What is customer retention?

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59.551 57 59 C 57 58.449 56.551 58 56 58 z M 60 58 C 59.449 58 59 58.449 59 59 C 59 59.551 59.449 60 60 60 C 60.551 60 61 59.551 61 59 C 61 58.449 60.551 58 60 58 z M 64 58 C 63.449 58 63 58.449 63 59 C 63 59.551 63.449 60 64 60 C 64.551 60 65 59.551 65 59 C 65 58.449 64.551 58 64 58 z M 68 58 C 67.449 58 67 58.449 67 59 C 67 59.551 67.449 60 68 60 C 68.551 60 69 59.551 69 59 C 69 58.449 68.551 58 68 58 z M 72 58 C 71.449 58 71 58.449 71 59 C 71 59.551 71.449 60 72 60 C 72.551 60 73 59.551 73 59 C 73 58.449 72.551 58 72 58 z M 30 68 C 29.449 68 29 68.449 29 69 C 29 69.551 29.449 70 30 70 C 30.551 70 31 69.551 31 69 C 31 68.449 30.551 68 30 68 z M 34 68 C 33.449 68 33 68.449 33 69 C 33 69.551 33.449 70 34 70 C 34.551 70 35 69.551 35 69 C 35 68.449 34.551 68 34 68 z M 38 68 C 37.449 68 37 68.449 37 69 C 37 69.551 37.449 70 38 70 C 38.551 70 39 69.551 39 69 C 39 68.449 38.551 68 38 68 z M 42 68 C 41.449 68 41 68.449 41 69 C 41 69.551 41.449 70 42 70 C 42.551 70 43 69.551 43 69 C 43 68.449 42.551 68 42 68 z M 46 68 C 45.449 68 45 68.449 45 69 C 45 69.551 45.449 70 46 70 C 46.551 70 47 69.551 47 69 C 47 68.449 46.551 68 46 68 z M 50 68 C 49.449 68 49 68.449 49 69 C 49 69.551 49.449 70 50 70 C 50.551 70 51 69.551 51 69 C 51 68.449 50.551 68 50 68 z"/></svg> </a> </div> <main id="site-main" class="site-main outer site-main-post has-post-image"> <div class="feature-post-wrapper"> <article class="post-full post tag-customer-marketing tag-customer-retention tag-article "> <section class="post-full-content Customer marketing"> <header class="post-full-header"> <div class="post-full-header-wrapper"> <section class="post-full-meta"> <time class="post-full-meta-date" datetime=" 2022-04-14">14 April 2022</time> <span class="reading-time">4 min read</span> </section> <h1 class="post-full-title">What is customer retention?</h1> <section class="post-full-meta"> <a href="/tag/customer-marketing/">Customer marketing</a> </section> <div class="post-author-with-linkedin-wrapper"> <div class="post-author-wrapper"> <section class="post-full-authors"> <section class="author-card"> <a href="/author/grace/"> <img class="author-profile-image" src="/content/images/size/w300/2022/07/Grace-Gupta.jpeg" alt="Grace Gupta" /> <section class="author-card-content"> <h4 class="author-card-name">Grace Gupta</h4> <div class="post-full-footer-right"> <div class="author-card-button">Read More</div> </div> </section> </a> </section> </section> </div> </div> </div> <div class="post-full-image" style="background-image: url(/content/images/2022/04/What-is-customer-retention--1--1.jpg);"> </div> </header> <div class="post-content"> <aside class="toc-container"> </aside> <p>It’s all well and good to actively seek new customers, but what happens if you ignore your current customer base? Plot twist: they churn.</p><p>In fact, <strong>68%</strong> of customers will go elsewhere if they feel the company they’re buying from doesn’t care about their business. </p><p>Without strategically thinking about customer retention, you’re undoing all the good work invested in the pre-sales process. Retaining customers is a whole lot cheaper than recruiting new ones, plus it’s a sure way to establish long-lasting, healthy relationships that will increase metrics like your customer lifetime value (CLV) and your overall customer satisfaction score.</p><p>In fact, increasing retention by just <strong>5% </strong>could drive your profits from <strong>25%</strong> to <strong>95%.</strong> It seems silly to dismiss a potential profit increase like that, right?</p><p>That’s why customer retention strategies are such an important factor when it comes to customer success.</p><h2 id="customer-retention-definition"><strong>Customer retention definition</strong></h2><p>By most accounts, ‘to retain’ is to keep in possession of something, which is exactly what customer retention is. However, it isn’t just a SaaS prerogative – far from it. Any business should actively promote and practice customer retention whether they market a physical product or a subscription. If you provide an ongoing service and your clients don’t leave, then you’re retaining customers.</p><p>Those who work in customer success, or SaaS, will be all-too-familiar with the concept of retention. It seems pretty straightforward: keeping customers (retain) is good; losing customers (churn) is bad. While this statement isn’t wrong, there’s a little more to it than that.</p><h3 id="how-do-customer-success-leaders-define-customer-retention"><strong>How do customer success leaders define customer retention?</strong></h3><p>This dichotomy of retention and churn is a debate <a href="https://www.customersuccesscollective.com/5-ways-to-build-a-strong-relationship-with-your-customers?ref=customermarketingalliance.com">examined by <strong>Rebecca Fenlon</strong></a><strong>,</strong> Head of Customer Success at <strong>Cognassist</strong>. In her opinion, it’s not all that helpful to view churn and retention as opposites, with retention as the more positive way of reporting it.</p><blockquote><em>“The opposite of losing customers isn’t retaining customers, it’s gaining customers, which is ultimately the realm of sales. Retention is a more proactive measure; you are constantly working towards it. Whereas churn is reactive and focused just on the point of renewal. It’s for both of these reasons that retention is our ‘one metric that matters’ more so than churn."</em></blockquote><p><strong>Rav Dhaliwal</strong>, Investor & Venture Partner at <strong>Crane Partners</strong> believes customer retention is much more than preventing revenue loss:</p><blockquote><em>“[It's] the foundation on which every successful subscription software business has accelerated its revenue growth. It’s far easier to grow a sustainable business from a stable foundation of revenue than it is to try and fix retention issues as you are rapidly scaling.”</em></blockquote><h2 id="improve-your-customer-retention-rate-by-identifying-the-cause-of-churn"><strong>Improve your customer retention rate by identifying the cause of churn</strong></h2><p>You can get ahead of future cases of churn by establishing what went wrong in the first place. Figuring out exactly why clients left your custom is a pragmatic, proactive way of avoiding history repeating itself.</p><p>If people are choosing your competitor’s product over your own, and you’re still none-the-wiser after your market research, it’s time to go straight to the horse’s mouth. Asking your customers what went wrong is a straightforward way to avoid making the same mistakes again.</p><p>Your product might be great, with all the bells and whistles, everything pushing you in the direction of the market leader, but poor customer service can truly turn the tables. Whether it’s a technical issue or simply bad communication skills from the dedicated customer support team member, poor customer service is definitely a universal issue that everyone’s faced at some point in their lives.</p><p>A great way to avoid this? Practice <strong>deep listening</strong>, and by this, we mean <em>listen to learn</em>.</p><h2 id="how-do-you-calculate-customer-retention-rate"><strong>How do you calculate customer retention rate?</strong></h2><p>Like most things you invest time and energy in, it’s worth keeping track of it. And customer retention isn’t any different. You can calculate your business’ customer retention rate to gauge how many customers you’re keeping on the books.</p><p>When calculating your customer retention formula, it’s pretty straightforward but well worth jotting down:</p><blockquote><strong>( [E-N] / S) x 100</strong></blockquote><p>The ‘E’ stands for the total number of clients at the end of your specific time period. The ‘N’ signals the number of new customers you acquired during this period. And the ‘S’? This is the number of customers you started out with at the beginning of this period.</p><h3 id="heres-a-customer-retention-rate-example"><strong>Here's a customer retention rate example</strong></h3><p>Say you run a workshop – let's say it's a taxidermy workshop. At the beginning of the month, you started with 60 enthusiastic customers, and after a networking event for small independent businesses, you’ve come away with 15 new clients. So far so good.</p><p>However, after the local cinema’s Thursday night screening of Hitchcock’s 1960 masterpiece, <em>Psycho, </em>you’ve lost 3 customers to churn. 🔪🛁</p><p>But don’t panic – you’ve still come away with 72 clients at the end of the month! This is how you’ll calculate your retention rate:</p><ul><li>E = 72</li><li>N = 15</li><li>S = 60</li></ul><p>By our calculations, you’ll be formulating the following equation:</p><p><strong>( [72-15] / 60) x 100 = 95</strong></p><p>Leaving you with a retention rate of a whopping <strong>95%</strong>!</p><h2 id="are-there-any-useful-customer-retention-strategies"><strong>Are there any useful customer retention strategies?</strong></h2><p>As it happens: yes. We have five on the house.</p><p>While this list is by no means exhaustive, it equips you with the acumen required to keep a hold of your wonderful customers.</p><ol><li>Provide a dedicated customer retention team</li><li>Implement a watertight onboarding process</li><li>Reward loyal customers</li><li>Closed customer feedback loops</li><li>Simplify customer interactions</li></ol><p>Boom.💥</p> </div> <aside class="post-upgrade-cta hidden-upgrade"> <div class="post-upgrade-cta-content"> <img src="/content/images/2024/07/android-chrome-192x192--1--1.png" alt="Customer Marketing Alliance icon" class="site-logo" /> <h2>Like what you see? Then check out tonnes more.</h2> <p class="post-upgrade-cta-desc"> From exclusive content by industry experts and an ever-increasing bank of templates, to 100s of hours’ worth of presentations and mentors, our membership plans are packed with awesome sales enablement resources. </p> <div class="post-upgrade-buttons-wrapper"> <a class="button large primary" href="/signup/">Subscribe now</a> <a class="button large primary" href="/membership/">Learn more</a> </div> </div> </aside> <aside class="post-upgrade-cta get-cert-cta" style="display:none;"> <div class="post-upgrade-cta-content"> <img src="/content/images/2024/07/android-chrome-192x192--1--1.png" alt="Customer Marketing Alliance icon" class="site-logo" /> <h2>Get product marketing certified.</h2> <p class="post-upgrade-cta-desc"> PMMC™ unleashes product marketers’ potential. Lauded by leading lights like Facebook and HubSpot, it offers expert insights, priceless tuition, and awesome resources. No topic missed. No page unturned. </p> <div class="post-upgrade-buttons-wrapper"> <a class="button large primary" href="https://certified.productmarketingalliance.com/p/product-marketing-certified-core" target="_blank">Get certified</a> </div> </div> </aside> <section class="post-full-authors post-full-authors-with-bio"> <section class="author-card"> <div class="post-full-authors-content"> <p>Written by: </p> </div> <a href="/author/grace/"> <img class="author-profile-image" src="/content/images/size/w300/2022/07/Grace-Gupta.jpeg" alt="Grace Gupta" /> <section class="author-card-content"> <h4 class="author-card-name">Grace Gupta</h4> <p>Grace is a Senior Copywriter who creates content for Customer Marketing Alliance, Customer Success Collective and Community-Led Alliance</p> <div class="post-full-footer-right"> <div class="author-card-button">Read More</div> </div> </section> </a> </section> </section> </section> <section class="subscribe-form"> <p>Get industry insights</p> <form data-members-form="subscribe"> <input data-members-email type="email" required="true" placeholder="youremail@example.com" /> <br> <button type="submit">Join</button> </form> </section> <aside class="read-next"> <aside class="read-more-wrap outer"> <header class="read-next-card-header"> <h3><span>More in</span> <a href="/tag/customer-marketing/">Customer marketing</a></h3> </header> <div class="read-more inner"> <article class="post-card"> <a class="post-card-image-link" href="/the-persona-first-problem/"> <img class="post-card-image" src="/content/images/size/w800/2024/11/The-persona-first-problem.png" alt="The persona first problem" /> </a> <div class="post-card-content"> <div class="post-visibility-public" href="/signin">Members-only</div> <a class="post-card-content-link" href="/the-persona-first-problem/"> <header class="post-card-header"> <h2 class="post-card-title">The persona first problem</h2> </header> <section class="post-card-excerpt"> <p>Personas are a core part of marketing strategies. 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console.log("You are on the portal/viewplans page"); } else { console.log("You are not on the signup/plan page"); } // Start observing the target node for configured mutations const targetNodePortalRoot = document.getElementById("ghost-portal-root"); if (targetNodePortalRoot) { const config = { attributes: true, childList: true, subtree: true }; const poratalObserver = new MutationObserver(function() { callPortalIframe(); }); poratalObserver.observe(targetNodePortalRoot, config); } else { console.error("Could not find #ghost-portal-root element"); } }); })(); </script>  <META NAME="ROBOTS" CONTENT="NOINDEX, NOFOLLOW"> <script type="text/javascript" src="https://www.customermarketingalliance.com/assets/built/jquery.js?v=945d8828d2" ></script> <script type="text/javascript" src="https://www.customermarketingalliance.com/assets/built/jquery.fitvids.js?v=945d8828d2" ></script> <script type="text/javascript" src="https://www.customermarketingalliance.com/assets/built/ghost-lunr.js?v=945d8828d2" defer></script> <script type="text/javascript" src="https://www.customermarketingalliance.com/assets/built/search.js?v=945d8828d2" defer></script> <script type="text/javascript" src="https://www.customermarketingalliance.com/assets/%20built/jquery.fitvids.js?v=945d8828d2"></script> <script> // NOTE: Scroll performance is poor in Safari // - this appears to be due to the events firing much more slowly in Safari. // Dropping the scroll event and using only a raf loop results in smoother // scrolling but continuous processing even when not scrolling $(document).ready(function () { // Start fitVids var $postContent = $(".post-full-content"); 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