In anything you do that involves recruitment, retention is the bigger deal. You can be exceptional at recruiting but if you are not adept at retention you will never grow. I have worked with National Blood Service Zimbabwe, Zimbabwe Red Cross Society, my church (Christ Embassy), and several other corporate enterprises. I know just how pertinent retention is. That is why I am looking at customer retention today – something every business or startup thrives for. Today I shall be focusing on customer retention metrics you must track. Customer retention is not assumed; it is planned and tracked (or measured).

Customer Retention Rate (CRR)

Customer retention itself is a metric you can measure. It is straightforward because you are seeking to know how many customers over a certain period remained or were retained. This is a measure of how loyal your customers are. This is a measure that is usually expressed as a percentage of long term customers. Retained customers lead to more revenue, less marketing costs, and referrals as well. To calculate customer retention:

Note the total number of customers at the end of a period

  • 150 for example.

Subtract the total number of new customers acquired during the period

  • say 45 new customers were recruited
  • by subtracting you get 105

Divide by the total number of customers at the beginning of the period

  • say you started with 150 customers
  • that would be 105 divided by 150 giving you 0.7

Finally, you multiply by 100 (to express as a percentage)

  • you would multiply 0.7 by 100 giving you 70 per cent

NB: Never make the mistake of not factoring in the new customers. If you do not do that you will mislead yourself.

Customer Acquisition Rate (CAR)

This is essential since acquired customers are the pool from which loyal or repeat customers will be drawn. Knowing this metric also helps in assessing your marketing campaigns. Customer acquisition is simply the total number of people who opt-in or sign-up during a marketing campaign divided by the total audience (expressed as a percentage). This is particularly easy to calculate when you do digital marketing campaigns through social media.

Customer Churn Rate (CCR)

The churn rate is a measure of how much you are losing customers. In essence, the churn rate is the reciprocal of customer retention. This means if the churn rate is higher the customer retention will be lower and the converse is true. You calculate it by:

Consider the total number of customers at the beginning of a period

  • an example can be 120 customers

Then take note of the total number of customers lost during that period

  • an example can be 25

You divide the total lost by the total at the beginning of the period then multiply by 100

  • in this case that would be (25 divided by 120) multiplied by 100 giving us 20.8 per cent

Repeat Purchase Ratio (or Rate) (RPR)

This is a measure that looks at the percentage or proportion of customers that have purchased more than once. You calculate this by simply dividing the total number of customers who have done more than one purchase by the total number of customers (expressed as a percentage).

Suppose you have a total of 455 customers and 229 of them have purchased more than once

  • the repeat purchase rate would be (229 divided by 455) multiplied by 100 giving us 50.3 per cent

Loyal Customer Rate (LCR)

This is meant to measure customer loyalty. So basically you consider 12 months for example. You take into account the number of customers who have made at least 4 purchases. You then divide that by the total number of unique customers in that period. You express that as a percentage by multiplying by 100.

Let us suppose you have 115 unique customers. Then the number of customers who made at least 4 purchases is 63. The loyal customer rate will be (63 divided by 115) multiplied by 100 giving us 54.8 per cent.

Customer Lifetime Value (CLV)

This is defined as the total gain expressed on a net present value basis that a business anticipates from having an enduring commercial relationship with a customer over time. In other words, customer lifetime value is the total worth of a customer to a business throughout their relationship. That means the higher the value, the better. It would make practical sense for an enterprise to pump more money into marketing if the customer lifetime value is high.  It is a prognostic or predictive value that is premised on existing data.

The basic method for calculating these factors in 3 aspects namely,

  • average order total
  • number of purchases in a year
  • average retention time (i.e. years)

Multiplying those 3 values gives you the customer lifetime value. This is a simpler method but there are other more sophisticated methods.

Net Promoter Score (NPS)

This is a measure of how likely your customers are to recommend or refer people to your brand. It involves asking customers to respond by indicating on a scale of 0 to 10. From the responses that customers will give they will or can be classified into 3 sets namely,

  • promoters (9 or 10)
  • passives (7 or 8)
  • detractors (0 to 6)

You will then find the percentages of the 3 groups of customers. From there you subtract the percentage of detractors from the percentage of promoters. The result will be your net promoter score. This means your net promoter score can be negative which of course will be a bad thing.

If you take these metrics seriously and measure them regularly you will open a new world of business possibilities. I know for a fact that the vast majority of businesses do not track these metrics at all. It is high time you start taking them seriously.