Metric of the Week: Customer Retention Rate

What is the Metric?

Customer Retention Rate is the percentage of customers who continue to buy from you.

Why Should You Care?

This KPI is critical for membership or subscription businesses. But it’s also useful for other businesses as the retention rate dramatically affects lifetime customer value as specified below.

This metric delves a little deeper into the “New vs. Returning Customer Sales” by really analyzing returning customer sales. For non-membership businesses, you can calculate Customer Retention Rate in a few ways. For example, in the chart below, it is calculated as the percent of customers who purchased in the previous two months, who purchased again this month.

What Does It Look Like?

 

customer_retention_rate-20160613

How can you positively effect this metric?

Customer retention has a multitude of factors which contribute to its overall rate.  One of which is how well you’re able to construct a relationship built on trust. If customers trust you, they will be more willing to grow with you and your company.

As well, retention rate relies heavily on the original expectations you set for the customer. You never want to set their expectations at an unreasonable level; that way the customer is never left feeling let down by what you provide.

The general rule of thumb in regards to customer retention rate is that you always want to under promise, and over deliver.

A final way to improve customer retention rate is to improve your onboarding process, which refers to how you initially treat and bring on new customers. These processes often have a dramatic, long-term effect on how customers feel about your company and whether they stay loyal or not.

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