The customer retention rate (CRR) is a metric that measures the percentage of customers a company retains in a specific time period. CRR is expressed as the percentage of retained customers, those who remain loyal to a company, within a time frame. It is one of the primary metrics for understanding customer loyalty.
For example, a company with 10 total customers at the beginning of the year and loses 2 of them by the end has an 80% customer retention rate.
However, calculating things isn’t as simple as that when it comes to customer retention rate. You also need to factor in the new customers you generated to achieve the correct data to act upon for your customer retention plans.
Before calculating your customer retention rate, first, determine the time frame you want to measure. For example, some companies measure CRR monthly, while others evaluate it on an annual or even a weekly basis.
After you decide on the time frame, you’ll need some data:
Based on the number of variables above, the customer retention formula is:
[(E-N)/S] x 100 = CRR
Step #1: Take the number of your customers at the end of the time period. (E)
Step #2: Subtract the number of new customers acquired within the time period. (N)
Step #3: Then, divide the result by the number of customers at the beginning of the time period. (S)
Step #4: Finally, multiply the result by 100.
The result is a percentage of your retained customers during the calculated time frame.
Customer retention example;
Let’s say you have 50,000 customers at the beginning of a period of two months. During this calculation period, you gain 1,000 new customers, and at the end of this period, the number of your total customers is 40,000.
Now, to calculate the CRR for this two-month period, subtract 1,000 from 50,000 to leave out the newly acquired customers. Next, divide 40,000 by the result, 49,000. Lastly, multiply the result (.81) by 100. The customer retention rate is 81%.
While improving retention vary based on industry, the common best practices include:
Investing in retaining your existing customers instead of solely focusing on acquiring new ones is worth the effort. Why?
Because even a 5% increase in your customer retention rate results in a 25% to 95% profit increase. Additionally, almost 65% of a company’s purchases come from repeat customers.