Customer Retention: Importance & how to measure
Customer Retention Rate (CRR) is the percentage of existing customers that have been using your product or service during a given period of time. Sometimes, it is also referred to as customer churn - the lower the churn rate, the more successful your business will likely be.
Why is it important?
Your bottom line. The fact is that it's more expensive to acquire a new customer than to keep hold of an existing one. In terms of where you choose to spend your money the Harvard Business Review says that it’s up to 25 times more expensive to attract a new customer opposed to keeping an existing one happy.
Your existing customers hold valuable insights on your product and will help you streamline user journeys, tell you what to prioritise on your roadmap, and help in improving your overall customer experience. They are also great pointers that will enable you to understand why a particular product or service of yours is used, and provide directions for setting the right tone when communicating with your audience.
Happy customers hold great power and can influence others, as they already have a positive attitude towards your product and will act as ambassadors on behalf of you. For this it is crucial to maintain an excellent experience for all customers, and this will inevitably help increase new business through recommendations and referrals.
How to calculate it?
Customer Retention Rate (CRR) is calculated by using a simple formula which involves the customers you had at the start of a given period, the number of customers at the end of that period, and the number of new customers acquired during the period.
This spits out a % that you can use to gauge your CRR and use this as a benchmark to improve on. It is very important though to point out that 100% customer retention rate is far from reality. These rates vary according to industry and company size but as a benchmark for Startups and SMEs a 39.5% CRR should be considered good.
Conclusion
You want your business to grow which means new business, however it is crucial you do not forget about your existing customers and to keep them happy. These customers can be used to direct your product development, they are the ones recommending you to their peers and are relatively cost effective to keep happy.
Your customer retention rate will help you monitor how healthy your customer retention strategy is, and by using industry benchmarks or your own goals you will know if you need to make any changes to this.