How improving customer retention rate (crr) impacts your business

08.02.2023

Customer retention rate (CRR) measures the ability of a company to regularly serve its existing customers in exchange for money. Companies with a high customer retention rate have several advantages over companies with a low customer retention rate. In particular, revenues are more predictable, profitability is higher, and the company is less dependent on continuous customer acquisition.

Understanding Customer Retention

Customer retention reflects your company’s ability to create lasting value and maintain profitable relationships over time. It involves understanding and expanding customer needs, leading to increased purchases over time. High customer retention rates indicate strong customer loyalty and satisfaction.

Calculating Customer Retention Rate

To calculate customer retention for your business, subtract the new customers acquired during a predetermined period from the total number of customers at the end of that period and divide that number by the number of customers at the beginning of the period. The formula is:

(No. of Customers at End of Period — No. of Customers Acquired During Period) / No. of Customers at Start of Period

For example, if you have 24 customers at the end of a quarter, gained five new customers during that period, and served 20 customers at the beginning, your customer retention rate is 95%, as shown below:

(24−5)/20=95%

Industry Benchmarks

The average customer retention rate varies across industries, according to a recent study by Statista. The overall average retention rate is 75%, and by industry, it is as follows:

• IT Services: 81%
• Healthcare: 77%
• Professional Services: 84%
• Media: 84%
• Financial Services: 78%
• IT & Software: 77%

Actions to Improve Customer Retention

1. Create a Great Onboarding Experience: Ensure that new customers are introduced to your product or service in a way that maximizes their satisfaction and minimizes any initial confusion or frustration.
2. Provide a Personalized Customer Experience: Use CRM systems to track customer preferences and behaviors. Personalized communication makes customers feel valued and understood.
3. Implement a Customer Feedback Loop: Regularly seek customer feedback and use it to improve your products and services. This demonstrates that you value their input and are committed to meeting their needs.
4. Build Trust with Your Customers: Transparency and honesty are crucial in building trust. Ensure that your business practices are ethical and that you consistently meet customer expectations.
5. Maintain a Customer Communication Calendar: Regular communication, such as newsletters or updates, keeps customers engaged with your brand and informs them of new products or services.
6. Create a Strong Brand: A strong brand identity helps retain customers by creating a sense of loyalty and connection to your company.
7. Shift to a Subscription-Based Business Model: This model can improve retention by ensuring regular customer interaction and continuous service provision.

Benefits of High Customer Retention Rate

• Predictable Revenue: With a high customer retention rate, revenue becomes more predictable, allowing for better financial planning and stability.
• Higher Profitability: Retained customers typically have a higher lifetime value, contributing more to your bottom line over time.
• Reduced Dependency on Customer Acquisition: With high retention, your business is less reliant on constantly acquiring new customers to sustain revenue, reducing marketing and sales costs.

Example

Amazon is a prime example of a company with exceptional customer retention strategies. Through its Amazon Prime membership, personalized recommendations, and proactive customer support, Amazon has built a loyal customer base that consistently returns for repeat purchases. Amazon’s focus on customer satisfaction and continuous improvement has contributed to its success and market leadership.

Conclusion

Customer retention is indeed an important metric to track and improve. If you do, you can expect higher sales predictability, higher customer lifetime value, and higher profitability. Your business will become much more attractive to yourself, your employees, and investors.