What Is Customer Retention Rate? How to Calculate and Improve It

What Is Customer Retention Rate? How to Calculate and Improve It

Successfully managing customer retention rate is one of the essential parts of creating a sustainable business volume. It is important for businesses to acquire customers, but retaining the acquired customers and improving brand loyalty is a much more important parameter.

According to a study by Harvard Business School, a 5% increase in customer retention leads to increased profits between 25% and 95%. This shows how important and effective customer retention is. So, what is customer retention rate, and how is it calculated?

What Is Customer Retention Rate?

Customer retention rate refers to the number of active customers a company can retain over time. The main purpose of the companies is to gain customers and keep the acquired ones.

Constantly trying to gain new customers is quite tiring and more expensive than working with loyal customers. If the customer retention rate is low, it is difficult for the company to become profitable even if new customers are constantly acquired. Besides, the cost of retaining existing customers is always lower than the cost of acquiring new customers.

In this context, there are many methods that can help you improve your customer retention strategies. These methods, known as retention marketing, strengthen customer loyalty.

How to Calculate Customer Retention Rate

Customer retention rate is an indicator of what percentage of customers at the starting point can be retained. The customer retention rate formula calculation method is as follows:

Customer retention rate formula: (Number of customers at the end of the period - Number of new customers acquired during the period) / Number of customers per period x 100

Customer retention rate calculation: A period is determined, such as one year or one month. For example, at the beginning of the year, there were 20 customers. Five new customers were acquired during the year. At the end of the year, there were 24 customers. The customer retention rate is calculated as (24-5)/20=95%. Again, one customer is leaving in this example, so the abandonment rate (churn rate) is 1/20=5%.

Customer retention rate is closely related to the number of newly acquired customers and abandoning customers. In order to keep this rate high, it should be tried to understand why customers leave and actions should be taken to eliminate these reasons. In order to reduce the customer abandonment rate, it is necessary to measure and increase customer satisfaction regularly.

What Is A Good Customer Retention Rate?

Many retention marketing strategies are used to ensure good customer retention. A good customer retention rate is around 95% for large and well-established companies. An ideal customer retention rate can be achieved with many strategies. Using a good popup service, for example, is a great strategy for retention marketing. You can collect email addresses required for email marketing, which is one of the most effective customer engagement strategies, or offer loyalty points, discount coupons, previews, and much more with popups.

Customer retention works a little differently for smaller, service-oriented agencies. Small agencies part ways with most of their customers, especially in the first year they start to serve. This situation forces agencies to constantly look for more new companies and pursue more new customers. Continually acquiring new customers is much more costly and time-consuming than retaining them. In addition to the cost, the constant pressure to find new customers is much more complex than working with loyal customers.

Processes such as getting to know the customer, generating ideas suitable for the customer, preparing a project, designing a presentation, persuasion process are quite tiring when applied over and over again for each new customer. Regular customers will gradually increase over time with the right customer retention strategies.

How to Improve Customer Retention Rate

1. Choosing The Right Customers

Not every customer is a buyer of the product or service offered. For this reason, the right target audience should be selected when selling products or services. The more accurate customer targeting is the higher the customer retention rate. The hardest part of marketing a product or service is finding the right customer profile. Market research methods can be used to find the perfect target audience.

2. Setting and Meeting Expectations

The #1 way to retain customers is to deliver more value than they are charged for. Everything happens before, during, and after the sales process. If a service is offered, communication with the customer and service quality come into play after the service is started. After the agreement is reached, the customers' expectations should be met after the mutual expectations are discussed. In this way, regular customers are obtained.

3. Communication

Communication is the most important way to keep customers happy. With correct and continuous communication, the customer relationship is strengthened, and the customer retention rate is kept high. For example, call or email your customers early in the week to find out what the team is working on and what they aim to achieve.

4. Digital Marketing Methods

Many strategies and concepts have been rearranged with the sale of products or services on online platforms. The customer retention rate shows that the customers are permanent in online sales of services and products sold online. To achieve this, many retention strategies can be applied. For example, popup services, frequently used in digital marketing, can be used. With a popup service, visitors can be encouraged to shop by being informed about the campaigns and discounts. After making sales, loyal customers can be increased by regularly sending informative emails to their email addresses. Popups also can be used to collect email addresses.

Customer retention rate can be kept high with strategies such as using the popup service actively, communicating correctly, meeting the expectations promised to the customer, and working with the right customers. In short, the time and resources spent on retaining customers are far more cost-effective and less stressful than the time and resources spent on chasing new leads, persuading them, and then converting them into paying customers.

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