Customer retention is huge for any business, but even more so for subscription-based businesses. Understanding the metrics of customer retention is a key to success and growth.
Customer Retention is important because:
• It is 5-7 times more expensive to acquire a new customer than to keep an old one
• It costs a company $234 every time they lose a customer
• Loyal customers are worth up to 10 times as much as their first purchase
Being able to keep existing subscriber is an indicator of how good your customer service is and how loyal your customers are. It also enables your company to benchmark performance and identify areas for improvement.
Determining whether your customer retention rate is good or bad
depend on many factors – such as your industry, your market segment,
your business goals, and more. But, of course, the goal is to keep
retention rates as high as possible. The flip side of retention is
attrition rate. If a company has a 20 percent attrition rate it will
have an 80 percent retention rate. Your attrition rate can be defined by
the percentage number of customers you have lost over a given period.
And while there is no single formula to calculate retention rate, the most commonly used formula is:
Retention Rate = ((CE-CN)/CS)) X 100
CE = number of customers at end of period
CN = number of new customers acquired during period
CS = number of customers at start of period
EXAMPLE: You start the (week/month/year/other period you choose) with 200 customers. You lose 20 customers, but you gain 40 customers. At the end of the period you have 220 customers.
Here's the math:
220--40 = 180; 180/200 = .9; .9 x 100 = 90. Your retention rate for the period was 90 percent.