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Measuring Customer Retention
Most company leaders understand that a customer retention rate formula is essential to the success of their businesses. But how is customer retention measured? Your customer retention measurement (rate) is made up of three factors, including:
CE: number of customers at end of period
CN: number of new customers acquired during period
CS: number of customers at start of period
The formula for calculating your customer retention rate is:
((CE-CN)/CS)) X 100 = Customer Retention Rate
Jeff Haden, Contributing Editor at Inc. Magazine, makes sense of this formula by stating, "You start the (week/month/year/other period you choose) with 200 customers. You lose 20 customers, but you gain 40 customers. At the end of the period you have 220 customers."
220 – 40 = 180; 180/200 = .9; .9 x 100 = 90. This means that your retention rate for the period is 90 percent.
Why Measure Customer Retention Rate?
Customer retention rate refers to the number of customers a business keeps with respect to the number of customers a business had at the start of a particular period.
Effectively tracking and evaluating customer retention helps businesses:
- Increase referrals
- Increase revenue
An increase in customer retention by just 5 percent can increase profits by 25 to 95 percent. On top of that, acquiring new customers can cost as much as five to seven times more than simply retaining existing customers.
Utilizing Marketing Data to Improve Customer Retention
Collecting and analyzing marketing data is a great way for businesses to better understand customer retention. Some of this data includes:
- Their site's click-through rate
- Email open rates
- Customer satisfaction survey results
By partnering with their marketing team, business owners and CMOs can use the above information to develop a long-term business strategy that will help retain more customers and make them more money.
Selligent Marketing Cloud creates web-based marketing software for CMOs to better engage with the customers they have and effectively reach the customers they want to win.
With Selligent Marketing Cloud, marketers can track and retarget every site visitor, gather on-domain browsing data, and map a successful marketing strategy. Even better, Selligent Marketing Cloud has a proven track record of helping marketing teams land more up-sells and cross-sells based on customers' recent activity, increasing the organization's overall customer retention rate.