Customer Retention Rate

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Customer Retention Rate (CRR) is a metric used to measure the percentage of customers a company retains over a specific period.

It indicates the ability of a business to maintain its customer base and foster long-term customer loyalty.1

How Customer Retention Rate Is Calculated?

customer retention rate formula

To calculate the customer retention rate, you first need to:

  1. Choose a timeframe: This could be a month, quarter, or year, depending on your business cycle and how frequently you want to track retention.
  2. Gather customer data: You’ll need the number of customers at the beginning and end of the period and the number of new customers acquired during that time. This data is usually found in your customer relationship management (CRM) system or other customer data sources.
  3. Plug the numbers into the formula: Once you have your data, simply substitute the values for E, N, and S into the formula and multiply by 100 to get your CRR as a percentage.

Formula:

To calculate CRR, you need three pieces of data: the number of customers at the start of a period (S), the number at the end of that period (E), and the number of new customers acquired during that period (N).2

The formula is:

Customer Retention Rate = ((E – N)/S) x 100

Example

Imagine a sales funnel website that starts the quarter with 200 customers (S), gains 50 new customers (N), but ends with 220 customers (E).

The CRR is calculated as:

customer retention rate calculation example

This example illustrates a CRR of 85%, indicating that the website successfully retained a significant portion of its customer base.

Importance

  • Revenue Stability: High retention rates are often linked to stable and predictable revenue streams.
  • Customer Loyalty: Indicates a strong relationship with customers, suggesting they are satisfied and likely to continue doing business with the company.
  • Cost Efficiency: Retaining existing customers is generally more cost-effective than acquiring new ones.
  • Business Growth: A solid customer base can be a foundation for sustainable business growth and expansion.3

Factors Influencing Customer Retention Rate

  • Customer Satisfaction: Customers who are happy with your product or service are likelier to stick around. This includes meeting their expectations, resolving issues promptly, and offering a positive overall experience.
  • Customer Service: Having knowledgeable and helpful representatives who can resolve issues efficiently and leave customers feeling valued.
  • Competitive Pricing and Value: Customers are price-conscious, so offering competitive pricing and good value for their money is essential. This could involve attractive discounts, loyalty programs, or subscriptions that provide ongoing benefits.
  • Product Quality and Innovation: Customers are less likely to look elsewhere if your products are reliable, meet customer needs, and keep pace with innovation. Continuously improve and adapt your offerings to stay relevant.4

Related Terms

References:

1. What are customer retention rates?. Business News Daily. (n.d.). https://www.businessnewsdaily.com/16027-customer-retention-rate.html

2. Atwell, E. (2023, May 23). How to calculate & improve customer retention rate [formula]. Zendesk. https://www.zendesk.com/blog/calculate-customer-retention-rate/

3. Reichheld, F. F., & Kenny, D. W. (1990). The hidden advantages of customer retention. Journal of Retail Banking, 12(4), 19-24. https://go.gale.com/ps/i.do?id=GALE%7CA9295626&sid=googleScholar&v=2.1&it=r&linkaccess=abs&issn=01952064&p=AONE&sw=w&userGroupName=anon%7E8b80f41a&aty=open-web-entry

4.  Ullah, S. (2015). Factors effecting customer retention. City University Research Journal, 5(1). http://www.cusitjournals.com/index.php/CURJ/article/download/60/50

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