Customer Retention Rate (CRR) is a key business performance metric that measures the percentage of customers a company retains over a given period.
CRR formula, reference values and example
- Number of customers at the end of the period: Total number of customers at the end of the measured period.
- New customers acquired: Number of customers gained during the period.
- Customers at the start of the period: Total number of customers at the beginning of the period.
Reference values
CRR varies widely across industries due to differences in customer expectations about business. Here are some general reference values for CRR for different industries:
- Ecommerce: 25%–40%. High competition in this domain and frequent one-time purchases make retention challenging.
- SaaS: 85%–95%. SaaS companies typically rely on subscription models so CRR is expected to be high.
- Telecom: 75%–85%. Switching costs to other providers and the benefits that long-term contracts bring to customers usually contribute to higher retention rates.
- Finance and banking: 85%–90%. Established customer relationships and financial product stickiness (customers typically avoid switching to other finance service) lead to high retention rates.
Example
Suppose, you have 1000 customers at the beginning of the period, gains 200 new customers during the period, and ends with 1100 customers.
CRR = (1100–200) / 1000 x 100 = 90%
Key considerations when measuring CRR
- Clearly define who counts as a “customer”. Perhaps the most important thing to consider is whether you want to count a free tier user as a customer or not.
- Choose an appropriate time frame (e.g., monthly, quarterly, annually) that reflects your business model. SaaS companies typically use monthly or annual retention. If you run an online retail business, you might measure retention seasonally or quarterly.
- Segment customers. Create segments based on demographics, purchase behavior, or lifecycle stage. By measuring CRR for specific groups (e.g., high-value customers or frequent purchasers), you can reveal actionable insights about this group of customers.
- Recognize external influences that may impact retention, such as seasonality or trends. By identifying these patterns, businesses can anticipate fluctuations in retention (i.e, increased churn).
How to collect data for CRR
The most reliable source for collecting data for CRR is your Customer Relationship Management (CRM) system. If you use CRM platforms like Salesforce, HubSpot, or Zoho you can track the number of customers at the start and end of the period, new customers acquired during the period, and customers lost during the period.
If you run SaaS, you likely use one of the following subscription management platforms — Stripe, Chargebee, or Recurly. These platforms allow you to track active subscriptions, cancellations / churned customers, and new sign-ups. The process of extracting a number of customers will be slightly more complex than with CRM, but at the end of the day, you will be able to calculate CRR.
If you don’t use CRM or subscription management platforms, you can use analytics tools like Google Analytics or Mixpanel to monitor customer behavior. Use insights like returning visitors and app users and calculate retention cohorts over time.
Practical recommendations for improving CRR
It’s impossible to name one-fits-all recommendations that will work for all types of products. To max CRR, businesses must focus on product/service quality — continuously improving their products or services to meet evolving customer needs.
General recommendations for improving CRR:
- Use customer data to personalize interactions: Tailor product recommendations based on past customer actions (i.e., purchases). Send personalized emails with offers and relevant content.
- Implement a loyality program. This works well, particularly well for online retail. Reward repeat customers with points, discounts, or exclusive offers.
- Proactively address churn risks. Monitor customer behavior to identify signs of churn (e.g., decreased usage or complaints). Reach out to at-risk customers with targeted retention offers.
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Customer Retention Rate: Essentials was originally published in UX Planet on Medium, where people are continuing the conversation by highlighting and responding to this story.