Customer retention

Using the customer retention rate to lower your marketing cost

As marketers, we spend quite a bit of time looking at different aspects of acquiring customers. We build look-a-like models, develop predictive communications, define and refine personas so that we adapt to market conditions, but what about those prospects we did convert? How do we measure what customers we keep and continue to keep with us?

What is customer retention?

Simply put, customer retention is the ability for a company to retain its customers over time. According to HubSpot,  it is “a percentage that measures how many customers are retained by the end of a given period.” It is reflected on how many customers churn versus how many you new customers are acquired. Churning can be considered as loss of subscription or not buying your product. But, how do you calculate this?

Calculating your retention rate

If you follow these steps, customer retention rate can be easily calculated:

Customer Retention Rate = (# Customers at End of Period – # Customers Acquired During Period) / # Customers at Start of Period) X 100
                       

                  Customer Retention Rate = (CE – CA)   x  100
                                                                        (CS)                

Example: Imagine you start the year with 40 customers, gain five new customers in the first quarter, and have one customer churn.

(39 – 5) / 40) x 100 = 85% retention

Why is this even important?

Customer retention is important because it measures not only how successful you are at gettingnew customers, but also how successful you are at satisfying existing customers.

Other than the high cost of acquiring new customers, about 5x -25x more than keeping a customer, loyal customers become advocates of your brand. They provide free marketing to friends, family, or anybody who will listen to them on social media. They typically spend more money than new customers and provide valuable feedback that will help your brand strategically and tactically in the future.

So, customer retention is essential barometer reading for all marketers and a crucial essential in your marketing KPI tool kit. What’s your customer retention rate like? Share your thoughts and comment below. And don’t forget to read up on other marketing-related geeky stuff on my blog.

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