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What is retention rate and how is it calculated
When calculating your retention rate, make sure you are only including customers that have engaged with the customer experience. You need to segment customers into 3 types: retained, churned, and active at the time of calculation. Calculate the percentage of customers that have been retained or churned from your total number of customers at the time of calculation. The remaining customers that have not been engaged with the customer experience (inactive) will be the value of your retention rate. If a customer has more than one form of engagement with you, only count the first form of engagement and calculate the percentage of customers that have been retained or churned from your total number of customers. For example, if a customer registers for an evento pakage and an online product or service, only count the first form of engagement.
Retention rate: A measurement of how well a business is retaining its customers. It refers to the percentage of customers who are still active and aware of our business a few months after they have purchased an item or service. The retention rate indicates how much time the customer spends on your site and the amount of marketing you receive from them during this period. It’s also referred to as “customer lifetime value” or “CRV”. This is what we call it when analyzing growth potential for our customers.
Retention rate is calculated by dividing the total number of customers who have not been engaged after a certain period of time from their initial date of engagement.
For example, if 4,000 customers met with the customer experience within a 1 month period, then retained 990 customers at the end of this period. This means your retention rate is 9%. This metric is important to understand in order to decide on which marketing channel will bring in new customers and increase business value for your company.
Retention rate differences in reward point programs and loyalty programs
Gross retention rate vs net retention rate
The retention rate calculator is based on the gross retention rate. All customers that you have engaged with your customer experience are counted as retained customers. A retained customer is a customer that has either been purchased, referred by another customer or acquired through an acquisition such as acquisition marketing or acquisition cost. The gross retention rate does not calculate non-customer or churned customers. These customers have not been purchased, referred by another customer or acquired through an acquisition.
The retention rate calculator uses the net retention rate. The net retention rate calculates both retained customers and churned customers. A churned customer is a customer who has not been purchased, referred by another customer or acquired through an acquisition in the given time frame.
In the retention rate calculator, you can select which time-frame you want to look at. You can select quarterly or annual. If you do the math, the retention rate is calculated as follows:
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Factors that affect gross retention rate
The following factors that affect the gross retention rate are: acquisition cost, acquisition marketing, user experience design and solution, technical support provided and the length of customer contract. The following factors do not affect the gross retention rate: acquisition cost, acquisition marketing, user experience design and solution, technical support provided and the length of customer contract.
Some factors, such as acquisition cost and acquisition marketing, have a significant impact on gross retention rates. The other factors also have a significant impact.
The shorter the period during which a customer is retained, the higher the gross retention rate will be.
The longer the length of contract, the higher the gross retention rate will be.
The longer the duration, the higher the gross retention rate will be.
The earlier a customer is acquired, the higher the gross retention rate will be.
The earlier in time a solution is deployed, the higher the gross retention rate will be.
Summary: Acquisition Cost marketing : The acquisition cost affects acquisition marketing only when an actual number of transactions and customers can be identified.
Factors that affect net retention rate
The net retention rate is a more accurate measure of your company’s retention rate. The net retention rate represents the percentage of customers that were retained or churned from the total number of customers that were engaged with your customer experience. The net retention rate does not take into consideration the other factors (such as acquisition cost and acquisition marketing) as these do not affect net retention rate for a company. The following factors affect the net retention rate: user experience design and solution, technical support provided and the length of customer contract.
Introduction:
The net retention rate is a more accurate measure of your company’s retention rate. The net retention rate represents the percentage of customers that were retained or churned from the total number of customers that were engaged with your customer experience. The net retention rate does not take into consideration the other factors (such as acquisition cost and acquisition marketing) as these do not affect net retention rate for a company. The following factors affect the net retention rate: user experience design and solution, technical support provided and the length of customer contract.
User Experience Design & Solution:
The user experience design and solution means what kind of technical support are your customers experiencing. It is also important that the customer feel comfortable with the problem solving techniques available to them. A well designed user experience for both technical support and a product as a whole will increase the customer’s satisfaction with your company.
Technical Support Provided:
How to improve your company’s retention rates
To improve your company’s retention rates, reduce the rate at which customers churn by focusing on customer service. Increase client satisfaction and loyalty with relevant, up-to-date products that solve specific problems of your customers. Also, when analyzing the causes of churn, determine whether it is because of the product or the customer experience and then take action to improve that aspect. Lastly, before initiating a new product launch, identify the customer-base that is most likely to use it and focus marketing campaigns on them.
The following is an excerpt from the book, The Lean Entrepreneur: How to create and grow innovative companies by Jeff Koch (Nolo).
Lesson #1: “The key to improving retention rates is to avoid losing customers who would remain in the brand if they received better customer service.”
I recently published my 10th book and it’s a juicy one. I wrote The Lean Entrepreneur: How to create and grow innovative companies by Jeff Koch (Nolo) that can change all of your business practices. You’ll discover proven, tested methods to create and grow innovative companies. It’s filled with tips anyone can use to make their business more innovative…and retain more customers!
