6 Customer Retention Metrics and how to measure them?

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Customer retention metrics plays a vital role in any kind of business. What is the key ingredient behind the success of any B2B company? Customer retention! Yes, customer retention in any business is as much as important as the finance to the business. Retaining your customers will also lead your brand to have more loyal customers. To make data driven decisions it is important to track customer retention metrics and analyze trends and patterns. To retain your customers, you should know how to measure the customer retention. Retention rate is sometimes confused with churn rate. However, these two metrics are distinctly different.

Churn Rate vs. Retention Rate

Retention rate is the ratio of customers that return to do business at your company. This differs from churn rate because churn rate refers to the number of the customers you’ve lost over a period of time. A company with a high churn rate, have a lower retention rate.

How to Measure Customer Retention?

  • Count the total number of customers you had in the end of the period (month, quarter, year).
  • Subtract the number of customers you acquired from the total number of customer.
  • Divide this result by the number of the customers you had at the start of the period.
  • For instance, if you had 100 customers in the start, 90 customers at the end, and 5 new customers, your retention rate would be 85%.

Customer Retention Rate = (Total number of customers at the end of the period – New Customers acquired) / Customers at the start of the period

Importance of Customer Retention:

The more customers you retain; the more recurring revenue you can generate. A customer that stays with you is happy with your products or services, there is more probability of that person to refer your product to others.

customer-retention-metrics_digital village_karthi easwaramoorthy

You cannot improve the customer retention, unless you track metrics such as customer lifetime rate and churn rate. A brand tracks their success and takes decisions on the basis of the customer retention metrics. This information helps each team fine-tune their contribution to the customer journey and create more delightful experiences for your user base.

Customer Retention Metrics:

1.Customer Churn:

Perhaps the most straightforward of customer retention metrics, your company’s customer churn rate refers to the rate at which customers stop doing business with you. Whether the customer has ended or opted out of renewing a subscription, a churned customer is a customer that your business didn’t retain.

 A high churn rate is typically indicative of your product or service failing to meet your customers’ expectations or goals.

How to Calculate Customer Churn Rate?

Annual Churn Rate = (Number of Customers at Start of Year – Number of Customers at End of Year) / Number of Customers at Start of Year

2.Revenue Churn Rate:

Your revenue churn rate is the percentage of revenue you’ve lost from existing customers in a given period of time. For example, revenue churn can result from an order cancellation, a plan downgrade, or an end to a business relationship. Particularly for SaaS (Software as a Service) companies, revenue churn rate is a critical indicator of customer satisfaction.

If revenue churn does occur, it’s quite possible your customer may be on the brink of leaving — and your operations or services team must quickly take action to prevent this from happening.

How to Calculate Revenue Churn Rate?

Monthly Revenue Churn Rate = [(MRR at Start of Month – MRR at End of Month) – MRR in Upgrades during Month] / MRR at Start of Month

3.Existing Customer Revenue Growth Rate:

Existing customer revenue growth rate is very important for your business.A climbing rate would imply that your marketing, sales, and account teams are doing a great job at motivating customers to increase spending. It also means that your customers are quickly realizing the value from your engagement.Conversely, a floundering or falling growth rate should put your success team on alert.

If your existing customer accounts aren’t growing, you’re probably not spending enough time and budget on customer retention and failing to capitalize on easily tapped sources of revenue.

How to Calculate Existing Customer Revenue Growth Rate?

Monthly Revenue Growth Rate = (MRR at the End of Month – MRR at the Start of Month) / MRR at the Start of Month

4.Repeat Purchase Ratio:

In simple terms, the repeat purchase ratio (RPR) is the percentage of customers that have returned to buy from your company again. This metric is a great indicator of Customer Loyalty— often used by marketing and sales teams to assess the performance and impact of the company’s customer retention strategy. Although this particular metric typically applies to products, you can also apply the same formula to repeat subscription or contract renewals.

How to Calculate Repeat Purchase Ratio?

Repeat Purchase Ratio = Number of Returning Customers / Number of Total Customers

5.Product Return Rate:

Product return rate is most certainly a data point that customer success teams must pay close attention to. Not only can customer success managers use it to justify reaching out to internal parties and jumpstarting the damage control process, but they can also use the information to let the right people know where the product or its delivery need to be improved.

How to Calculate Product Return Rate?

Product Return Rate = Number of Units Sold That Were Later Returned / Total Number of Units Sold

6.Net Promoter Score:

Net promoter score quantitatively measures general satisfaction and loyalty to your brand. Once you’ve calculated your overall Net Promoter Score, it will tell you if your customers are content and willing to refer your products or services to others.

While a high NPS does not guarantee growth and retention, identifying and incentivizing brand evangelists can help drive referral business. This can work exceptionally well alongside content marketing initiatives such as the creation of case studies, website testimonials, and other forms of social proof.

Conversely, a poor or middling score provides the opportunity to address a satisfaction problem before it’s too late.

How to Calculate Net Promoter Score?

Net Promoter Score = % of Promoters – % of Detractors