How to Track and Manage Customer Retention Metrics

Running a successful business requires keeping track of a lot of numbers, but few tell as important of a story about the future of your company as the various customer retention metrics. 

While the term may sound complicated, it’s simply a way of measuring how well you keep your current customers – something most businesspeople know is far cheaper and typically more straightforward than acquiring new ones. 

So what do you need to know to start tracking and managing your key customer retention metrics? Read on as we break down the basics.

Identify Key Customer Retention Metrics

Before you can worry about improving your customer retention metrics, a vital first step is to figure out which ones you should be tracking. There are numerous options, but only some will give you the insights you want. These will vary depending on several factors, most critically the type of business you’re running.

Common Customer Retention Metrics

Customer retention rate

One of the easiest metrics to understand is customer retention rate, sometimes called CRR. It provides a percentage of customers or clients who stayed with a business over a specified time period. 

To find it, take the total number of customers at the end of the period (E) and subtract new customers added during that time (N). Then, divide this by the number of customers at the beginning of the period (S), and multiply by 100. This can be expressed in a formula as [(E-N)/S] x 100. 

For obvious reasons, owners and managers would like this number to be as high as possible, providing evidence that current customers are sticking around, regardless of any new business being brought in.

Repeat purchase rate

Another way to quickly and easily assess whether people are coming back to your business is the repeat purchase rate. It’s derived by dividing the number of repeat customers in a period by the total number of customers over that same time, multiplied by 100. As with CRR, RPR will ideally be as high as possible, reaching a theoretical maximum of 100, where all customers are repeating clients.

Customer churn rate

Part of the explanation for this key metric is right in the name. Much like a butter churn agitates dairy, customer churn rate measures how much “mixing up” your customer base gets. It’s primarily used for subscription-based or similar services that expect ongoing customer revenue. 

You can find it by dividing the number of clients lost over a period by the total number of customers at the beginning. Then, multiply this number by 100 to find the churn rate as a percentage. 

This is a critical metric for the ongoing health of organizations. If customers churn away before providing the company with a value equal to or more than the cost to acquire their business, the organization will lose money over the long run and needs to make a change.

Customer lifetime value

This is another vital metric to the long-term health of a business. Customer lifetime value (CLV or CLTV) is the total amount your organization can expect to earn over the entirety of its relationship with a customer, from the first purchase or sign-up until the last one or cancellation. 

Calculate it by multiplying the average purchase amount by the average customer purchase frequency over the period. This provides the average customer value, which is multiplied by the average customer lifespan to come up with the total customer lifetime value. 

Knowing how much you can expect to earn from a customer can help calibrate critical strategic decisions and set goals for customer acquisition costs and other key performance indicators.

Net promoter score

A more subjective but equally important number to know involves not just whether your customers are satisfied but precisely how happy they are.

Data is generated from customer surveys and reviews which ask respondents to rate from 1-10 how likely they are to recommend the company to people they know. In typical cases, those who respond between 1 and 6 are seen as “detractors” who could harm the brand’s reputation if their concerns aren’t addressed. Those rating the question a 7 or 8 are seen as “passive” customers, while 9s and 10s are the highly coveted “promoters.” 

Creating more promoters and eliminating as many detractors as possible is vital to managing a business’s reputation and earning coveted referrals, which can be worth their weight in gold in competitive industries or markets.

Collect and Analyze the Customer Data

Getting the data to calculate customer retention metrics can be done in various ways. Some of it is already sitting within your accounting software, like information on purchases and sales. 

Other pieces of data can be gleaned from customer surveys or other outreach your company conducts. It’s vital to keep this information organized in a customer relationship management (CRM) tool or system, which will help track customers and trends over time. Among other critical tasks, these systems allow you to split up (or “segment”) customers into various groups and analyze their buying or subscription patterns.

Develop a Customer Retention Strategy

Retaining the customers you need to succeed generally doesn’t happen by accident. Successful businesses have carefully planned customer retention strategies, which pair analysis of current and former customers with tactics that can help improve the process. 

Without a well-laid-out plan, efforts can become too scattershot to have a measurable, definitive effect.

Implement Customer Retention Tactics

There are some tried and true methods that work for nearly all businesses looking to improve retention. One popular one is the loyalty program, rewarding frequent customers and creating incentives for repeat, long-term business. 

Targeted marketing campaigns can also help convince one-time or occasional customers to become regular buyers or clients. 

Finally, instituting improvements to the customer service process can also address many minor issues before they become more significant.

Monitor and Adjust Customer Retention Metrics

Unlike some business decisions, customer retention metrics aren’t “set it and forget it.” 

Instead, owners and managers should periodically assess and adjust if necessary, ideally quarterly or annually. These regular check-ins should show improvements based on your strategic decisions. If that’s not the case, it’s a good sign adjustments will need to be made.

Improve Your Customer Retention Metrics

As you can see, selecting, measuring, and improving customer retention metrics is one of the most valuable things a company can do for its future growth. 

However, we understand that not every business owner loves to dig into the finer points of strategy when they could be out there doing the work they love. 

Fortunately, PlotPath can help you pick the right metrics and set you on the path toward improvement. Reach out today to learn more about what we can do for your business.