What Metrics are Used to Measure Customer Retention?

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By gibsonjones

For any successful business, customer retention is crucial! As significant as it is to fetch new customers from the market, it is equally important to keep the existing ones glued. It might sound easy to retain your customers, but in reality, it takes a lot of effort. Customers have plenty of options, and if you do not cater to their expectations, they will switch to another business without a second thought. Understand that retention has a direct impact on your revenue and overall business success, so it is significant to focus on it and keep measuring it to ensure you meet your business goals. 

Let’s discuss what customer retention is and the metrics you can use to measure it.

What is customer retention?

Customer retention is the activity of the actions that an organization does to keep the customer defections minimal. It is one of the most popular customer success trends that most businesses rely on to turn their business successful. The purpose is to ensure maximum customers stick to the brand and keep making purchases. It is interesting to note that retention activities start right from the time a customer makes first contact with the business. Furthermore, it lasts the entire lifetime of a customer’s relationship with the company. 

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Significance of customer retention

Customer retention is utterly significant for every business, irrespective of its domain. It benefits them in multiple ways, some of them are:

  • Customer retention is a cost-effective practice to increase company revenue. You wouldn’t have to convince these customers over again. These are effortless purchases. 
  • You can launch new products and rely on your loyal customers to give them a push. They wouldn’t deny trying your latest launches and advocate them in their network. 

A higher customer retention rate signifies the credibility of your business. It improves your market reputation and increases your chances of getting more and more customers. 

Now you know , but how will you calculate it? Let us figure out.

Metrics used to measure customer retention

One can measure customer retention in multiple ways. Listed below are some metrics that can help calculate the retention score.

  • Customer Churn

Calculate how many customers have stopped using your services or have unsubscribed over a given period. If most of your customers have unsubscribed, it means your retention score is less. So, when you start experiencing higher churn, you should re-strategize your retention activities. 

  • Revenue Churn

More customers means higher revenue! So, revenue churn is another metric that can help measure customer retention. Constantly decreasing revenue implies your customers are switching to another option. By simply analyzing the revenue insights, you can decide whether everything is working fine or you should re-think your retention strategies. 

  • Net Promoter Score

Another metric you can use to measure customer retention is the Net Promoter Score. It is a survey that a business conducts. Ask your customers to fill out a form, answering all the questions on a scale of 1 to 10. You must have completed surveys, answering questions like how likely you are to recommend the brand to others. That is the survey that can help calculate NPS. A higher net promoter score means you have retained enough customers, and revenue growth is as expected.

  • Customer Lifetime Value

Customer lifetime value directly implies high customer retention. It is one of the primary metrics amongst all the customer success trends that tells you how long the customer stayed with you. Needless to say, if the customer had stayed glued for a long, he would have made recurring purchases and contributed to your revenue growth. Thus, you can take out the data of customer lifetime value, and it will help get insights into your retention rate.

Other than these metrics, you can use the time between purchases, product return rate, or days sales outstanding to measure your customer retention score. Knowing the significance of retention and its impact on your business, you know how crucial it is to emphasize it. Ensure you keep calculating the retention value often to ensure most of your customers stick to your brand. With consistent efforts, you will notice an excellent improvement in your revenue and market reputation.

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