What is customer retention?
Definition: Customer retention is a metric that measures a company's ability to retain its customer base over a period of time.
It shows how loyal the customers are to the company’s product/service and how long their loyalty lasts before stopping to interact with the company.
Customer retention aims to create a pleasant experience for customers and retain them for a long time, which impacts all other customer metrics.
The most important customer retention metrics to keep track of
There are five key metrics to keep track of:
- Customer retention rate is the most important metric measuring the percentage of customers who continue to do business with a company over a period of time.
- Customer lifetime value (CLV) measures the total revenue expected from a single customer during their business with a company.
- Customer churn rate measures the percentage of lost customers over a period of time.
- Net promoter score (NPS) measures how likely a customer is to recommend the company to others.
- Repeat purchase rate measures the percentage of customers who come back to buy from the same company and how many times they repeat the purchase.
How is the customer retention rate calculated?
It is calculated by determining the period of time the company wants to measure and analyzing the number of customers at the start and end of that period and the number of new customers acquired over the same period.
These numbers are used in the formula:
Customer Retention Rate = (Number of Customers at the End of Period - Number of New Customers Acquired During the Period) / Number of Customers at the Start of Period x 100
The end result shows the percentage of customers retained during the period.
Customer retention strategies
- Include customers in product development through a public roadmap and take their feedback into every step.
- Improve customer support by offering self-service, quick answers, multi-channel support, in-app onboarding, and personalized interactions.
- Engage customers by creating content they need and segmenting it to fit their persona, offering personalized use cases, creating a customer community, and utilizing social media.
- Referral and loyalty programs offer customers benefits if they recommend the product to others, incentivizing them to grow together with the product.
- Identify and analyze potential churn in advance for tactics to retain them and spot patterns of why customers are churning.
Customer retention examples
Slack acknowledges its customers’ use of Twitter and regularly offers support and important announcements on the platforms their customers use.
Codeacademy allows customers to tell their stories to the whole community showing that they care about their customers and why they use Codecademy.
HubSpot offers their customers free videos on various business topics (sales, marketing, growth), incentivizing their customers to grow with their ecosystem.
Adobe offers their churning customers an option to continue using their products for two months free, attempting to retain them.