Customer Retention is a strategy used by companies trying to reduce the number of existing customers from leaving.
This can often take the form of offering discounts, free products or services.
Sounds kind of desperate when you think about it – “Please don’t leave me. Here, have free stuff!”.
That’s never going to end well.
Of course, it would be much better to never let things get to that stage.
You know, look after your customers so they never want to leave…
Why Customer Retention Matters
If plain common sense doesn’t seem to sink in, there is lots of stats around on why improving your customer retention is good for business – here’s a few I picked out:
- Acquiring a new customer can cost five times more than retaining an existing customer.
- Increasing customer retention by 5% increases profits 25-95%.
- The success rate of selling to a customer you already have is 60-70%, while the success rate of selling to a new customer is 5-20%.
How to calculate Customer Retention
Learning how to calculate customer retention is a bit like Employee Retention – it looks complicated but it’s not really that tough!
Retention rate = ((CE-CN)/CS))100.
CE = number of customers at end of period, CN = number of new customers acquired during period, and CS = number of customers at start of period.
At first glance, the formula may look complicated, but it’s not too difficult once you start using it.
For example, if you start the given period with 200 customers and lose 20 customers but gained 40 customers, at the end of the period you have 220 customers. 220-40 = 180.
180/200 = 0.9, and 0.9 x 100 = 90.
The retention rate for the given period was 90%.
Does that all still look too hard?
Download our free Customer Retention Calculator (in Excel)
How to increase Customer Retention
Given this is only a glossary I’m not going to give everything away here now am I?
The short version is just look after your customers and do everything you can to improve the Customer Experience (CX).
Thankfully, I’ve got over 80 articles on how to improve the CX in your business all written by industry experts and all free – take a look >>>
Recommended further reading: The False economy of Customer Retention.
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