How to Use Customer Retention Metrics

By: First Union


How to Use Customer Retention Metrics

What customer retention metrics can I use to figure out how my business is doing? What can customer retention metrics tell me about my business? Can I use customer retention metrics to figure out how to gain more clientele?

Customer retention refers to the activities and decisions your business makes to reduce the number of customer defects, to retain as many customers as possible. Customer retention can be promoted further through customer value-add proposition, such as customer loyalty programs and brand loyalty initiatives (post on social media and get a discount for your next visit/).

Customer retention is extremely important but often forgotten when strategizing business decisions and marketing campaigns. Metrics typically target one of these four metric categories:

  • Maximizing revenue
  • Bringing customer back (customer retention/)
  • Tracking retention efforts
  • Measuring customer loyalty

Before you start running analytics, remember to find an easy way to track your data, whether it be a GoogleSheet or Microsoft® Excel file, keep the data in order and make it clear it enough to understand, so if you need to create graphics representing the data collected, you can easily turn the data into charts.

Once you are ready to start tracking your business's customer retention metrics, consider tracking the following metrics:

Customer Churn Rate

Customer churn rate (CCR/) helps you identify customers that have stopped making purchases, which can assist with determining what steps to take when developing a retention strategy. CCR is the percentage of your customers that have been lost over a specific period.

Before you start your calculations, you will want to determine what period you will be measured on? Will the metrics be run weekly? monthly? quarterly? annually? It is typically recommended to run this every month, and based on this recommendation, use the following calculation:

CCR = (Number of Customers at the Beginning of the Month - Number of Customers at the End of the Month/) / Number of Customers at the Beginning of the Month

Average Order Value

Average Order Value (AOV/) shows you how much each of your customers is worth. AOV measures the average amount of money one of your customers spends per purchase. The more each of your customers spends per purchase transaction, the less you will need to invest in gaining more clientele. Determine a timeframe, typically 365 days, and use the following calculation:

AOV = Total Revenue / Total Number of Orders

Customer Lifetime Value

Customer Lifetime Value (CLV/) gives you the best understanding of how much your business should be spending on acquisition costs - the higher your CLV, the lower costs are needed. CLV is a projection of how much revenue the average customer will bring you throughout their relationship with your business. Use the following calculation:

CLV = Customer Value / Business's Average Lifespan

Customer Retention Rate

Customer Retention Rate (CRR/) gives you an idea of how well your retention strategies are doing. CRR is the percentage of customers staying with you over time. The higher your percentage, the higher your retention rate, and the more successful your business retention strategies! Use the following calculation:

CRR = (Number of Customers - Number of Acquired Customers/) / Number of Customers

Profitability Per Order

Profitability Per Order (PPO/) shows you how much profit you're making on each purchase, so the higher your profits, the more successful you are. Determine a timeframe, typically 365 days, and use the following calculation:

PPO = (Total Revenue X Average Profit Margin/) / Number of Orders

Repeat Purchase Profitability

Repeat Purchase Profitability (RPP/), which is close to your CCR, helps determine if your customers are likely to make another purchase. RPP is the likelihood of your customer making another purchase from you. Your RPP can help you pinpoint when your customers will begin to fall out with your businessbrand, so you can launch a marketing strategy to retain their patronage. Determine a timeframe, typically 365 days, and use the following calculation:

RPP = Number of Customers That Purchased X Times / Total Number of Customers

Repeat Purchase Rate

Repeat Purchase Rate (RPR/) provides you with a clearer snapshot of your retention strategy's effectiveness, which allows you to adjust your marketing strategy based on your findings. RPR is the percentage of customers who have made more than one purchase from your business. RPR gives you insight into the purchase patterns of your customers (which you can segment to align specific marketing strategies with specific demographics/). Determine a timeframe, typically 365 days, and use the following calculation:

RPR = Number of Customers Who Purchased More Than Once / Total Number of Customers

Purchase Frequency

Purchase Frequency (PF/) refers to how often your average shopper purchases your business. Elevated purchase frequency equates to more revenue and higher profitability. Determine a timeframe, typically 365 days, and use the following calculation:

Purchase Frequency = Number of Orders / Number of Unique Customers

Redemption Rate

Redemption Rate (RR/) indicates how healthy your customer loyalty program is. RR is the percentage of loyalty rewards that are being redeemed. A higher percentage rate shows customer engagement and interest shows they see value in your program. Pick a timeframe and use this calculation:

RR = Number of Points Redeemed / Number of Points Issued

Loyal Customer Rate

Loyal Customer Rate (LCR/) helps you determine if your retention efforts are working to acquire new and attain existing customers. LCR creates a distinction between your best customers and your repeat customers. For the past 365 days, use the following calculation:

LCR = Number of Customers Who Purchased 4+ Times / Number of Unique Customers

Time Between Purchases

Time Between Purchase (TBP/) shows you how many times a year a customer completes a purchase. If you can determine when repeat customers will make purchases, you can create marketing campaigns and customer retention strategies to gain more clientele - or target your existing customer's interests with deals and customer loyalty programs. Use the following calculation:

TBP = 365 Days / Purchase Frequency

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