Customer retention represents a company’s ability to keep its customers. Customer retention rate is the percentage of customers the company has retained in a given period. A high retention rate shows that customers return to the brand. They don’t shift to alternative providers nor change their consuming habits. A low retention rate means that, for some reason, customers are not returning to use the brand’s products or services. This has a direct impact on the company’s profitability as retained customers generate more revenue than new ones.
The calculation of customer retention varies depending on the business. Also, there is no defined number for a “good” retention rate. The basic calculation of the retention rate is the following: divide the number of users at the end of a specified time period by the number of users at the start of the time period and multiply by 100%. For example, on January 1st there are 100 users of a product. By the end of the same month, 75 of these users are still using the product. In this case, the customer retention rate is 75%.
To improve customer retention, businesses track two metrics: Customer Acquisition Cost (CAC) and Customer Lifetime Value (CLV). Successful retention decreases the CAC and extends the CLV.