What is Customer Retention Rate?
The Customer Retention Rate (CRR) measures the percentage of existing customers who remain customers over a specific period. It is the direct inverse of the customer churn rate. While churn focuses on how many customers you lose, retention focuses on how many you keep. Tracking retention is essential for understanding customer loyalty and the long-term viability of a business.
How to Use This Tool
To calculate your retention rate, you need to define a time period (e.g., a month or a quarter) and provide three key numbers:
- Customers at Start of Period: The total number of customers you had at the beginning of the period.
- Customers at End of Period: The total number of customers at the end of the period.
- New Customers Acquired: The number of new customers gained during that same period.
The tool uses the formula: ((End - New) / Start) * 100. This formula isolates the customers who were with you from the start and remained at the end, which is the definition of retention.
Why Focus on Retention over Churn?
While mathematically similar, framing your metrics around retention instead of churn can have a positive psychological impact on your team, encouraging a focus on delighting and keeping customers rather than just plugging a leaky bucket. Benefits include:
- Increased Profitability: Retaining customers is significantly cheaper than acquiring new ones.
- Higher Lifetime Value: Loyal customers tend to spend more over time and are more likely to upgrade, improving your Customer Lifetime Value (CLV).
- Brand Advocacy: Happy, long-term customers are more likely to become brand advocates and refer others.
- Sustainable Growth: A high retention rate is the foundation upon which sustainable growth is built.