Retention Rate

Customer retention, or customer loyalty, refers to the activities and actions companies take to reduce the customer churn rate.

Retention rate goal

The goal of customer loyalty measures is to help companies retain as many customers as possible, often through brand loyalty initiatives. Customer retention is measured by the “retention rate”. What is often forgotten: Customer retention begins with a customer’s first contact with a company and continues throughout the relationship. In the broadest and most general sense, retention refers to the maintenance of long-term relationships and ongoing exchanges with customers. In this article, we would like to take a closer look at the importance of the retention rate for the success of companies.

What is Retention – a Definition

While most companies traditionally spend more money on customer acquisition because they see it as a quick and effective way to increase revenue, customer retention is faster and costs up to seven times less on average than customer acquisition. Selling to customers who already have a relationship with the company is often a more effective way to increase revenue because companies don’t have to acquire and convert new customers.

Companies that shift their focus to customer loyalty often find this approach more efficient because they are in contact with customers who have already expressed interest in the products and are engaged with the brand. In this way, a level of conversation and contact has already been created with the existing customer experiences. Especially in subscription business models, the retention rate is an extremely important metric in marketing and sales. Preventing churn, i.e., the migration of existing customers, is another important key figure that goes hand in hand with the retention rate.

How can companies improve customer retention rates?

This much is certain: every company, whether small or large, must focus on retention. It is important to note that companies are finding that customer profitability tends to increase over the lifetime of an existing customer, making the use of customer retention strategies well worth the investment. Below we list some of the customer retention strategies and techniques:

  • Define customer expectations, i.e., align customer expectations with what the company actually offers or can offer.
  • A team of specialized employees is necessary to ensure that customers feel trust and thus loyalty and that good service is provided.
  • Leverage and create relationships to build customer trust through shared values.
  • Take a proactive approach to customer service, meaning be proactive so you can fix problems before they occur.
  • Use social media to build relationships with customers so they can become brand ambassadors.
  • Create personalized services so the customer has a unique experience.

How to calculate the retention rate?

Calculating customer retention is possible using a simple formula called Retention Rate:

Retention Rate Formel

EC = Number of customers at the end of the period.

CN = Number of new customers acquired during the period.

CS = Number of customers at the beginning of the period.

The regular calculation of the customer retention rate is important in order to thereby promptly uncover possible patterns and sources of error and to derive the appropriate measures in various areas (such as support, marketing, website, etc.)

Retention rate as an important customer loyalty tool.

By analysing purchases and transactions and other information available from the customer, the company can monitor the level of customer satisfaction and plan actions to increase retention. For example, the company can use incentives and discounts to encourage the customer to make a repeat purchase or try new products. To realize the full profit potential of each customer, the company can offer additional items or services on top of those already purchased by the customer, or offer higher-value versions of the original product or service requested. The retention rate is of fundamental importance to companies because it is in this way, namely by satisfying consumer needs, sustainable sales can be generated.

In short, satisfied existing customers are the key to the long-term success of any business.