Customer Retention Metrics to track Customer Acquisition and How to Measure Them

Customer Retention Metrics to track Customer Acquisition and How to Measure Them

Some businesses are ignoring the fact that the product and prices are not enough for customer satisfaction, but a customer-specific marketing strategy is important to get opportunity costs and gaining new customers.

Therefore, organizations measure the customer metrics to see how well they are meeting customer needs and if they are continuing to earn their business over time.

What is Customer Retention?

Customer retention measurement refers to the steps taken to uncover and document how well a business is retaining customers and their revenue. This is done by looking at key customer retention metrics like customer lifetime value and churn rate.

Marketing, sales, customer service, and even product management teams can all benefit from customer retention data.

Customer Retention Metrics Calculator :

But, calculating this data can be time-consuming, that’s why the Customer Retention Metrics Calculator helps to gain accurate insights from customer retention data.

In order to maximize your retention efforts, you need to understand how to track and measure key retention metrics. To begin with, we will categorize the retention metrics.

Categorizing Retention Metrics :

Retention metrics are mainly 11 but we will divide them into 4 important categories :

Retention Metrics: Bringing Customers Back :

Whether the customer made one purchase or five, the main goal of retention marketing helps you bring every single customer back to make that next purchase.

The following three retention metrics target that repeat purchase behavior.

Customer Churn Rate (CCR):

Honestly, the Company's customer churn rate refers to the rate at which customers stop doing business with the company.

And a churned customer is a customer that your business unsuccessfully retained.

An unreasonably high churn rate is typically indicative of your product or service failing to meet your customers' expectations or goals.

How do you calculate CCR?

How frequently you calculate and examine your company's churn rate will depend on the volume of business your company conducts. For eg., if the company has 100 or 1000 customers, it’s difficult for the marketing team to track churn on monthly basis; but in a small customer list or customers signed onto longer contracts, a semi-annual or annual tracking will appropriate.

Annual Churn Rate = (Number of Customers at Start of Year - Number of Customers at End of Year) / Number of Customers at Start of Year

Example of Customer Churn :

Let's say the company started September with 10K customers. At the end of the month, we found that 500 left in our business. This would mean our churn rate is 5%

((10,000 customers - 9,500 customers ) / 10,000 customer = 5%).

Another example, let's say we gained 275 customers during September and lost 500 more during October. Our churn rate for October would then be 5.11%

((9,775 customers - 9,225 customers) / 9,755 customers = 5.11%).

Repeat Purchase Rate (RPR):

Repeat purchase rate (RPR) is the percentage of customers who’ve made more than one purchase at your store.

In simple terms, the repeat purchase ratio (RPR) is the percentage of customers that have returned to buy from your company again. This metrics is a good indicator of Customer Loyalty. By identifying which types of consumers or companies are making the most repeat purchases, the marketing and sales team can target their buyer’s personal choices accordingly.

It is used by marketing and sales teams to assess the performance and impact of the customer retention strategy

Although this particular metric typically applies to products, you can also apply the same formula to repeat subscription or contract renewals.

How to Calculate Repeat Purchase Ratio:

To calculate your repeat purchase rate, you only need two pieces of information: the number of customers who’ve bought more than once and your total number of customers.

To get a better idea of a customer's journeys from beginning to end, the RPP rate is helpful!

Retention Metrics: Maximizing Revenue

Average Order Value (AOV) :

Average order value (AOV) measures the average amount of money a customer spends per purchase.

This metric is crucial: it allows to know the overall customer budget to spend on product and gives direct insights into customer financial budget.

Benefits of AOV :

  • Previous purchasing patterns
  • Customer’s probable buying capacity

Customer Lifetime Value= (Average Order Value) * (Number of repeat orders) * (Average Retention Time)

  • Average order value: can be determined by calculating the average of a customer’s order value to date.
  • A number of repeat orders: represent how many orders has that person placed up until now and the last variable
  • Average retention time: is the average interval of time after which the customer tends to make another purchase.

Existing Customer Revenue Growth Rate :

The existing customer revenue growth rate is very important for your business.

A climbing customer revenue growth rate would imply that your marketing, sales, and account teams are doing a great job at motivating customers to increase spending.

A stagnant existing customer revenue growth rate could also be dangerous for your business. After all, acquiring a new customer is actually four times more expensive than upselling to a current one

How to Calculate Existing Customer Revenue Growth Rate:

Once again, the formula below should only take into consideration the revenue generated from existing customers. No new sales are involved in this measurement.

Monthly Revenue Growth Rate = (MRR at the End of Month - MRR at the Start of Month) / MRR at the Start of Month

Example of Existing Customer Revenue Growth Rate:

If we start September with an MRR of $50K then lose $5K to churn, our existing revenue growth rate is -10%

(($45,000 - $50,000) / $50,000 = -10%)

For October, if we start at $57.5K and lose $7K, our existing revenue growth rate is -12.2%

(($50,500 - $57,500) / $57,500 = -12.2%).

Net Promoter Score :

It’s not a real marketing strategy, but it is a "word-of-mouth" strategy run by existing customers. Businesses are taking reviews and feedback from different media  

Sharing online experiences with family and friends which can either boost your sales if they have had a good experience or can divert your potential customers.

Net Promoter Score = % of Promoters - % of Detractors

According to the scores you receive, customers can be divided into three categories:

  • Detractors (0-6) are consumers who are not very happy with your product or services.
  • Passives (7-8) are the ones who are satisfied with your brand
  • Promoters (9-10) are your valuable customers who will go to their maximum limits to make people know that they are using your brand.

Time Between Purchases:

The time between purchases measures the time it takes for an average customer to buy from you again.

This is an important retention metric because it shows customer satisfaction with your product.

How to Calculate Time Between Purchases:

To calculate the average time between purchases, you'll need to keep track of the purchase dates for all customers.

Time Between Purchases = Sum of Individual Purchase Rates / Number of Repeat Customers

Example of Time Between Purchases:

Retention Metrics: Tracking Retention Efforts

Redemption Rate (RR):

Your redemption rate (RR) refers to the percentage of loyalty rewards that are being redeemed.

Customers are only going to redeem points for a reward if they see the rewards as being valuable, so your brand’s redemption rate is very closely tied to program engagement.

Improve your RR with more ways to earn rewards :

Retention Metrics: Measuring Loyalty:

Loyal Customer Rate (LCR):

Your loyal customer rate (LCR) allows distinction between your best customers and repeat customers.

How do you calculate LCR?

A loyal customer can be defined as someone who makes more than four purchases in your store.

Conclusion

Apprehending customer service by tracking and measuring the retention metrics will benefit the business avoiding the recurring costs, and identifying the customer purchase will increase the sales of products and services.


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