Retention Riches: Turning Loyalty Into Profit

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Retention Riches: Turning Loyalty Into Profit


The Gist

  • Retention impact. Customer retention rate crucially affects brand profitability and repeat purchases, reducing reliance on advertising.
  • Cost efficiency. Retaining existing customers costs 5X less than acquiring new ones, emphasizing efficient resource allocation.
  • Service key. Exceptional customer service is vital for retention, as negative experiences can significantly reduce customer loyalty.

Loyal customers are a beautiful thing. As they grow to trust your brand, they’ll buy more, and more expensive, products over time. This enduring loyalty positively impacts your customer retention rate, as these satisfied customers not only become repeat buyers but also act as word-of-mouth evangelists, recommending your brand to friends and colleagues and promoting it on social media.

It’s no wonder then that “customer retention rate” is an important metric for CMOs. Satisfied customers are extremely cost-effective when compared to the marketing expense of finding and converting new customers. Satisfied customers also increase your brand’s profitability, as they make repeat purchases without you having to persuade them (using your advertising budget).

The rule of thumb is that it costs 5X more to acquire customers than to retain them. Recent research points out that existing customers are 50% more likely to try new products and spend 31% more when compared to new customers.

A hand holds a wooden cube with a magnet emblazoned on it and holds in in front of four other wooden cubes with customers icons on them suggesting the importance of customer retention in piece about the customer retention rate.
The rule of thumb is that it costs 5X more to acquire customers than to retain them. Parradee on Adobe Stock Photos

Retention Rate Challenges

But retaining customers is fraught with challenges including understanding evolving customer expectations and addressing customer service issues quickly and efficiently. This is especially true over the past five years as the pandemic and an influx of remote work have made consumers more comfortable engaging with brands via the web, mobile, social media, SMS and email.

“One of the biggest customer retention challenges these days is knowing what customers want,” said Michael Brandt, founder, senior consultant, and trainer at consulting firm, CX-Excellence. “A lot of companies take pride in their products but don’t analyze customer data enough to know if their products are actually fulfilling their customers’ needs.” 

In this article, we’ll explore how to calculate and improve your brand’s customer retention rate. 

Calculating Customer Retention Rate

Apologies in advance to the math haters, but determining a customer retention rate requires some good old subtraction, division and multiplication.

Here are the steps to calculating a customer retention rate:

  • Choose a time period — Could be a month, quarter, a year
  • Count the number of customers you had at the start of the time period (Let’s say 110 customers)
  • Count the number of new customers you acquired during the time period (Let’s say 20 new customers)
  • Count the number of customers you have at the end of the time period (Let’s say 100 customers)

Use this formula to figure out your customer retention rate: 

[(End # – New Customers #) / Start #] x 100 = CRR

[(100 – 20) / 110] = 0.73 x 100 = 73% CRR

In this case, you retained 73% of your customers. Whatever is left (27%) is your churn rate — or the percentage of customers who stopped using your brand or canceled a subscription or service. 

What is considered a good customer retention rate? It depends on the industry. The average customer retention rate in insurance is 83% because there is low competition and it’s difficult to switch to a new insurance company. However, in retail the competition is high and it’s easy to switch, so the average customer retention rate is lower at 63%.



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