Customer Retention How To Calculate Customer Retention Rate: 4 Steps 5 min read MuteSix • October 12, 2022 Back to Articles How To Calculate Customer Retention Rate: Four Steps Customer Retention Rate (CRR) is a metric that helps brands understand which of their sales over a given period of time can be attributed to repeat customers. All brands should focus on stoking loyalty and return sales from its existing customer base with a solid customer retention strategy. Customer retention is important for many reasons. For starters, it costs less than acquisition and can drive more revenue. In fact, acquiring new customers can cost as much as five to seven times more than retaining existing customers. Brands with high customer retention often boast the highest customer lifetime value (LTV), meaning the total number of dollars a business can expect to receive from a typical customer throughout your relationship. Developing your customer retention strategy is an essential piece of the marketing puzzle. If you can make incremental increases in your customer retention rate, you can significantly impact sales and profitability. Keep reading to learn more about calculating your customer retention rate and the strategies you can employ to increase it. What Is a Customer Retention Rate? Customer churn is a normal and expected part of the customer journey. Even highly successful brands cannot retain 100% of their customers, but that doesn’t mean tracking your customer retention rate (and churn rate, for that matter) is not essential. Customer retention is critical because repeat customers tend to be the most valuable in terms of driving long-term revenue. One study found that increasing your customer retention rate by five percent can result in more sales between 25 and 95%. Why Does Your Customer Retention Rate Matter? Customer retention rate can help your business in a variety of ways because it offers a snapshot of the health of your brand, allows you to better optimize your digital strategy, and helps project future sales. Let’s take a deeper look at each of these benefits. It Tells You About the Health of Your Brand Customer retention gives you a clearer image of what your brand means to your customer base. When determining the health of your rate, it’s important to remember the context. Average retention rates vary per industry. The insurance industry, for example, has far higher retention rates than the fintech industry. It Helps You Optimize Your Digital Strategy Most marketers approach digital strategy with a comprehensive perspective on a customer’s position in the marketing funnel. Paid media is designed to meet shoppers across all points of the customer journey. Retention is an essential part of the marketing funnel and a key area to focus on when it comes to ensuring your marketing efforts are efficient and profitable so as to effectively scale your business It Helps You Project Future Sales As you scale your brand, your CRR will give you benchmarks for how many customers you should expect to return over a given period of time. As you optimize your marketing strategy, you can expect to retain more customers and thus project higher sales. How Do You Calculate Your Customer Retention Rate? Four Steps This is the customer retention rate formula. 1. Determine Your Total Customers at the End of a Quarter First, determine your timeframe. This can be any given period, but quarterly is an excellent place to start. Find your total number of customers at the end of the period. 2. Subtract the Number of New Customers Then, you’ll want to remove those customers who are newly acquired. 3. Divide by the Number of Customers From the Beginning of the Quarter Next, divide that remaining number of returning customers by the number of customers you had at the start of that period. 4. Multiply by 100 You’ll get a decimal point, which you should multiply by 100 for a percentage. How Do You Improve Your Customer Retention Rate? Once you have a baseline CRR, you can look for ways to improve it. Here are three ways to do so. Implement Retention Strategies Across Your Marketing Channels To Keep Existing Customers You can employ several tactics across all your paid media channels to encourage existing customers to continue to make purchases from you. To do so, a dedicated marketing agency like MuteSix can execute high-speed creative A/B testing to identify top-performing value props and other variables that resonate best with your target audience, then iterate campaigns accordingly to ensure you’re reaching shoppers with the right messaging at the right time. Monitor the Competition and Get Strategic with Your Promotional Offers Don’t underestimate how often your customer base will look for more cost-efficient alternatives, whether that means better pricing or more attractive perks, especially in competitive shopping verticals like Health & Wellness, Beauty, and Fashion, just to name a few. If you notice that your competitors are offering a promotion that makes your price point obsolete, consider optimizing your promotional strategy to retain more customers. Implement a Customer Loyalty Program Loyal customers are valuable customers. A customer’s lifetime value increases when they return time and time again to make repeat purchases. Loyalty programs incentivize that behavior by making them feel valued in return for valuing your brand. There are several loyalty strategies that you can engage in, including incentivizing referrals from current customers and earning points off a future purchase. The Bottom Line on Customer Retention Customer Retention is an important metric of customer satisfaction. The health of your business depends on a loyal and active consumer base, so it’s critical to implement a competitive retention strategy to prevent your hard-earned new customers from churning. As leaders in real-time digital marketing for brands of all sizes, MuteSix can optimize your retention strategy to ensure your campaigns meet your customers wherever they’re scrolling or shopping so as to reduce churn and maximize long-term growth. Reach out for a free marketing audit to get started today. Sources: How to Calculate Your Customer Retention Rate | Business News Daily Customer Retention Versus Customer Acquisition | Forbes Customer Acquisition vs. Retention Costs | Invesp The Average Customer Retention Rate By Industry | Survey Sparrow Interested in Working Together? 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