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Customer retention rate: formula, definition, and tactics to boost it

Customer retention rate: formula, definition, and tactics to boost it

min read

Many businesses tend to focus on constantly winning new customers to increase revenue. That's understandable, but what about the customers you've already won over? Are they leaving as quickly as they arrive, or are they sticking around for the long haul?

While increasing your customer base is important, retaining existing customers is equally crucial for the success of your business. Did you know that acquiring a new customer is actually 5 to 6 times more expensive than retaining an existing one?

That goes to show that taking care of your current customers isn't only good for customer satisfaction, but also for the bottom line. But how do you use the customer retention rate formula to figure out where you’re at? What even is a good customer retention rate? And what can you do to improve yours? Keep reading.

<a href="#what-is-customer-retention-rate" class="anchor-link">What is customer retention rate?</a>

<a href="#why-is-your-customer-retention-rate-important" class "anchor-link">Why is your customer retention rate important?</a>

<a href="#how-to-calculate-customer-retention-rate" class="anchor-link">How to calculate customer retention rate</a>

<a href="#what-is-a-good-customer-retention-rate" class="anchor-link">What is a good customer retention rate?</a>

<a href="#how-can-you-improve-your-customer-retention-rate" class="anchor-link">How can you improve your customer retention rate?</a>

<a href="#use-a-crm-to-track-and-report-customer-retention-rates" class="anchor-link">Use a CRM to track and report customer retention rates</a>

<a href="#improve-your-customer-retention-rate" class="anchor-link">Improve your customer retention rate</a>

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What is customer retention rate?

Your customer retention rate (CRR) is a metric that measures the percentage of customers who continue to do business with your company over a specific period of time. When a customer makes repeated purchases or continues to use your services, they're considered retained.

The higher the percentage of retained customers, the better your customer retention rate. In contrast, a low retention rate indicates that your customers are leaving at a high rate.

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Why is your customer retention rate important?

Knowing your CRR is crucial for understanding the overall health of your business. 

A high retention rate indicates that your customers are happy with their experiences and are likely to continue doing business with you. On the other hand, a low retention rate can be a red flag, indicating that there may be underlying issues with your product or service.

On a deeper level, customer retention can be used to monitor sentiment towards a particular product, service, or even the business as a whole. For example, if you add a feature to your product and see an increase in customer retention, it's a good sign that the feature is well-received and valuable to your customers.

Finally, on a tangible level, customer retention is directly linked to revenue. In fact, retained customers are 60%-70% more likely to make repeat purchases and spend more money with your business than new customers would.

The bottom line? A high customer retention rate not only indicates happy customers and positive sentiment towards your business, but it also can lead to significant profit in the long run.

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How to calculate customer retention rate

Calculating customer retention rate is a straightforward process. Simply follow these steps:

1. Choose a time period

The first step is to decide on a specific time period that you want to analyze. This could be monthly, quarterly, or even annually.

2. Count the number of customers at the beginning of the chosen time period

To calculate your retention rate, you need to know how many customers were already doing business with you at the start of the chosen time period.

3. Count the number of customers at the end of the chosen time period

Next, you need to count how many customers are still doing business with you at the end of the chosen time period.

4. Consider customer acquisition during the chosen time period

If you acquired any new customers during the chosen time period, make sure to include them in your calculation by deducting them from the total number of customers at the end of the time period.

5. Calculate customer retention rate

Once you have all of these numbers, simply plug them into this formula:


Here’s how the customer retention rate formula breaks down: 

  • E is the number of customers at the end of the chosen time period.
  • N is the number of new customers acquired during that time period.
  • S is the number of customers at the start of the chosen time period. 

This will give you your customer retention rate in percentage form.

So, for example, if you had 100 customers at the start of the month, acquired 10 new customers during the month, and ended with 90 customers, your retention rate would be ((90-10)/100)x100 = 80%. This means that out of all the customers you had at the beginning of the month, 80% stayed on as customers by the end of the month. That’s how the customer retention rate formula works, so now let’s dig into what “good” looks like.

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What is a good customer retention rate?

There's no one-size-fits-all answer to this question since good customer retention rates can vary greatly depending on the industry, target audience, and business model.

For instance, a business that heavily relies on frequent repeat purchases, such as a grocery store or a subscription-based service, may aim for a higher retention rate compared to a business that offers one-time purchases, such as furniture sales.

However, the closest you can get to a definitive answer is by benchmarking your retention rate against your own past performance and that of your direct competitors.

It's also worth noting that you don't have to aim for a perfect retention rate of 100%. Some churn is normal and expected, especially in industries with high competition or short product cycles. Instead, focus on continually improving your retention rate and striving to keep it within or above the industry average using that customer retention rate formula above.

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How can you improve your customer retention rate?

Here are the most effective strategies you can implement to both improve your customer retention and boost customer loyalty:

1. Streamline your onboarding process

What happens when a customer enters your product's world for the first time? Often, they may feel lost or overwhelmed if they don't receive proper guidance. Revisit your onboarding process and consider providing resources to help customers understand your product's value and how to use it effectively. This could include anything from onboarding emails to in-app tool tips.

2. Garner feedback from existing customers

There's no better way to improve your product than by listening to your customers. Tap into your existing customer base and gather feedback on what they like, dislike, and want to see improved. This won't only help you improve your product, but it’ll also make customers feel heard and valued. Also, make this a continuous process—not a one-time event.

3. Understand the customer experience by mapping the customer value journey

Customer journeys aren't always linear, so it's essential to map out the various paths customers take when interacting with your brand. Knowing your typical customer’s behavior will allow you to identify areas for improvement and tailor your overall customer experience accordingly. Make sure to consider all touchpoints, from pre-purchase research to post-purchase support.

4. Improve user engagement with gamification

Gamification is the process of adding game-like elements to your product or service, making it more engaging and enjoyable for users. This can include anything from introducing referral programs to creating challenges and offering rewards like discounts, credits, freebies, or upgrades. Gamification not only makes the customer experience more fun, but it also encourages repeat usage and loyalty, leading to higher customer lifetime value.

5. Personalize your customer loyalty program

Some customers may be more likely to engage with your brand if they feel like they're a part of an exclusive club. Research shows that the top-performing loyalty programs enjoy a 15%-25% annual revenue boost from customers who redeem points. Consider offering different tiers or exclusive perks to your loyal customers to make them feel special and encourage continued engagement with your brand.

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Use a CRM to track and report customer retention rates

When you're working on tracking and calculating your customer retention rate, it's best not to do so manually and start from scratch every single time. Instead, consider using a customer relationship management (CRM) system to automate the process.

A CRM allows you to track and report on customer activity, purchases, and engagement over time—all in one centralized location. Better yet, it can give you an overview of which customers are most likely to stay loyal and which ones are at risk of churning. This will give you valuable insights into your retention rate, and you can use those insights to create targeted retention strategies and get your rates back on track.

At Streak, we went an extra step and created a CRM that saves you even more time by seamlessly integrating with Gmail. This way, you can track customer interactions and loyalty right from your inbox, without having to switch between platforms.

A screenshot of Streak in Gmail as a CRM, with the Streak pipeline also being clearly shown

But does it stop at that? Not at all. With Streak's advanced reporting features, you can also analyze your retention rates in detail and identify the factors that contribute to customer churn. You can go as granular or broad as you want with your analysis, thanks to customizable filters and comparison charts. Whether you want to filter by time ranges, pipeline stages, customer types, or any other parameters, Streak has got you covered.

With this level of in-depth analysis and tracking, you can create data-driven retention strategies that cater to the specific needs and preferences of your customers—making them feel valued and increasing their loyalty toward your brand.

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Start improving your customer retention rate today

Once you have the right data and tools at your disposal, calculating your customer retention rate will become infinitely easier. At Streak, we make it a matter of a few clicks to see your churn trends, identify areas of improvement, and take informed actions toward better retention.

But it's not just about the numbers. With Streak's seamless integration with Gmail, you can effortlessly stay on top of customer interactions, leading to more personal and effective communication. With advanced reporting features too, you can gain valuable insights into what works and what doesn't when it comes to retaining your customers.

So why wait? Start improving your customer retention rate today with Streak! Don't just take our word for it—try it out for yourself to see the results.

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