5 Metrics to Calculate Customer Retention

ameyo retention

This column is by Francis Cyriac, marketer & customer engagement expert at Ameyo Emerge

Internet and technological developments have enabled millions of people across the world to start their own ventures with ease. At the same time, the presence of so many different companies competing for a larger market share, the cost of acquiring customers is going up.

Venture capital backed Internet firms are known for spending a substantial amount of their investments in marketing, advertising and other activities for acquiring new users. As a business owner or a marketer, you would acknowledge that it’s cheaper to retain existing users than to acquire new ones.

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In order to evaluate the success of your product, it is essential to realise if you are able to retain the users you are converting. Before we proceed with the metrics, ensure that you have an analytics tracking mechanism in place.  Google Analytics is a free tool you can use, for more advanced tracking, you can also consider using tools like Mixpanel and KISSmetrics.

Here are 5 metrics to calculate customer retention

1. Customer Retention Rate (CRR)

Customer retention rate (CRR) is one of the most basic metrics you can begin with for planning your retention campaign. It is the number of users you manage to retain over a given time period. You can calculate it using the formula below 

Number of customers at the beginning of time period = CS

Number of customers at the end of time period = CE

Number of new customers acquired during the time period = CN

Retention Rate = (CE-CN)/CS X 100

2. Repeat Customer Rate (RCR)

Repeat customer rate (RCR) is essential for calculating  the loyalty of the users you have onboard. These are the users who are coming back to you more than once in a given time period.

Number of customers who have purchased more than once = CR

Number of total unique customers = CU

Repeat Customer Rate = CR/CU X 100

3. Customer Lifetime Value (CLV)

Customer lifetime value (CLV) is usually regarded as one of the most important retention metrics for eCommerce companies. CLV tells you about the total value an acquired user brings to you over their complete lifecycle. This is a slightly complex metric to calculate, but if some of the above-mentioned tools have provision for this data point. It’s calculated by the formula below

customer-lifetime-value

If neither of the two ways work for you, you can try this method 

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4. Dollar Retention Rate (DRR)

If CLV is relevant for eCommerce companies, Dollar Retention Rate (DRR) is an important value for SaaS-based companies. DRR indicates the change in the value of revenue earned through subscription of your service in a given time period. Now while your CRR might be growing, the same customers might be opting for a lower cost plan during the selected time frame. In such a case you would have to focus on acquiring new users.

DRR is a percentage change in subscription revenue calculated like CRR.

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5. Net Promoter Score (NPS)

If you are gathering customer feedback as a regular feedback then this metric would be easy to start tracking. In a 0-10 grade scale survey, ask your users how likely they are to refer your company/product to others. Consider the customers responding 9-10 as promoters and any customers rating 6 or lower as detractors.

NPS is equal to the difference in the percentage of promoters and detractors.

Is there any other retention metric you track in your organisation? Do share with us in the comments below.

If you are looking to improving customer retention by giving an amazing customer service to your users, click here

Disclaimer: This content is powered by Ameyo Emerge

Image Credit: Freepik

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