What Is Retention Rate and How to Calculate it: Strategies + Examples

retention rate

Figuring out your company’s retention rate is extremely important as it can help you to understand how efficient your business is. Your retention rate is a key metric that tells you how well your company is retaining customers. The higher your retention rate, the more efficient your business is. In this article, we go over retention rate meaning, its importance, and its calculation. Keep on reading!

Note: WatchThemLive is a behavior analytics tool that can provide you with features to improve your retention rate. Sign up here and snag your free plan!

What Is Retention Rate?

WatchThemLive

Retention rate is an important metric and is defined as the percentage of users who continue using your product or service over a given period of time. As a product or service provider, you need to know how to calculate the retention rate and be aware of it. A high retention rate indicates that your current customers are satisfied and value your product. On the contrary, a low retention rate means your customers are dropping due to dissatisfaction.

How to Calculate Retention Rate?

Retention rate is the number of customers who stay with a business over a period of time. You can simply calculate your business’s retention rate. The retention rate formula is really easy and at the same time strong.

Retention Rate Formula

The customer retention formula looks like this:

[(CE-CN) / CS]  x 100

In words, the formula means the total number of customers at the end of a period minus the total number of new customers during a period of time divided by the total number of customers at the beginning of the period multiplied by 100. 

CE: Number of customers at the end of the period. 

CN: Number of new customers during the period. 

CS: Number of customers when the measured period started. 

For example, imagine you had 200 customers at the start of a period of time, and by the end of it, you only have 120 customers. To calculate the retention rate you should: [(120/200)] x 100 = 60 percent.

Now imagine you had 40 new customers during that period, to calculate the retention rate, you should: [(120-40) / 200] x 100 = 40 percent.

WatchThemLive

What Is a Good Retention Rate? 

Well, of course, a good retention rate is 100%, but in an ideal world. In the real world, you as a company owner, should try to have your retention rate as high as possible. On the other side of the continuum, we have 0%, but we consider retention of 15% as a lousy rate. 

Keep in mind, a high retention always means that you are doing your job perfectly well and that you have satisfied customers who are happy with your products. 

Why Is Retention Rate Important?

WatchThemLive

Retention rate is an essential metric for several reasons:

1- Retention rate allows you to track customer satisfaction. 

2- Retention rate can increase your revenue over time.

3- Retention rate gives you a better understanding of your app performance.

4- Retention rate causes your brand to stand out from the crowd.

5- Retention rate can improve customer experience. 

6- Retention rate can bring about word of mouth.

After all, you might have heard that retaining customers is five times easier and less expensive than acquiring them. Moreover, the probability of selling to an existing customer is more likely than converting a new visitor. Even if you are successful in converting them, your loyal customers are always more forgiving in terms of poor customer service. 

What Is Churn Rate?

Churn rate, or “the rate of attrition of a customer churn,” refers to the rate at which customers stop doing business with a company. 

A high churn rate means customer dissatisfaction, and on the contrary, a low churn rate means you are not losing many clients, so customer satisfaction is high. To calculate the churn rate you can follow this formula:

 (The number of lost customers/ Total number of customers) x 100

What is the Difference Between Retention Rate and Churn?

Retention rate and churn rate are the exact opposite spots of a scale. The churn rate is used to indicate the percentage of customers lost over a given period of time. On the other hand, retention rate measures the number of customers who stay loyal to your brand after a period of time. So the higher your business’s retention rate is, and the lower its churn rate is, the more successful you are.

Strategies to Improve Your Retention Rate

We have already discussed the importance of customer retention rate, now we want to share some strategies to help you move from an average retention rate to a healthy rate. Let’s go through the strategies together:

1- Monitor Users’ Interactions

You can simply use some tools to see how every individual user interacts with your brand and what kind of experience they have with your site or products. WatchThemLive session replay (or session recording), for instance, is a perfect tool to help you understand your users’ interactions before they churn. Session replays can help you understand why some customers churn and what problems they face that you are not aware of. A session replay is a video of every single interaction your customers have on your website, and it is captured in real-time. This feature informs you of all the mouse movements, clicks, and turns performed by your website visitors. 

retention rate

2- Shine Bright at the Begining 

Everyone knows how important a first impression is. If you fail to create a great experience during your customers’ first purchase, they probably will not return another time. By happy chance, welcoming your customers warmly and nice is not difficult at all. Remember to create them a positive atmosphere and make sure every part of the customer journey is smooth and friendly. Just to be on the safe side, you can send them a thank-you email or message so that your customers know how much you care about them and appreciate them for being a part of your business.

3- Prioritize Customer Experience

Customer experience (CX) is about all the interactions users have with a brand. The interactions include your products or service quality; the comfort users experience while using it, and above all, their experience at different stages of the customer journey. A strong and positive customer experience results in customers’ trust, and eventually, they become loyal customers. This is what we want, to increase revenue, and by the end of a specific period of time, we will witness a high retention rate. For a better customer experience, you can use tools like heatmaps to understand users’ behavior on your website and find any issues that are waiting for you to fix them. Heatmaps are data visualization tools that use different colors to show you the most and least clicked parts on your website. Sign up and create 3 free heatmaps!

WatchThemLive

4- Engage with Product Data

Another customer retention strategy for improving your customer loyalty is through studying your product analytics. Within every interaction a customer has with your product, product data is being created. You can then use an analytics tool like WatchThemLive to help you analyze this data and boost your customers’ engagement and revenue.

5- Make Your Returning Customers Happy

You can simply make your returning customers happy by running a loyalty program. This may seem simple, but is has such a huge impact on your customer retention. When your customers know that they will be rewarded for returning to you, they are more likely to return happily. The nice point here is that they do not expect something expensive, all you need is a simple nice thing, maybe something related to what they have bought, or something that they can use in their next return.

Conclusion 

Retention rate cannot be improved overnight, but there are some strategies that you can use to give the improvement process a bit of speed. We have come to these conclusions:

  1. Repeat customers are more likely to buy your products and keeping them is way less expensive than acquiring new customers.
  2. Repeat customers change to loyal customers and loyal customers will probably introduce you to their friends, which improves your retention rate.

A high retention rate then will let you understand what your customer’s pain points are, let you fix them, and improve customer experience. Using tools like WatchThemLive can assist you all along the way. Do not hesitate to sign up!

Cyrus
Cyrus
Share This Article