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Customer Retention: Formula, Metrics, and How to Measure Success
December 6, 2024
12 mins
Here’s another featured post by Promodo marketers for those who already have a customer base and want to turn them into regular customers.
Customer retention is beyond attracting new customers. The best way to approach it is through comprehending core metrics, as well as calculating and deploying them correctly.
Remember that loyal customers always spend more money on your products and services and often turn into brand advocates.
We've grabbed top-5 customer retention metrics and all you need to know about them.
Customer retention is how a company turns its clients into loyal customers. This is a key metric for businesses actively working with the existing customer base and turning them into regular customers.
Customer retention rate (CRR) determines the percentage of customers who stay with a company over time. It is also referred to as the churn rate.
CRR is a key metric for all B2B and B2C companies. Customer retention measurement is as simple as that: the lower the churn rate, the more loyal the customers are. Those businesses that manage to retain more customers over time are more successful. Now, here’s how to calculate customer retention:
CRR metric is at the core of the formula for customer retention rate:
E - clients at the end of the period
N - new customers attracted during the period
S - customers at the beginning of the period = 130.
Providing you with a customer retention rate example, let's now substitute random numbers into the customer retention formula:
So, the CRR makes approximately 93.08%.
The customer retention KPI formula shows that the CRR metric is largely determined by the period you use as a benchmark and depends on your product lifespan. Once you calculate customer retention, keep in mind that it is easier to retain loyal customers who buy fast-moving consumer goods (FMCGs).
Since product lifecycles and business models vary, the average CRRs will also vary.
Customer retention rates are also crucial to calculate the customer value (CLV) for your business. The better you retain your customers, the higher your CLV is, and the more revenue you’ll generate.
Customer Lifetime Value (CLV) indicates how much profit a customer will bring you during the cooperation.
To determine the profit from a customer's lifetime value, multiply the value of the average order by the average sales volume per year and the average period that the customer stays with you.
CLV shows customer value for your eCommerce project and indicates how well you sell new products. By increasing the customer retention rate, you increase its value for each customer.
Repeat purchase rate (RPR) shows the percentage of customers who’ve made repeat purchases. This metric helps to assess whether a business retains customers after the first purchase and how often these purchases are made.
To calculate the RPR:
For example, if you had 200 unique customers in 3 months, 75 of whom made a purchase two or more times, then the RPR will be 37.5%. For eCommerce, the average repeat customer rate is usually between 20% and 40%.
When combined with other KPIs, this metric can help you determine how to win back customers and attain retention growth. For example, by analyzing customer behavior, you’ll see which products drive repeat purchases the most and understand which offers or promotions can encourage customers to purchase more often.
Customer churn rate gauges the effectiveness of customer retention in eCommerce. This metric is especially important for subscription-based companies where monthly payments make up a significant portion of revenue, i.e.: book publishers, media, etc.
The churn rate is also vital for eCommerce companies, including large omnichannel retailers. Since many of them have a network of offline stores spread across the country along with the website, it is easier for them to determine how this indicator changes depending on the location. Similar to the previous metrics, this one can be determined for different periods - a month, a quarter, or a year respectively.
For example, if a thousand out of twenty thousand customers of an online store refuse to make repeat purchases over a year, the annual churn rate for the store will constitute a mere 5%.
For small online businesses, the optimal turnover rate is 3-5% per month. The larger the business, the lower the CCR. Ideally, it should not exceed 1%. However, the average customer churn rate significantly varies for individual online market niches.
To find out the reason for the outflow, you need to establish contact with your customers and find out why they reject your services. The easiest way to do this is to use an unsubscribe form that contains response options. You may also retain users by providing bonuses.
Net Promoter Score (NPS) is a metric of how satisfied customers are and how they feel about a company's product or service. To calculate NPS, ask yourself a simple question:
How likely are you to recommend us to your friends or workmates?
To calculate NPS, ask your customers to rate the company from 1 to 10 and split them into three categories:
Criticizers (0-6 points) are unlikely to recommend you or even buy from you again. There is also a risk that they may harm your business by spreading negative reviews online.
Passives (7-8 points) are satisfied with your products or services, but will not do anything to leave a review or recommend you. They are unlikely to become regular customers, and there is a high likelihood that they will pass on to your competitors.
Loyalists (9-10) are the customers you need. These trust you most, make regular purchases, and are ready to recommend you to their friends.
If out of 100 surveyed customers, you have 55 loyal, 25 passive, and 20 dissatisfied ones, your NPS will be 35.
One of the most common services for analyzing customer behavior on the website is Google Analytics 4. It tracks the maximum number of actions on the site and integrates with other platforms.
To transfer data from your website holistically, ensure the correct transfer of the analytics:
Functions for grabbing data on orders and customer retention in Google Analytics:
Order tracking allows you to collect data on the number of orders, the average check, the most frequently purchased products, and the total cost of purchases.
User journey analysis shows the pages users interact with most and those with the flaws.
User behavior report helps you track how often users return to the site and their behavioral changes over time.
Report on engagement channels indicates the channels your customers are coming through - organic traffic, paid campaigns, social media, etc.
Key indicators of retention and repeat purchases: Google Analytics reports allow you to track CLV and repeat purchases to identify those customers bringing you the highest value and how your retention strategies are working.
Read more on GA4 Reports
CRM systems store data on every interaction with customers, including order history, purchases, contacts, and customer satisfaction levels.
Built-in tools on Shopify, Amazon, and other platforms.
Analyze customer retention data with special reports or plugins.
Surveys and feedback from customers. Ask customers about their level of satisfaction with your services and purchasing experience. These can be both large-scale reports and small surveys via email.
Loyalty programs. The collected data of registered users provides a comprehensive picture of the frequency and volume of purchases of each customer.
NPS and other survey tools.
Social networks. Collect feedback and analyze customer behavior on your social media pages by tracking their interaction with your posts and ad campaigns.
Below, we are sharing a bunch of tips to help you boost customer retention and build a loyal customer base.
To know how to best serve your customers, you need to understand their needs. Research is the first step to identifying their wants, concerns, pains, successes, and brand empathy.
Conduct quantitative and qualitative research. Synergize them to study user behavior and the core reasons and motivations behind that behavior. Quantitative research allows you to analyze statistics, while qualitative research allows you to dive deeper into customers' emotions and opinions.
Customers expect individual communications from businesses. The good news is that this is much easier to realize if you've already studied your target customers.
Focus on what your customers’ needs are throughout their journey from Point A to Point B and ensure the most seamless user experience underway. Take a look at customer purchase history to provide personalized recommendations and offers. An online store may offer products similar to those that customer has bought before or remind them to replenish their stock of products they often order.
Sending welcome emails will encourage your potential customers to make their first purchase. And a well-thought-out retention strategy will keep them coming back for more.
Read more about effective ways to increase customer loyalty through email marketing
If a customer has experienced a problem with your product, they will want to contact you immediately in their most convenient manner. If you make it easy and quick to resolve the issue, you're likely to get a loyal customer for a lifetime.
Let customers contact you through online chat, chatbot in the messenger, call center, email, and social networks. The more communication ways you provide, the better you’ll help your customers.
Loyalty programs encourage customers to come back to you through bonuses, discounts, or special privileges for repeat purchases. For example, for each order, a customer receives cashback or points to be used for the next orders.
Loyalty programs encourage customers to return by offering bonuses, discounts, or special privileges for repeat purchases. For each order, offer cashback or points to a customer they will use for future orders.
Ensure that your system of points accrual is as transparent as possible and make it easy for your customers to realize their benefits.
Retention is not only about keeping your customers coming back but also about establishing sound relationships over a lifetime.
By using the core retention KPIs listed above and diving into customer retention analysis, you’ll detect bottlenecks, explore more growth opportunities, and well arrange your business processes.
The key strategies to increase customer retention also involve shopping personalization, quality service, loyalty programs, and email marketing to keep in touch with your customers.
Content Marketing Manager at Promodo
Taras has 16 years of hands-on copywriting experience overseas with 3000+ unique copies.
Accredited with Certificate of Proficiency in English (C2 level) by Cambridge University. Studied at Writing Launch Academy (United States) and owns an Academic Writing Certificate from Oregon University. Author of 12 dictionaries with Apriori Publishers.
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