Customer Retention Rate

customer retention rate

The customer retention rate tells you what percentage of customers you are keeping versus what percentage you are losing. It is key to watch this number like a hawk if you have any ambitions of sustainably growing your company.

Customers are the main focus for most organisations. Attracting them is integral. But unless you can keep customers, your efforts are cancelled out by more customers walking out the door faster than they walk in.

This is our comprehensive guide to customer retention. It’s packed full of expert tips, great ideas, the latest real-world data, examples and more.

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What is customer retention rate?

Customer retention rate tells organizations what percentage of customers they are keeping versus what percentage they are losing. It is applied to defined periods e.g. a trading month, quarter or year.

The customer retention rate (CRR) is expressed as a percentage value. If the number of customers at the end of the period is the same as at the beginning, the value is 100%.

How to calculate customer retention rate

Suppose there were 200 customers at the start of a period. This value is represented as ‘CS’ (customers at start).

At the end of the period there were 224 customers. We label this value as ‘CE’ (customers at end).

The difference between CS and CE is 24 customers. However, this doesn’t mean the CCR is high. This is because of a third consideration: acquired customers during the period. Let’s say there were 41 newly acquired customers in that time. This value is ‘CN’ (customers that are new).

It should be obvious to the casual observer that, although the number of customers rose, a certain number were lost during the period. Here, 41 customers were acquired for a net gain of 24. Therefore 17 customers were lost during the same period.

Retention rate formula

Apply each of the values in the following equation:

Percentage customer retention rate = [CE-CN]/CS] x 100

Using our figures this works out at:

= [224-41]/200] x 100

= (183/200) x 100

= 0.915 x 100

= 91.5%

Using customer retention rate in decision making

Some businesses that are ‘glass half full’ prefer CCR to its more negative counterpart – customer churn rate. The CCR is exactly the opposite of your customer churn rate (or customer defection rate). In the example above, this is 100-91.5 = 8.5%.

When measuring your customer retention rate, ensure you choose a period that works for your business and the way your customers buy.

For example, it makes no sense for a car manufacturer to measure retention rate within a year. This is because hardly any new car buyers will purchase another car after just 12 months. In other businesses, 12 months will be too long an interval. Most customer retention rates are calculated monthly or quarterly.

Enhanced calculations

The retention rate as described above is sometimes referred to as the ‘raw’ customer retention rate. CCR calculations can also be made according to two further, more granular measurements:

Profit adjusted retention rate
Sales adjusted retention rate

Profit adjusted retention rate

To calculate profit-adjusted customer retention rate, take the profit earned from the retained customers and express it as a percentage of the profit earned from all customers at the start of the timeframe you wish to measure.

Sales adjusted retention rate

To calculate sales-adjusted customer retention rate, take the value of sales made from the retained customers and express it as a percentage of the sales achieved from all customers at the beginning of the timeframe you want to measure.

Whichever method you choose, it’s really important to track customer retention rate in a way that works for your business. If you don’t, you can miss early warning signs that customers are leaving you for competitors’ products/services.

By regularly tracking your retention rate, you can spot both dips and improvements, and investigate the causes quickly.

It’s also critical to measure customer retention rate if you are actively undertaking:

In fact, CRR is excellent for determining the ROI on any customer retention activity. For example, if you’ve started a new welcome pack program and it’s costing, say, $17 per new customer. You need to measure over time to see if it is having any discernible effect on your customer retention rate. If it isn’t – could consider redeploying that spend to other activities that are working.

Other useful customer loyalty and customer retention metrics

There are several other metrics similar to customer retention rate. These help organizations record current and – to a certain extent – anticipate future trends in customer loyalty.

Future Looking
- Net Promoter Score® (NPS)
- Customer Loyalty Index
Evidential
- Customer Lifetime Value
- Customer Retention Rate
- Customer Churn Rate
- Repeat Purchase Rate

Explore our customer loyalty guide for more details on each of these.

Many of these metrics rely on real-time customer feedback to determine exactly what customers are thinking and their likelihood for retention. Customer Thermometer is a great tool for doing just that. See for yourself through our free trial, and start gaining access to powerful new customer insights.

Customer feedback surveys to fuel customer retention

The importance of customer retention management is highly significant in growing your business. It also underlines the importance of using customer feedback to understand customer preferences and expectations, and act accordingly.

Start by giving your customers a chance to give you feedback. Customer Thermometer delivers all this and more – perfect for anyone implementing a customer retention program. See for yourself and put us to the test with a free trial account.