How To Calculate Customer Retention Rate?

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  • November 12, 2022 / AT: 11:03 AM
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The key to business and revenue growth in your company is not just to attract new customers; the key is customer retention. Whether you have a start-up or a small, medium-sized, or even a successful and big company, customer retention and satisfaction are critical to your survival and progress in today’s highly competitive business world.

Customer retention for different companies has several advantages that are:

  1. The acquisition of a new customer requires a lot of time and cost while retaining the old customer is more comfortable and does not require a lot of money.
  2. Permanent customers of a business are more important in corporate earnings and profitability. In addition to lower customer retention costs, he will be more likely to buy again after a short time.
  3. Loyal customers will help you to get new customers at a lower cost. Of all three customers, one of them will come back to you for the second time, and by doing so, in fact, the number of new customers will increase with each purchase repeat.
  4. Loyal customers are less sensitive to price changes. Even if the conditions of the trade and the market force you to increase the price, it’s likely that the customer will repurchase you from your competitors.

Calculate Customer Retention Rate

It is essential to calculate customer retention rates for all businesses. Although this calculation is very valuable, there is no exact formula for it; many companies use the formula provided by Jeff Haden.

The formula is:

Number of customers at the end of a period (EC)

Number of new customers during that period (NC)

Number of customers at the start of that period (SC)

Customer Retention Rate = ((EC-NC)/SC) * 100

customer retention rate

For example:

Suppose you had 200 customers at the start of the one-month period you’re tracking (SC). During that period, you lost 15 customers, but you gained 32 (NC) new customers. This means that at the end of the period, you had 200 of your original customers, plus 17 new customers, so you now have 217 customers (EC) at the end of the period.  By placing these numbers in the formula, you find that the customer retention rate is equal to 92.5%.

Customer Retention Rate = ((217-32)/200) * 100

CRR = 92.5%

So, you manage to retain 92.5% of your customers. Each industry has its own “good” and “bad” retention rates. Needless to say, every company tries to retain the maximum percentage of customers. Businesses aim at increasing customer satisfaction and loyalty, thus improving customer retention rate.

Why are customers leaving your company?

After calculating the customer retention rate, the next step is to figure out why customers are leaving your system. Are poor customer service, imperfect sales process, and sales force mistakes, high prices, inferior quality products, or inferior experience? This has many reasons.

You must find a reason to leave your customers in the shortest possible time and take appropriate action to resolve it. Solving this problem, in addition to keeping current customers, will bring back previous customers and add new customers. Also, the audiences understand that you value them.

customer retention rate

Build strong relationships with customers

Creating a strong, ongoing relationship with customers is critical to customer retention. If customers feel that they are essential to business executives, they will be with them. Creating a strong customer relationship requires time, effort, and effective communication. Several methods can be used to build a strong customers relationship and retain them:

1.Customer Recognition

You need to collect customer information; you must remember the name of the customer, his needs, his desires, and a little personal information about him. In today’s world, the easiest way to differentiate your business is through customer experiences, so research your customers. Consider each customer engagement as an opportunity to create a better relationship.

2.Communicate through multiple lines

In addition to traditional communication tools such as phones, you can use emails, websites, instant messaging to communicate with the customer. In general, online access to the customer is of immense importance. Have several options for connecting to a customer and see if the customer prefers to communicate with you from somewhere.

3. Request to receive a review

Getting feedback from customers and understanding their suggestions and criticisms always lead to product development and problem-solving. Customer complaints from the product will allow you to improve your service. To make your products the best, look for customer suggestions with the new features they need, as well as their critique of the product and its current features. Upperly can help you and your business to get a review for customers. 

4. Always be honest with the customer

Creating obligations that you cannot deal with will hurt you, so try to be honest with the client and maintain this relationship for years to come.

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