Guest Post: 7 Customer Retention Metrics That Allow You to Measure Customer Loyalty

Jul 25, 2022

Does customer retention have a relation with loyalty? That question puzzles many businesses worldwide. A customer’s faith in your brand can help you retain customers. Same faith is connected with customer loyalty. 

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When 57% of customers buy from a loyal brand, it makes a strong case for customer loyalty. Organizations thrive to achieve higher user loyalty. However, tracking the churn rate and its causes is tricky. This is why tracking vital retention metrics for your strategies is essential.

Especially when experts suggest using 75% of your marketing budget on customer retention, you need metrics to ensure the money is not wasted. So, here we are with the metrics you need to track for customer retention.

Top Customer Retention Metrics to Track for User Loyalty

7 Customer Retention Metrics That Allows You To Measure Customer Loyalty

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According to research, the core concept of customer retention is continuity. Therefore, how continuously a customer interacts with your brand can make all the difference. Fortunately, there are many parameters that you can track and improve retention.

Retention rate

Customer retention rate measures how many users you have retained during a specific period. It is a metric that allows businesses to understand the customer’s attrition and strategize how to retain them.

Calculation of the retention rates can be done through the following equation,

Customer retention rate = [(Number of users at the end of the specific period - Number of new users acquired)/ Number of users at the start of a period]*100

So, if you had around1000 customers at the launch of a product and within six months the number has declined to 500 along with 200 new customers acquired, the retention rate will be,

[(3000-200)/1000]*100 = 0.28 or 28%

However, a 28% retention rate may look like an outstanding achievement, but it’s not a great sign, even for a hypothetical scenario.

So, what’s the way out?

Here is a strategy that you can use for a higher retention rate. 

How To Improve The Customer Retention Rate?

7 Customer Retention Metrics That Allows You To Measure Customer Loyalty

(Image Source: Freepik)

Customer retention has advantages that outweigh your efforts on new user acquisitions. For example, an observation in “80/20 Sales and Marketing: The Definitive Guide to Working Less and Making More” states that  20% of your customer provide 80% of sales. 

So, there is no denying that strategizing on improvements for retention rates can be rewarding. Here are some best practices to follow to improve customer retention rates.

  • Perks they miss out. Alluring your customers is never a bad practice, especially for customers looking to part ways! Look to incentivize their interaction with the brand and adjust the pricing.

  • Cross-selling and upselling strategies- Employ tactics of providing related product recommendations when customers discover or search for specific products.

  • Loyalty programs- design your rewards and loyalty programs according to the changing customer tastes. Incentivize the entire customer experience.

  • Introduce gamification- Participation becomes fun when there is a reward to compete for, and this approach pitches customers against one another. Create markers in your rewards program which motivate customers to engage more with the brand.

  • Personalizations-Identify the critical touch points in the customer journey and personalize interactions. You can leverage advanced technologies like Artificial Intelligence to analyze a buyer’s journeys for enhanced personalizations.

  • Infuse convenience- One of the simplest ways to improve customer retention rates is by providing customers with a sense of convenience. Devise a recurring subscription plan for your services that infuses an idea of convenience for customers.

  • Mentor to the salesman- Educate your customers on different ways to leverage your product or services. This will provide another point of view for the customers who believe your product or service is of no use.

Now that we know about retention rates and ways to improve them let’s look at other important ones.

Customer Lifetime Value(CLV)

Customer retention rates focus on understanding the rate of retaining your end-users. However, CLV helps you segregate the customers worth retaining. It is a measurement of net profit per customer on the lifetime relationship. In other words, you can measure the value a customer can provide to your business through retention. 

You can calculate CLV by using the following equation,

CLV =[(total number of transactions/year)* Average Order Value *Average Gross Margin(%)*Average Customer Lifespan in Years]/Total Number of Customers for the Period

Measuring the customer lifetime value is essential for customer retention and focusing your efforts on potential clients.

Revenue churn rate

While you are targeting a specific lot of customers to improve retention, product assessment becomes vital. Customer loyalty is also higher when the product or service delivers value. This is where a revenue churn rate comes into play. It allows your organization to identify which product or service performs below par. 

In other words, it's the decline in your monthly recurring revenue (MRR) if you have a subscription model. Here is how you can calculate the revenue churn rate,

Revenue churn rate = [(Revenue in previous period- Revenue in this period)/Revenue in the last period]*100

There can be several causes of reduced revenue churn rates like lower performance products, service bottlenecks, and system shortcomings. So, you need to identify, monitor, and fine-tune products for a reduced revenue churn rate. If we are discussing the churn rates, customer churn rate is an important metric. 

Customer churn rate

Customer churn rate is an essential metric for every organization. It allows you to calculate the number of customers lost during a specific period. The time the customers are lost can vary according to the sample lot you want to consider for calculation. Here is how to calculate the customer churn rate.

Customer churn rate = {1-[(Number of users at the end of the period -New users)/Number of users at the start of the period]]*100

There can be several reasons for high churn rate like, 

Pricing & relevance

One of the most common reasons customers leave your product or service is pricing. Without competitive pricing, you may lose customers who will switch to more money for a value offering. Another critical reason for high customer churn rates is the lack of relevance.

Often brands lose sight of relevance along the way! Higher churn rates can be an effect of the new functionalities of competitors and relevance to current trends.

Security

Security is an aspect that impacts the trust of customers. According to PWC research, 85% of customers don’t buy from brands with data breach worries. So, how to ensure that you provide a secure experience.

Fortunately, modern technology provides several ways to secure your brands. For example, you can use something as simple as an SSL certificate. It can help secure the communication between your websites and customer’s device. 

Especially if you want to secure a website with multiple subdomains like hr@mydomain.com or purchase@mydomain.com, finding a cheap Wildcard SSL certificate is all you need. It helps in securing several subdomains with one SSL certificate. 

Customer support

Customer support is one of the most significant aspects impacting churn rates. Without enhanced customer support, your brand can suffer from the complex problem of sustaining the experience. According to Oberlo, 81% of consumers say that positive customer service can influence the next purchase from a brand. 

So, there is no denying that getting customer support right means reducing the churn rates for your business.

Now that we have discussed churn rate issues and solutions let’s move on to other metrics.

Average order value

Churn rates can hurt a business spending the most on advertising campaigns. This is because you are constantly churning out money to attract customers who may not spend enough on your products. However, identifying customers worth spending on can be tricky. 

An average order value does it for you. It allows you to measure the average ticket size per order or value a customer brings to your business. It determines the impact of customers’ purchases on your brand. How to calculate it, 

Average order value = (Total revenue earned in a period/ Total number of orders placed in a period)

Lastly, when you have the churn rates, retention rates, and average order value, the profitability needs some checking!

Profitability per order(PPO)

While AOV enables measuring customers that provide value, PPO allows you to understand how much you profit per order. Calculating the PPO will need the value of AOV, 

PPO = AOV*Gross Margin

One best practice to improve PPO is to create a suite of low-margin and high-margin services for your customers for better profits. Finally, it’s time to discuss the elephant in the room- “Customer Loyalty.

Customer loyalty rate

Simply put, it measures customers who make repeat purchases within a specific period. This metric provides you with an exact number of loyal customers. Here is how to calculate it, 

Loyal customer rate = (Total number of customers who make more than one purchase/ Total number of customers for that period)

Conclusion 

When it comes to customer loyalty, not just retention but a lot of other factors matter, this is why you need to measure different metrics, fine-tune the product or service, and improve retention. But, in the end, its customers provide value for your business activities, and their loyalty means higher profits! So, start monitoring the right metrics and improve growth. 

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