How to Calculate and Increase your Customer Retention Rate

Successfully growing a business isn’t just about winning new customers. Your existing customers have to be happy enough to keep purchasing from you.

Customer acquisition can receive more attention, as businesses drive growth by bringing new customers on board.

However, every business will have customers who decide to switch supplier or stop buying altogether. Analyzing the frequency with which these customers leave, and their reasons for doing so is just as important for the health of the business.

Customer retention is widely accepted as being more cost effective than customer acquisition, but reducing customer churn by improving your service will be beneficial in a wider sense too.

What is customer retention?

Customer retention refers to the ability of a brand to retain its customers over a specific time period. A high customer retention rate means a brand will have loyal customers who tend to return, continuing to buy from the same supplier.

A low customer retention rate shows that customers are likely to churn, defecting to another business. An analysis of this is likely to reveal underlying causes, allowing you to improve areas of the business that are losing you customers.

A good customer retention strategy begins with the first point of contact between brand and consumer and continues throughout the lifetime of the relationship. It involves more than the products and services, including the entire experience of being a customer.

Why does customer retention matter?

Keeping customers happy means they will come back, continuing to make purchases. It can also mean they are likely to spend more in each transaction. Focus on making every touchpoint a joy for your consumers, and your customer lifetime value will increase.

It is important to not treat your customers as one homogenous mass of people, but understand them on a personal level. Not by having coffee and cake with them, but by listening to their needs, wants and pain points. Developing buyer personas can help you understand the different segments of your audience, and offer a different experience tailored to their needs.

Spotting trends among different groups may highlight a repeated reason one set of customers are churning at a higher rate than others. You can then target solutions at this specific group.

How to calculate customer retention rate

You first need to decide the timescale you are measuring; week, month, quarter or year. Whichever you chose, obtain the following data:

S – The number of customers at the start of the period

E – The number of customers at the end of the period

A – The number of customers acquired during that period

To calculate the retention rate, subtract the new customers from the number of customers at the end of the period. Then divide that number by the number of customers you had at the start of the period, and multiply your answer by 100.

Customer Retention Rate = ((E – A)/S) X 100

How to increase customer retention rate

In the simplest sense, you increase your customer retention rate by making your existing customers happy. For a more targeted approach, you need to find out why it is that people are leaving. If it is possible, talking to customers that have churned will obviously give you direct insights.

It’s always a good idea to listen to consumers and put customer needs at the center of the business. In an age of unprecedented knowledge and choice for the average consumer, businesses need to offer what they want.

Gather feedback

Use feedback, reviews, surveys, social intelligence and insights from customer facing staff to understand your customers and deliver what they want. Use every means available to you to understand your audience. You can use the information gathered to segment the audience, and offer the different customers a better, more tailored experience.

Improve customer service

A customer service representative is the brand for most people – this is the only time they will speak to someone from the company after sales. It is important that this is an area that delights. At the very least, it cannot frustrate.

Accenture report that 80% of customers who switch provider feel the company could have done more to retain them, and 83% say better customer service would have impacted their decision.

Now customer service happens on the channel the customer chooses, often on a public forum. This added visibility provides even more of a reason to make customer service more than an afterthought. You can publically demonstrate that you care about your customers and want to help them.

Improve the onboarding experience

Perhaps only really applicable to SaaS and some other niches, but the onboarding experience is key to getting customers to use the product and get the most out of it. You want them to discover the benefits and start seeing wins as soon as you can.

Market to your existing customers

Don’t forget about your existing customers once you have their cash in your back pocket. You may create marketing material that will drive customer knowledge of the product, helping them discover new features or benefts. You may also have users of one product that are unaware of the latest product from your brand. Marketing to existing customers can inform them of further benefits to being your customer.

Personalization

Personalization can make the experience of being a customer smoother and more relevant. It also helps to give the impression that the brand cares about the individual, providing them with a relevant, tailored experience.

Build brand values

Social media has increased the scrutiny that brands are placed under. But it is also an opportunity to show a more human side. While this is true for social customer care, it is also true more generally.

A brand is more than a product and logo. There are also memories, stories, and associations that all play a part in our mental image of a brand. Social intelligence can help you research your audience so you can understand interests, professions, locations, demographics, and so on. This should help you to understand what your audience cares about, allowing you to align the brand with these interests.

Build a community

A community of customers can help each other by sharing advice and customer success stories. Building a community also allows you to become part of the post-sales conversation in a different forum to the customer service environment.

The community can also include brand advocates.

If you are focusing on the customer experience you should have some customers who are so happy with the service that they start evangelizing about the brand to others. The word of mouth aspect of these individuals has a similar effect to influencers, and can help the business grow.

The only way to increase your customer retention rate is to give your customers a better experience, delighting them where possible and reducing pain points. The most effective way to do this is to listen to your customers and understand what different segments of your audience want. Social intelligence provides a wide range of consumer insights that can inform many strategy areas.