Customer retention is vital to business growth, but how do you know your efforts are working?
Analyze these customer retention metrics to discover when it’s time to start making improvements to your strategy. With these equations, you can measure different segments of your audience and gain insight into which products and industries are causing your retention success to fall behind.
5 customer retention metrics to watch
1. Customer retention rate
If you want to track customer retention, this metric is the first step. With customer retention rate, you’ll see what percentage of your existing customers return to your business over a certain period of time.
Customer retention rate, while applicable in all situations, may best be used for relationship-based services, for example when software or other subscription services are used and paid for on a month-by-month basis or when contracts are subject to renewal.
2. Repeat purchase rate
This rate reflects the number of repeat purchases in relation to single transactions. For example, how many pieces of equipment has your dealership sold to one particular construction company?
Keeping track of this metric gives you more insight on which industries and which products contribute the most to your overall retention rate.
3. Customer churn rate
You may think that calculating your customer retention rate means that this metric is not necessary, since it is effectively opposite of your retention rate by calculating what percentage of your customers leave over a certain period of time.
However, it’s important to keep an eye on this metric as well, as not all churn is intentional — some customers may simply go out of business rather than start purchasing from a competitor. The result also should be smaller than your retention rate, making it easier to examine more closely and determine reasons for churn, instead of reasons for retention.
4. Revenue churn rate
Calculating the percent of revenue you’ve lost from existing — not newly acquired — customers over a period of time can help you spot red flags that your customers will leave. The decrease in revenue could be due to order cancellation, service downgrades or the end of a business relationship. Regardless of reason, use this metric to begin targeted efforts to boost customer loyalty.
5. Time between purchases
This provides the average amount of time between each customer’s purchase. The longer the time between purchases is, then the more likely a customer is willing to try out a competitor’s product before going back to your business. Dealerships that sell equipment to companies months, or even years, since the last purchase, will also find it’s crucial to track the buying cycle of each customer.
You can’t grow your business if you aren’t keeping any of your hard-earned customers after the first purchase.
While you need these customer retention metrics to measure the success of your retention strategy, you can also use them as tools to assess which products and industries may specifically need an extra hand in customer retention.