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How to Calculate and Improve Your Customer Retention Rate

Knowing how to calculate retention rate is a vital skill for customer success teams.

Customer retention is the lifeblood of any savvy enterprise. It’s the only way to be successful in this customer-centered economy and ensure scalable long-term revenue. To retain customers, companies must make the customer experience better and ensure customers never stop seeing value from their product or service. As such, you will need to keep a close eye on your customers as they progress along the customer journey to avoid churn and gather the data needed to calculate your retention rate.

Your customer retention rate (CRR) indicates the percentage of customers you’ve retained within a certain length of time. It’s an invaluable metric and, with this data in hand, you can spot any problems and work on keeping your customers satisfied in the long run.

How to Calculate Your Customer Retention Rate

Before you can begin improving customer retention, you’ll need to know exactly what percent you’re retaining. To calculate your customer retention rate (CRR), you’ll need to choose a unit of time, such as a month. You’ll need the following information:

  • The number of customers you had at the time period’s start, or S.
  • The number of customers left at the period’s end, or E.
  • The number of new customers you gained within that period of time, or N.

Next, complete the following steps:

  1. Subtract the number of new customers (N) from the number of customers left at the period’s end (E).
  2. Take this number and divide it by the number of customers present at the time period’s start (S).
  3. Multiply the resulting number by 100. This figure is your CRR.

Written out as a formula, the calculation looks like this:

((E-N)÷S) x 100 = CRR

Of course, we’d all love to see a CRR of 100%, but remember that this may not be realistic. To set a target CRR, research what CRR scores are common in your industry.

You should monitor your CRR by calculating it on a regular basis, such as monthly, quarterly, or annually. If it is rising, you know you are on the right track; if it drops, you need to enact better customer success efforts. As your customer retention initiatives progress, you should start to see your CRR improve.

Retaining customers is far less expensive than the cost of acquiring new ones and can bring growth in the form of upsells from current customers. If a customer remains loyal, their lifetime value is far higher than whatever they paid for their initial purchase.

How to Improve Your Customer Retention Rate

If you’ve calculated your company’s CRR only to find it lacking, there are several ways to improve it. Start by demonstrating the value of your product early in the customer journey by offering case studies and testimonials. Providing proof that others have benefited from your product can reassure customers going into the transaction and instill confidence at the start of the relationship.

Let customers know how long it will take for your product to start delivering results so that they have realistic expectations. Monitor a new customer’s product use and if you spot milestones that indicate success, share this with the customer so they stay encouraged. Reward high-value customers with incentives or loyalty programs to ensure they see how much your company cares about them.

Finally, personalize your communications based on the customer’s buying history and preferences at every stage of the relationship. This shows that your company listens to and anticipates the customer’s individual needs. As you implement these fixes, measure your CRR on a regular basis. You can also do an audit of churned customers by offering exit surveys and looking for other similarities between those who have churned in order to better retain future customers.

A Positive Customer Retention Rate Leads to Renewals and Upsells

Once you know what percentage of your customers are sticking around after the initial purchase, you can either gather more data about why customers are churning or work on deepening the customer relationship. Next, you can start focusing on making upsells and ensuring renewals.

Raising your customer retention rate is a detailed process, but it doesn’t have to be overwhelming. A customer success platform can unify all your customer data so you can have it at your fingertips during every customer interaction, which increases adoption, retention, and expansion.

No matter how you go about it, make retaining customers—rather than continually hunting up new ones—a business goal. It raises customers’ lifetime value and offers sustainable, stable revenue you can count on.

Totango provides a robust customer success platform that makes it easier to align your business around your customer’s needs. Our tools and services can help you meet KPIs and achieve retention goals. Request a demo or explore Spark to learn how we can help you create lasting customer success.

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