Retention rate is an important factor to increase revenue and reduce marketing costs. In this article, we will share some ways to effectively improve customer retention rates.

What is retention rate?

Retention rate, or Customer Retention Rate, is a metric measuring the proportion of customers loyal to a business’s product or service over a certain period. It stands as one of the pivotal indicators for assessing the effectiveness of marketing strategies and product development.

There are various ways to calculate retention rates, depending on a business’s objectives and industry. Some common types of retention rates include:

• Classic Retention Rate: Percentage of customers using the product or service at least once within a specified period (usually a month) compared to the initial number of customers.
• Rolling Retention Rate: Percentage of customers using the product or service at least once within a specified period (usually a week) compared to the number of users in the previous week.
• Return Retention Rate: Percentage of customers returning to use the product or service after a specified period of discontinuation (usually a month).
• Revenue Retention Rate: Revenue from current customers versus revenue from initial customers within a defined period (usually a year).

Why is retention rate important?

Retention rate is crucial as it indicates the level of satisfaction and loyalty customers have towards a business’s product or service. A high retention rate implies customers tend to use the product or service long-term, reducing marketing costs and increasing the average customer value.

Conversely, a low retention rate suggests customers are inclined to switch to competitors’ products or services, increasing churn rates and reducing revenue. Hence, enhancing retention rates stands as a primary goal for present-day businesses.

Factors influencing customer retention rate

Below are some crucial factors influencing the retention rate that businesses need to pay attention to:

• Product/Service Quality: This is the most critical factor in retaining customers. If your product/service fails to meet customers’ needs and expectations, they are likely to shift to another provider.
• Customer Service: Customer service acts as a bridge between the business and its customers. Having a dedicated, attentive, and professional customer service team creates a positive impression and helps resolve arising issues.
• Marketing Strategy: Your marketing strategy also affects the Customer Retention Rate (CRR) of the business. Engaging, creative, and customer-targeted marketing campaigns attract and maintain their interest.
• Competitive Competitors: Your competitive rivals also impact the business’s CRR. If you lack differentiation and advantages compared to competitors, you are more likely to lose market share and customers.

Calculating Customer Retention Rate

The basic formula to calculate Customer Retention Rate (CRR) is:

Retention Rate = (Number of customers at the end of the period – New customers during the period) / Number of customers at the beginning of the period x 100%

Where:

• Number of customers at the end of the period: The number of remaining customers using the business’s product or service at the end of the measuring period (month, quarter, year, etc.).
• New customers during the period: The number of new customers attracted by the business during the measuring period.
• Number of customers at the beginning of the period: The number of customers using the business’s product or service at the beginning of the measuring period.

For example, assume Company A had 1000 customers at the start of January. In January, Company A attracted 200 new customers and lost 150 old customers. So, by the end of January, Company A had 1050 customers. The retention rate of Company A in January is calculated as:

Retention Rate = (1050 – 200) / 1000 x 100% = 85%

This means that in January, Company A retained 85% of its old customers compared to the beginning of the month.

10 Ways to Improve Customer Retention Rate

Provide Truly Valuable Products or Services

To improve CRR and reduce churn rate, business need to understand customers’ needs, desires, and provide effective, convenient solutions that meet their expectations.

Enhance Interaction and Communication with Customers

Use channels like email, SMS, social media, blog, website, etc., to send information, news, promotions, thanks, feedback requests, etc.

Collect and Analyze Customer Behavior Data

Use tools like Google Analytics, Mixpanel, Hotjar, etc., to track and evaluate metrics such as bounce rates, conversion rates, email open rates, etc.

Improve and Update Products or Services Based on Customer Feedback

Always listen and incorporate customer feedback and make necessary changes to enhance quality and customer experience.

Create Diversity and Variety for Products or Services

Offer multiple choices regarding price, quality, features, colors, sizes, etc., for customers to choose according to their preferences and abilities.

Create Loyalty Programs and Rewards for Loyal Customers

Design programs like point redemption, discounts for the next purchase, free shipping, etc., to encourage continued use of products or services.

Build Community and Relationships with Customers

Establish platforms like forums, Facebook groups, YouTube channels, etc., for customers to engage, share, learn, and exchange experiences.

Create Referral Campaigns and Word-of-Mouth

Encourage customers to refer your products or services to relatives, friends, or colleagues by providing benefits like discounts, gifts, etc.

Create Competition and Challenges for Customers

Stimulate increased use of products or services through contests, games, leaderboards, etc., to encourage customer participation.

Create Commitment and Bonding with Customers

Create commitments and bonds with customers to keep them long-term. Implement policies like warranties, maintenance, exchange, refunds, etc., to increase customer trust and confidence in using your products or services.

Case Study

R&G Technologies, an Australian IT support company, has built and strengthened long-term relationships with its customers powerfully.

The company responds promptly to feedback from customers and maintains a high-quality customer care service according to strict standards (SLA). Additionally, R&G encourages employees to do this by linking their earnings to customer care-related KPIs.

In surveys about customer satisfaction levels, R&G Technologies provides opportunities for customers to evaluate the quality of their service, helping the company identify dissatisfied customers before they decide to switch services.

Improving customer retention rate or retention rate is an important factor in business development. Continuous improvement and innovation are also indispensable elements to retain customers for the long term. Remember, satisfied customers become the best advocates for your business, and that’s the best way to attract new customers.