Loyal customers are what drive long-term business success. Your current client base is also your most powerful marketing tool. When you build trust and retain your customers, they are happier and more likely to refer more people to your business.
Customer retention rate is a vital metric that tells a story about your current clients’ loyalty to your business. We define the customer retention rate meaning, why it is important, and how your team can consistently increase this metric.
What Is Customer Retention Rate, and Why Is It Important?
Customer retention rate is a metric that calculates the number of customers or clients an organization retains for a specific time. This metric is critical for any company that wants to grow its brand, successfully achieve its profits, and build a loyal customer base.
The customer retention rate figure is essential to track for several reasons. First, it is much more cost-effective to retain your current customers than to acquire new ones. A high retention rate also means that your loyal client base will refer new customers to you. Your happy customers are also more likely to post about you on social media, which is free publicity for your brand.
How To Calculate Customer Retention Rate
Customer retention rate is usually a percentage that represents the number of clients that stay loyal to the company in the period. Before you and your marketing team make this calculation, it is essential to define the time frame. Depending on your strategic planning processes, you could calculate customer retention rate over a weekly, monthly, quarterly, or annual basis.
Once you figure out the period, you will need to assemble three numbers (expressed as variables):
- A – the number of current customers is the beginning of the sample time
- B – the total number of customers after the sample time
- C – the total number of new customers onboarded during the sample time
Once you know this formula, you can now calculate the customer retention rate (CR) using the below formula:
- CR = [(B-C)/A] X 100
As you can see, you begin with the total number of clients at the end of the period and then subtract the number of new clients added in the time. You will then divide this result by the number of clients at the start of the time period. Lastly, you will multiply by 100 to convert this into a percentage.
For example, let us analyze the customer retention rate for a subscription-based SaaS company. Let’s say the company starts with 300 customers at the beginning of the quarter, it onboards 50 new customers during the quarter, and it ends with 332 customers at the end of the quarter. This company’s customer retention rate is calculated using the formula:
- CR = [(332-50)/300] X 100
- CR = 94% customer retention rate
How To Boost Customer Retention
So, what is an optimal customer retention rate? As your team evaluates the percentage, there are two areas to compare it to:
- The industry average
- Your company’s historical customer retention rate
If your company is not satisfied with its customer retention rate, there are several behaviors and activities to elevate it.
Be Clear About Your Goals by Setting Multiple Metrics
Establishing attainable customer service KPIs will incentivize your employees to better engage with customers. These goals should be on a board or somewhere constantly visible to the team members. Managers should also revisit any metrics regularly to make sure the team is on track.
Every customer service employee should be properly trained on procedures, best practices, and other behaviors to enhance the customer experience. Role-playing is an excellent way for your customer service team members to practice at the moment.
Tracking these metrics is critical to success. Evaluate customer feedback after your team members wrap up cases or speak with clients. Here are some examples of metrics that contribute to a high customer retention rate:
- Net promoter score (NPS)
- Average answer speed
- Percentage of calls ignored or blocked
- Agent response time
- Average hold time rate
Consistently Engage With Customers
Customers want to feel important and know that you care. Your customer service team can set “touchpoints reminders” for customer follow-up. Checking in with customers could include reminders about new deals or promotions, upcoming payments, account issues, or company events.
When you reach out to your customers regularly, it will build trust with them. If your team is proactively checking in with customers to help them avoid issues, they will still be with you for a long time.
Expand Your Relationships to Social Media
We live in a digital world, which is why a large portion of your customer base is most likely on social media. Your customer service team might already engage with customers for account questions and other operations. However, you can strengthen your bond with customers by connecting with them on social media.
Utilize your social media channels to build even more trust with the customer base. Share posts that bring value to the customer. Post about your company’s core values and brand identity. More importantly, directly engage with customers in the comments. Show them you care by participating in conversations, sharing company promotions, and updating them on the news within your organization.
Organize and Analyze Customer Feedback
Your team should go the extra mile in analyzing client feedback beyond the customer retention rate percentage. It would be best to distribute surveys after product installations, service check-ins, website interactions, or communications via text, phone, or social media. Track what your customers are saying via online reviews, social media comments, and word-of-mouth.
What your company does with this feedback is just as important as gathering it. Assemble the critical information and integrate it into process improvement, best practices, policies, and procedures. Identify the areas that hold back your customer retention rate and deploy the resources effectively.
Keeping your customers happy should always be a priority for your business. Tracking this happiness is what the customer retention rate metric is for. As your team sets to reach its retention rate goals, it is essential to provide value for your customers at every step of the process. To keep your customers happy and loyal, do the following things:
- Be clear and realistic with your goals
- Creatively and consistently engage with customers
- Expand your relationships to social media
- Track, analyze, and use customer feedback.