Why Should You Care About Your Customer Retention Metrics

What’s your customer retention rate formula? Here are some indispensable customer retention metrics that you should care about.

Why Should You Care About Your Customer Retention Metrics

Customer retention rate formulas and other customer retention metrics are important for every business.

It is vital to understand more about customer retention before you get into retention management.

Retention is the biggest parameter that tracks the loyalty of customers. The higher your average customer lifespan and the lower your churn rate, the better it is for your business. Find out more about these aspects in the article.

This article discusses the ability of any business to keep the same customers for a long time. Several sub-parameters come into play in this context.

These include loyal customer count, repurchase behavior, and customer satisfaction. Other aspects include engagement levels. Customer retention metrics are usually in sync with the first transactions of customers. They also include customer retention instances like subsequent purchases and recommendations.

Once there is suitable measurement for retention, businesses may use these inputs likewise. They can execute data analysis for all the components/metrics to find the situation on the ground.

CRM customer retention initiatives are, thus, vital for organizations. What everyone should remember is that loyal customers work wonders for businesses.

It is not only about business or revenue growth; acquisition costs are way higher for new customers than retaining existing ones. At the same time, loyal customers are more likely to recommend your brand. They may also transform into brand ambassadors if they are emotionally connected to your company.

Measurement of Metrics for Vital Customer Retention

Some of the most crucial customer retention metrics to calculate the customer retention rate are as follows:

  1. The count of customers in the pool at the start of the initiative (S).
  2. Customer base at the conclusion of the period (E).
  3. The count of newer customers that the business could acquire over a specific time period (N).

The customer retention rate formula for calculation is E-N/Sx100. Suppose a company has 20000 new customers at the start and 50000 after any time frame. The number of new customers that the company could acquire over any duration is around 30000. Hence, based on the formula, the retention rate is 100%.

Once you know this rate, you can start focusing on retention management and building a solid customer retention strategy.

What are the Customer Retention Metrics That You Should Track?

Here are some of the customer retention metrics that you should keep tracking.

Understanding metrics for customer retention help increase repeat purchase rate by keeping at its crux the customer expectations.

Once you get an idea of what they are, you will automatically understand why these retention metrics matter. We'll also talk about some customer retention examples while discussing this.

1. Customer Retention Rate

The formula for calculating the most important metric is already mentioned above. The higher the customer retention rate, the better your chances for progress. You will know the percentage of customers being retained by the business.

You should also learn the calculation procedure for your customer retention rates with simple formulas and accordingly design a better customer retention strategy.

2. Customer Churn

One of the vital metrics for customer retention, the churn rate means the rate at which you are losing customers. While some customers may stop subscriptions or transactions, a large revenue churn rate is alarming.

It shows that you are not doing enough to fix the slide. If the churn rate crosses 5-7%, it means that you should get down to understanding why it is happening.

The churn rate gives you an idea of the average customer lifespan. The formula for calculating churn rate is the following:

3. Yearly Churn Rate

The yearly churn rate is calculated taking in mind the amount of customers at the beginning of the year minus the customers at the end of the year divided by the customers at the starting of the year.

Suppose you have 4000 customers at the beginning of the year and 10000 by the close of the year. Hence, the yearly churn rate will stand at 1.5%.

4. Existing Customer Revenue Growth Rate

It indicates the rate at which you are generating revenues from customer success initiatives.

A higher rate indicates that your sales, marketing, and account divisions are working together.

It is one of the essential customer retention metrics that you can calculate with this formula-

Growth rate of revenues on a monthly basis = (The run rate for revenues by the close of the month - the same figure at the start of a month) / MRR at the inception of the same month.

In this case, suppose your MRR is Rs. 5 crores at the month's end and Rs. 2.5 crores when the month begins. In this case, your revenue growth rate is 1%.

5. Repeat Purchase Ratio  

It tracks the rate of customers returning for subsequent purchases. It is the percentage of buyers coming back to your organization for purchases. It indicates customer loyalty wonderfully.

The formula for calculation is the following

Count of Returning Customers / Count of Total Customers.

So if you have 10 lakh returning customers and 50 lakh total customers, then your repeat purchase ratio is 0.2%.

6. Product Return Rate  

For those selling physical products, this is one of the biggest customer retention metrics available. It measures the portion of total units that comes back to you after sales.

Keeping this figure at zero is the ultimate goal for any company. This is the formula-

Count of Units Sold That Were Later Returned / Total Count of Units Sold.

Suppose you have 1 lakh units sold that were returned and 10 lakh units in total sales, then the rate is 0.1%.

7. Net Promoter Score (NPS)

NPS is one of the vital customer retention metrics that you cannot ignore. It tracks customer satisfaction and the likelihood of customers recommending you to others. It is a great indicator of loyalty to your brand.

You can always contrast your NPS with the growth rate of revenues and customer churn rates. You can ask your customers a simple question for calculation- How likely are you to recommend us to others? You can tabulate answers on a scale of 0-10. Suppose 7 is your average score out of all the responses. Then your NPS is 70%.

8. Time Spent Between Purchases

One of the other customer retention metrics that matter immensely is this one. What is the time between two purchases of a customer? The calculation formula depends on monitoring the dates of purchases for all your customers.

You can leverage CRM customer retention tools for this purpose. Add each customer’s average purchase rate. Once you have the total of all the purchase rates, divide this figure by the total repeat customer count. Do not include new customers in the calculation.

For example, suppose the average purchase rate for one customer is once every 10 days while it is one time every 5 days for another. The repeat customer count here is 2. Now the figure is 7.5 days.

These are some of the top customer retention metrics that are essential for any business. Keep tracking them meticulously to stay ahead of the growth curve. Customer education is one of the biggest pillars of retention. You can take professional guidance for creating how-to and learning videos for customers.

Trainn is a one-of-a-kind solution to help you come up with easy and cutting-edge videos for better engagement and learning. You can get 360-degree visibility into the impact of your customer education strategy.

Get insights at each stage with a video analytics dashboard. Other tools include tech-stack integration and learner-based tracking. Marketing, customer success and support teams can be engaged and their performance tracked with Trainn's intuitive platform.

Customer education will contribute immensely to your retention rates while arresting the churn rate. It will also ensure higher engagement levels of customers. Trainn helps you track customer education ROI along with variables like customer engagement, customer behavior, and progress.

Sinduja Krishnakumar

PUBLISHED ON: 6/14/2023