Do you know what you spend on gaining new customers compared to keeping the customers that you already have? How effective are you at keeping your current customers? With all of the time, resources, and money put into acquiring customers it is important to know that your efforts aren’t wasted when customers don’t remain loyal.
Your customer retention rate is a great way to measure how successfully you are maintaining customer relationships. On a more granular level, you also need to know which types of customer you are remaining loyal and at which point in the relationship a customer leaves, so that you can make the necessary adjustments.
According to a recent study by social media marketing software provider, Flowtown, they found that maintaining existing customers costs six to seven times less than acquiring new customers. A study by Bain and Company reported that increasing your customer retention rates by just five percent led to an increase in profits between 25 and 95 percent.
Calculating your customer retention rates
The first thing you need to do to calculate your retention rate is identify the specific period of time you’re focusing on. Perhaps you’re looking at the last year or maybe the last six months.
Next, you need to know how many customers you had at the end of that period of time. If you’re calculating a current retention rate at the end of the period during which you’d like to measure, it might be as easy as determining how many customers you currently have. This number is represented by CE in the formula.
You also need to know how many new customers were acquired during the period of interest, so that you don’t include them as retained customers in your final retention measurement. This number is represented by CN in the formula. Now you’re ready to do your first calculation: subtract your CN number (new customers acquired during the period) from your CE number (number of customers at the end of the period).
The final number you need to know is how many customers you had at the start of your period of interest. This number is CS in the formula. For your next calculation, you will take the solution to Step 3 (CE-CN) and divide it by how many customers you had at the start of your period (CS). This covers the first part of the equation: ((CE-CN)/CS)
Finally, you want to turn that number into a percentage by multiplying it by 100. Your final number is your customer retention rate for your period of interest. ((CE-CN)/CS)) x 100.
Based on an article by on the socious community blog.