Customer retention is an area no organization can afford to overlook. While so many businesses focus on bringing in new clients, it’s costly to let those who have already purchased from you churn. In order to tackle customer turnover issues, companies must ascertain exactly where they stand through retention metrics before putting a plan in place to improve loyalty to their brand.
A customer retention key performance indicator (KPI) is a measurement of how well your business retains clients over time. It demonstrates how your company can generate recurring revenue from its customer base for steady growth and an optimized business model.
Here are the seven most important retention KPIs to be tracking:
If you were only to track one KPI it would be the customer retention rate, although you can gain deeper insight by combining it with several others. This metric quantifies your repeat business and demonstrates your customer loyalty in a general sense. To calculate your customer retention rate, you must collect the relevant data over a set period of time.
First of all, work out the number of active users by subtracting the volume of new users gained over the period from the number of customers at the end. Then multiply it by 100 so it’s presented as a percentage and you’ll have your customer retention rate. Plot this metric on a graph to see your retention curve and how efforts within the business have made an impact.
Churn is an important KPI to measure, but there’s some debate as to the best way to calculate an organization’s churn rate. Always keep in mind your end goals and use a formula that will give you the most useful information and actionable insights. One approach is to discount new customers as churn really only relates to existing clients.
If you use this method you measure the number of existing customers at the beginning of a period compared with those at the end. Your new clients will eventually feed into this system, as they’ll no longer be your latest acquisitions.