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Measuring Customer Retention

Measuring Customer Retention

Figured out what your real customer retention rate is? Not everybody has.

Conversations about measuring retention I have, seem to end one of two ways - either yes we've got that nailed or nope we're trying to figure out how we measure it.

To those who claim 70-80%+ retention I then ask some further questions such as; how are you measuring or calculating that figure or how does it feel to practically make your target before you start the year or are you comparing bookings from the same period last year and if they are great, then consider are the same customers still on board?

Responses vary, but inevitably, after a few more questions, people then feel the need to re-examine their belief in those figures - holes appear.

So how do you calculate it? Here's a formula if you do need it:

Retention rate = (number of customers at the end of a period - those acquired during that period) / (the number you had at the start) * 100

Then do a sanity check - are the same names still there? Does everyone hold the same view?

Why is retention critical?
1. Retention and Lifetime value is more valuable than costly acquisition
2. ROI - a 5% increase in retention can translate to 25%+ revenue increase
3. Happy customers refer you more often.

Worth thinking about? Got the real figures to make the calculation?