Economically, there’s a simple reason why customer retention is vital – keeping existing customers is much less expensive than attempting to gain new ones. Customers loyal to your business also help keep it healthy by making recommendations, promoting your brand on social media, and providing feedback to help you improve your product or service. As a result, businesses need to monitor their CRR.
What is CRR?
The customer retention rate (CRR) is a metric that indicates how many customers a business keeps over time. It's measured as the percentage of customers who stay with the business by making more purchases, upgrading, or renewing their subscriptions. This measurement may be done anytime. However, it should be computed regularly since it is a critical indicator of your business's health because it allows you to see if your operations are keeping your customers happy and engaged or if they are achieving the reverse.
Why is CRR Important?
CRR is important because it helps you determine how successfully you can prevent customer churn (the percentage of customers that stopped patronizing your services or products within a certain period. Your customer retention rate, in addition to revenues and losses, impacts how long your business will last. You may not realize you have a problem until it is too late if you don't have this knowledge.
CRR is also a significant measure for businesses since it feeds into other crucial metrics like customer lifetime value and helps you better understand the efficacy of your marketing plan, customer care program, and client retention strategies.
Calculating Your CRR
To figure out your retention rate, start by choosing the period you wish to examine. This can be annual, quarterly, monthly, weekly, or even daily (used mainly by fast-moving SaaS companies).
The next step is to gather three simple pieces of information:
- The number of existing customers at the beginning of the time frame (S)
- The total count of customers at the end of the time frame (E)
- The total number of new customers gained within the time frame (N)
When you have this information, you may then proceed to use the formula below:
CRR = [ (E- N) / S] x 100
- You subtract the number of existing customers at the end of the time frame (E) from the total number of new customers gained (N)
- Divide the result obtained from the subtraction above by the number of existing customers at the beginning of the time frame (S)
- Multiply the result of the division above by 100
Take note that the result of the CRR calculation is usually in a percentage. That is, if your result is 80, then you retained 80% of your existing customers.
Although customer retention rate is not a stand-alone measure of your company's overall health, it is vital to check it regularly to ensure you can solve concerns as they develop. Finally, always remember to strike a balance between client acquisition and retention to achieve the best outcomes.