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10 Customer Retention Metrics You Need To Improve In 2022

May 24, 2022

I’m sure you’d agree that bringing in new customers is a major focus of every company, but new customers come at a steep price. The reality is that customer acquisition costs seven times as much as it does to keep a customer. 

This begs the question: do you have a customer retention strategy in place, and are you monitoring the right customer retention metrics?

Did you know that you can boost your company profits from 25% to 95% by ensuring your existing customers are always coming back to you? Yes, shifting focus from new customers to repeat customers can have a landslide effect on profit and business growth. 

The best place to start is by monitoring the right customer retention metrics. Put simply, customer retention metrics can be used as a benchmark for how your existing customers behave.

If you aren’t sure which customer retention metrics you should be paying attention to, don’t panic! From customer lifetime values to repeat purchase ratios, this guide will cover every key metric for retention, and give you the knowledge and formulas needed to build a successful customer retention strategy.

What Is Customer Retention?

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Customer retention is keeping your existing customers coming back to your business again and again. A loyal customer base is a key factor in the longevity of many companies. It’s also one of the most profitable aspects of running a successful business. 

It’s essential for companies to keep their existing customers happy and satisfied. Statistics show that acquiring new customers can be anywhere from 5 to 25x more expensive than keeping an existing customer. 

However, if you instead work on retaining customers and providing a great customer experience you can reap many business benefits. On top of saving on customer acquisition costs, by focusing on customer success you can also reduce spend on marketing campaigns.

Customers that are happy with your business are more likely to refer their friends, family, and colleagues. Personal referrals are a powerful tool that solidifies relationships with current customers and is a positive first impression with new ones.

Customers acquired through referrals have a 37% higher retention rate, and result in 16% more profits and expedite the growth rate of your business. Larger companies can, and should, invest in their returning customers first to make sure they retain their current market base and build long-term customer loyalty.

10 Metrics To Improve Customer Retention

It’s crucial to optimize your business for customer success and retention by fostering relationships built on trust, loyalty, and satisfaction. Studies have proven that longer relationships increase the average amount of money customers are willing to spend with you. 

This is why investing in existing customers is so important. These are people who are already invested in your business to a certain degree – through a purchase, subscription, or saving social media posts.

By improving your business’s customer retention metrics you can:

• Make 31% more per sale to an existing customer as opposed to a new one
• Extend the lifespan of the customer-business relationship, adding revenue over time
• Improve new product launches – loyal customers are 50% more likely to purchase.

1. Customer Retention Rate

Customer Retention Rate (CRR)  refers to the length of time your customers stick around as patrons of your business. CRR gives you insight into the health of your company and is important to regularly keep track of. 

We’ve already covered some of the reasons why existing customers are so profitable – from referrals to purchasing larger quantities – and that’s exactly why your CRR numbers are so important. 

But what qualifies as a good retention rate? It differs by industry, but media and finance CRR is around 25%, whereas e-commerce and SaaS companies come in higher at around 35%.

To calculate your business’s CRR, subtract the number of new customers acquired in a specific timeframe by the number of customers you had at the end of the same period. Then divide this number by the number of customers you had when the period began, and times that by 100. 

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2. Revenue Churn Rate

Revenue Churn Rate refers to a loss in revenue over a period of time. For example, in the period of a month, if you experienced several cancellations of a subscription service your company’s monthly recurring revenue (MRR) will be affected negatively.

Churn rate is important to monitor consistently because it can be used to predict future revenue growth and identify areas where the company may be losing customers.

The formula for calculating revenue churn rate involves taking your MRR from the end of the month and subtracting it by your MRR from the beginning of the month. Then subtract your MRR in upgrades from the previous result, and divide the remaining number by the MRR from the beginning of the month.

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3. Customer Churn Rate

As you may have guessed from the title, this metric refers to the amount of customers lost over a period of time. It’s also sometimes referred to as customer attrition rate or customer turnover rate.

Why does customer churn rate matter? Because it can give you insights on where improvements need to be made and why customers are leaving which ultimately affects your bottom line. If you can identify a problem you’re well on your way to finding a solution.

Like revenue churn, customer churn is calculated by dividing the number of customers lost in a period (a month, for example) by the number of customers you had at the beginning of that time. In a perfect world, the customer churn rate of every company would be 0. The next best thing is keeping it as low as possible, and that starts with monitoring it closely. 

There are a few different ways to calculate customer churn rate, but the most common method is to simply take the number of customers you lost during a given period of time, and divide that by the total number of customers you had at the beginning of that period.

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4. Product Return Rate

Product return rate measures the percentage of products that are returned by customers, and can be used to track trends over time. Product return rates are important metrics that can clarify issues in your business.

They can be an indicator of product quality. If customers are regularly returning products, it may be an indication that there are quality issues that need to be addressed. 

High product return rates can be costly for businesses. Not only do businesses have to bear the cost of shipping products back and forth, but they also lose out on revenue from selling those products. 

These rates can also impact customer satisfaction and loyalty if issues aren’t addressed. If customers are frequently returning products, they may not want to continue to support that business.

To calculate your product return rate, take the number of products returned in a given period of time and divide it by the total number of products sold in that same period of time.

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5. Repeat Purchase Ratio

The Repeat Purchase Ratio (RPR)  tracks customer loyalty and engagement. It measures the percentage of customers who make successive purchases from a company in a certain period of time.

RPR is important because it is one of the best indicators of customer satisfaction and loyalty. A high RPR means that customers are happy with your product or service and are likely to keep coming back for more.

It’s helpful to think of your own experience as a consumer – what factors have affected whether you make a repeat purchase? By following the RPR of your company, you can have greater insight into why you’re succeeding with customers that return regularly.

There are a few things you need to know in order to calculate RPR:

• The number of first-time buyers (N1)
• The number of repeat buyers (N2)
• The total number of buyers (N)

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6. Net Promoter Score

Net Promoter Score (NPS) measures customer satisfaction and loyalty. It is based on the premise that customers who are happy with a product or service are likely to promote it to others, while unhappy customers are less likely to do so.

NPS is used by businesses around the world to measure how their customers feel about their product or service. It is a simple way to get instant feedback about how your business is viewed by people interacting with it. 

Your net promoter score is found by asking customers how likely they are to refer your product/company to their friend/colleague on a scale from 0-10. When your NPS score is high, you know customers are enthusiastic about your product and potentially referring new customers to your company. 

You can calculate NPS by asking customers to rate their level of satisfaction with a product or service on a scale of 0-10, and then subtracting the percentage of detractors (those who rated the product or service as 0-6) from the percentage of promoters (those who rated it as 9-10). 

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7. Loyal Customer Rate

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Loyal customer rate is a metric that measures the percentage of customers who make repeat purchases from a company. A high loyal customer rate indicates that customers are happy with the products or services they are receiving and are likely to continue to purchase from your company.

Finding out who your most loyal customers are is important because you can further incentivize them with loyalty programs or discounts. This is another way you can build on the success of this client relationship and ensure your customers’ happiness with your interactions.

The formula for calculating loyalty customer rate is (Number of Customers Who Made a Repeat Purchase / Total Number of Customers) x 100%.

8. Customer Lifetime Value

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Customer lifetime value (CLV) is a metric that measures the total value of a customer to a company. This includes both the customer’s purchase history as well as their projected future spending. 

CLV is important because it allows you to focus on retaining and growing relationships with your most valuable customers. It also helps you identify which customers are not worth investing in. 

The most common approach for calculating CLV is to take the customer’s average purchase amount and multiply it by both the number of years they are expected to continue doing business with your company.

The full formula for calculating CLV is: Average Order Value x Purchase Frequency Rate x Average Customer Lifetime

9. Participation Rate

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The participation rate is the percentage of customers who choose to engage with your brand. This can be calculated in a number of ways, but typically it is the number of people who take part in a specific activity divided by the total number of people who could have taken part. 

For example, if 100 people are invited to participate in a survey and 50 people respond, the participation rate would be 50%. Similarly, if 10 out of 100 customers make a purchase after receiving a promotional offer, the participation rate would be 10%.

High participation rates are often seen as a sign that a company or brand is doing something right. They indicate that customers are interested and engaged with what is being offered, and that they are willing to take part in activities that will help to improve the products or services on offer. 

Whether that be feedback, suggestions on products or ideas for new products, customers’ ideas or concerns can show you how your company can improve in specific ways. If you are truly listening to your customers, they will notice and react accordingly.

10. Active Engagement Rate

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Active engagement rate measures the percentage of people who actively engage with your content or brand marketing campaign. This includes things like liking, sharing, commenting, or clicking on links. 

Active engagement rate is important because it shows how interested and invested people are in your content. It’s a tangible way to see how your customers interact with your brand over multiple platforms. The higher the active engagement rate, the more likely people are to see and interact with your content.

You can calculate active engagement rate by taking the number of people who engage with your content and dividing it by the total number of people who see your content. For example, if 100 people see your post and 10 of them like or share it, then your active engagement rate would be 10%.

Difference Between Customer Retention & Customer Loyalty

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Customer retention and customer loyalty are two important concepts for businesses. They are both related to how likely a customer is to continue doing business with a company, but there are some key differences between the two.

Customer retention is focused on keeping customers from leaving, while customer loyalty is about getting customers to come back again and again.

Let’s clarify how they differ:

• Customer Retention: strategies and activities companies use to make sure customers continue to choose their product over a competing company.
• Customer Loyalty: considers a customer’s satisfaction to purchase from you repeatedly, as well as their willingness to refer your company to others.

While these differences are important, these two concepts work hand in hand. Once a customer has been retained, your business must take it a step further to ensure they become a loyal customer who advocates for you and your product. Studies have shown that loyal customers will not only advocate for you, but are seven times more likely to forgive a company mistake. 

Conclusion

Knowing the patterns, satisfaction, and loyalty of your customers is crucial for business growth. By implementing a customer retention strategy that tracks each of these key metrics, you can have a birds-eye view of why your customers choose you, why some don’t, and what is working best.

As a group, these metrics are a measure of the investment customers have with your services or products. By connecting to how your customers feel through every touchpoint in their purchasing journey, you can build strong loyalty and long-lasting relationships. 

Of course, it can be quite a bit of work to round up the data necessary to track these metrics, but tracking customer data doesn’t have to be difficult!

Read through our guide on customer retention software to find the perfect solution for your company. 

Now that you have a greater understanding of why customer retention metrics are so important, you can get creative with how you implement them in your own business. And if you ever feel that your customer success is lacking, stop and ask yourself — if I were a customer, what would make me feel special?

Connect with us on LinkedIn to share your thoughts and strategies for making customers feel well cared for.