers / total customers.
For example, let's say a company had 20,000 customers in December. 2000 of them were existing customers, and 3000 of them were new customers. So, the LCR can be calculated as:
- LCR = 2000+3000/20000
- LCR = 25%.
5. Repeat Purchase Rate
Repeat Purchase Rate is the customer retention metric, which indicates the rate of customers completing repeated purchases over a period of time.
The average repeat customer rate falls between 15 to 30 per cent. The repeat customer rate varies for different industries. For instance, the food and product domain has an RPR close to 24.5%, and for travel & lifestyle, it is 36%.
Repeat Purchase Rate is one of the key metrics to measure how well the business is performing. A higher repeat purchase rate indicates better customer satisfaction and loyalty.
The formula to calculate the RPR value is:
(Number of customers who made more than one purchase / Total number of customers) × 100
For instance, we have 700 customers who made more than one purchase, and the total number of customers is close to 14000. Then, the RPR value is:
= (700 / 14000) × 100
= 5% repeat purchase rate
6. Time Between Purchases
Time between purchases refers to the average time a customer takes between two consecutive purchases. These matrices are mostly used to understand the customer requirement period.
It helps to predict future purchases and build marketing strategies. This is an important Ecommerce customer retention metric for the business, as it can influence inventory management, product trend, and retention.
The formula to calculate the time between purchases is:
(Sum of time intervals between purchases for all customers / Number of repeat customers).
For instance, there are 3 repeat customers. The first customer took 30 days, the 2nd customer took 25 days, and the last customer took 35 days to make their 2nd purchase. The average time between purchases:-
= (Sum of time intervals between purchases for all customers / Number of repeat customers)
= (30 + 25 + 35 / 3)
So here, the average time between purchases is 30 days.
7. Customer Satisfaction Score
A statistic called the Customer Satisfaction Score is used to determine how happy customers are with a product, service, or overall experience. CSAT is a direct reflection of customer sentiment. A higher CSAT indicates satisfied customers, while a lower score may suggest areas for improvement. This customer retention metrics is mostly used by businesses to display transparency to customers for building trust.
Regularly monitoring CSAT helps identify trends, address issues promptly, and maintain a positive customer experience, which is crucial for retention.
Usually, a survey is used to calculate the customer satisfaction score, in which respondents assess their level of satisfaction on a scale of 1 to 5. The average rating is often the CSAT score.
8. Net Promoter Score (NPS)
The possibility that a client will promote a company's goods or services to others is gauged by the commonly used Net Promoter Score (NPS). Higher NPS values are associated with increased customer satisfaction and loyalty, making it a valuable Ecommerce customer retention metric for understanding overall customer sentiment.
On a scale of 0 to 10, customers are usually asked to rate how likely they are to suggest. They are then categorised into Promoters (9-10), Passives (7-8), and Detractors (0-6). The percentage of Promoters is subtracted from the percentage of Detractors to arrive at the NPS.
9. Product Return Rate
The percentage of goods or services that consumers return after making a purchase is shown by this indicator. A high return rate may indicate dissatisfaction with the product or service, suggesting potential issues with quality, functionality, or customer expectations. Lower return rates generally correlate with higher customer satisfaction and product reliability.
The formula for the return rate is (Number of Returns / Number of Units Sold) * 100.
If the number of returns is 300, and number of sold is somewhere around 1000, then the product return rate will be:-
= (300/1000) × 100
= 30% is the product return rate
10. Existing Customer Growth Rate
This metric gauges the percentage increase in the number of existing customers over a specific period. A positive growth rate signifies that the company is successfully retaining and expanding its existing customer base. Sustained growth indicates customer loyalty, satisfaction, and effective retention strategies.
The formula for customer growth rate is (Number of Customers at the Start of the Period - Number of Customers at the End of the Period) / Number of Customers at the Start of the Period) × 100.
Number of Customers at the Start of the Period= 1000
Number of Customers at the End of the Period= 500
Existing Customer Growth Rate= [(1000-500) / 1000] × 100
Top 7 Tips to Improve Customer Retention Rate
Enhancing client retention is essential to any company's long-term success. Here are some tips to enhance your customer retention rate:
1. Exceptional Customer Service
Providing outstanding customer service is crucial for retaining customers. Make sure the people on your support team are kind, accommodating, and well-trained.
A majority of individuals, around 60%, consider effective customer service as crucial for retaining customers. Address customer concerns promptly and go the extra mile to exceed their expectations. Positive interactions with customer service increase loyalty and trust.
Customer service is one of the evident ways to increase growth organically. Customer service is only a customer retention problem; it can be an impactful strategy to save big economic losses. Negative customer experiences result in a significant financial impact on businesses, causing a loss of $4.7 trillion in global consumer spending annually.
2. Quality Products or Services
Consistently delivering high-quality products or services is fundamental for retaining customers. Customers that are happy with your business are more likely to come back and refer others to it. Regularly assess and improve the quality of what you offer to meet or exceed customer expectations.
A good quality product has a higher chance of attracting positive reviews. A significant majority, approximately 99.9% of customers, peruse reviews when engaging in online shopping. Moreover, 96% of customers specifically seek out reviews prior to finalising a purchase.
3. Easy Returns and Exchanges
Simplify your return and exchange processes to make it easy for customers to rectify issues or make changes to their orders. A hassle-free return policy instils confidence in customers, showing that you prioritise their satisfaction over making the process difficult.
A dependable return and exchange policy is essential for encouraging customers to explore new products and fostering repeat purchases. According to a survey, 92% of customers expressed their willingness to make a repeat purchase if the return process for a product is straightforward. Additionally, 79% of shoppers anticipate that retailers should facilitate returns within a 30-day period following the initial purchase.
4. Regularly Update Your Offerings
Make sure the goods and services you offer are current and useful. Regularly introduce new features, updates, or new items to maintain customer interest. This not only attracts new customers but also keeps existing ones engaged and excited about your brand.
Regular updates, new offers and deals are the most powerful techniques to grow organically. It has great potential for word-of-mouth promotion, as 62% of customers actively share online deals with their friends.
5. Show Transparency and Social Proof
Be open and honest about your business procedures to foster confidence.
Clearly communicate policies, pricing, and any relevant information. Use social proof—such as client endorsements, reviews, and case studies—to highlight successful outcomes and bolster the worth of your goods and services.
6. Implement Cross-selling and Upselling Strategies
Encourage additional purchases by implementing cross-selling and upselling strategies. Recommend complementary products or upgrades that enhance the customer's overall experience. Personalise these recommendations based on their previous purchases and preferences.
Based on a survey conducted by HubSpot Blog in 2022 involving over 500 sales professionals, it was found that 72% of those engaged in upselling and 74% involved in cross-selling reported that these strategies contribute up to 30% of their overall revenue.
7. Engage with Your Customers Through Every Channel
Maintain a strong and consistent presence across various communication channels, including social media, email, and customer forums. Engage your audience in conversation, reply to questions and comments, and foster a feeling of community. Personalised communication helps customers feel valued and connected to your brand.
Brand’s growth depended a lot on multichannelmultichannel communication. Approximately 72% of consumers express a preference for engaging with brands and businesses across various channels. Businesses that effectively implement multichannelmultichannel marketing strategies typically experience an average annual revenue growth of 9.5%.
Understanding the above-mentioned top 10 customer retention metrics is key to achieving sustainable business growth. Businesses may learn a great deal about customer satisfaction and loyalty by exploring important customer retention metrics including Churn Rate, Net Promoter Score (NPS), and Customer Lifetime Value (CLV).
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FAQs: Customer Retention Metrics