How to measure customer retention rate: Formulas & benefits [2024]

No business can survive, let alone thrive, without its customers.

So, acquiring new customers is essential. But equally, if not more, essential is to retain your existing customers.

But you can get so laser-focused with getting new customers that you could temporarily lose sight of customer retention.

When you’re not proactive about retaining customers, you’re certain to experience customer churn. Watching your hard-earned revenue trickle away can be debilitating to you and your organization.

So, what’s the first step in working towards customer retention?

By measuring your customer retention rate.

Keep reading to find out what is customer retention rate, its importance for your business, how to calculate the customer retention rate, and strategies to improve this metric.

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What is the customer retention rate?

Customer retention rate, or CRR, is the percentage of customers who stick with your business over a specific time period.

Here’s a bare-bones example: If you begin the year with 100 customers and end up with 40 customers leaving you, your CRR for that particular year will be 60%.

Of course, it’s a bit more nuanced than this—we’ll get to how to exactly calculate your CRR in a moment. Before that, here’s a pressing question.

Why is it important to calculate customer retention rate?

Simply put, calculating your customer retention rate will show you how loyal your customers are and how valuable your offering is to them. The higher your CRR is, the more successful your product or solution will be.

Not just that, knowing and tracking your CRR periodically will help you:

• Increase your profits—research shows retaining customers is far cheaper than acquiring new customers
• Evaluate and improve the customer support you’re providing
• Boost customer satisfaction and drive long-term growth
• Identify customers who are likely to churn and take preemptive measures
• Maintain an edge over your competitors

How to calculate customer retention rate (CRR)?

To calculate your customer retention rate (CRR), you need to determine 4 things:

• Time frame you want to calculate CRR for, whether it’s a month, quarter, or year.
• Total number of customers you had at the start of this time frame
• Total number of customers left at the end of this time period.
• Number of new customers you gained during the same time frame.

Once you’ve arrived at these 4 numbers, apply the following formula to calculate your customer retention rate:

Formula to calculate CRR = ((E - N) / S) x 100

S: Total number of customers you had at the start of a specific time frame, whether it’s a month, quarter, or year.
E: The total number of customers you have at the end of the chosen period.
N: Number of new customers you gained during the same time frame.

Here’s an example of calculating CRR:

Suppose you started the year with 500 customers (S), acquired 30 new customers (N), and ended the year with 480 customers (E). Here’s how you calculate your CRR:

CRR = ((480 - 30) / 500) x 100
= (450 / 500) x 100
= 0.9 x 100
= 90%

In this scenario, your annual CRR is 90%, which is a strong indicator of customer loyalty and satisfaction.

But how do you get here? What strategies do you need to apply to increase your customer retention rate? That’s exactly what we’re about to see next.

12 expert strategies for elevating your customer retention rate (CRR)

An analysis by McKinsey and Company shows that top-performing SaaS companies have median net retention rates of 120% or more—which means these businesses deliver 20% growth every year without adding a single new customer.

So, if you want a thriving business that not only attracts new customers but retains the existing customers, your goal should be improving your CRR over time.

Here are 12 strategies we’ve curated to help you constantly enhance your customer retention rate:

1. Focus on continuous product improvement

Improving your product isn’t just about adding new elements but also refining what you offer to suit your evolving customer base better.

Such a proactive strategy is critical to maintaining a competitive edge, keeping your product relevant, and ensuring customer engagement and satisfaction after the holiday season. This approach retains customers and turns them into advocates for your business.

2. Offer exceptional customer support

Excellent customer service is more than just resolving customer issues; it’s a whole strategy for giving customers a smooth, customized experience. This means:

• Paying close attention to their concerns to comprehend their requirements,
• Giving them expert guidance tailored to their specific situation, and
• Making sure your customers feel valued and appreciated.

Statistics show that 73% of customers consider their overall customer experience a significant factor in their purchase decisions. So, it’s certainly worth paying attention to.

3. Communicate proactively with customers

Proactive communication entails regular updates, sharing valuable content, and keeping customers in the loop about the latest developments within your business.

This ongoing dialogue not only keeps them connected to your brand but also serves as a tangible demonstration of your commitment to their satisfaction and engagement.

4. Build a community

When you establish a customer community through dedicated forums or social media groups, you provide users with a valuable platform to connect, interact, share their experiences, and extend a helping hand to one another.

This sense of belonging and camaraderie is instrumental in building lasting customer retention. They don’t just use your product or service; they actively participate in a community that revolves around it.

Moreover, a thriving customer community is a treasure trove of insights and solutions. Customers within the community share their experiences, offer tips, and troubleshoot common issues.

5. Organize loyalty programs

Programs to boost customer loyalty can incentivize customers by offering rewards or benefits for their continued patronage. These incentives can take various forms, including discounts, access to exclusive features, and referral rewards.

Customer loyalty programs boost customer retention and increase the frequency of customers returning to your business, fostering ongoing engagement and activity. The aim is to not only keep customers coming back but also to transform them into active promoters of your brand.

6. Collect customer feedback often

Frequent feedback collection through surveys, feedback forms, polls, emails, or social media engagement, is a valuable tool to understand your customers’ needs and preferences. It allows you to make data-driven decisions that can lead to improvements aligned with what matters most to your customers.

Regular feedback collection demonstrates your commitment to continuously improving customer satisfaction and loyalty.

7. Implement dynamic pricing strategies

Keeping your pricing strategies dynamic involves thoughtful adjustment of service or product pricing based on customer behavior, engagement levels, and other relevant factors. It’s a strategic approach that keeps customers engaged and encourages continued usage of your services while ensuring they receive a tailored and value-driven offer.

For instance, you may offer your most loyal, long-term customers discounted rates, providing them with a personalized pricing experience. Alternatively, you can offer customized pricing to high-usage customers, ensuring they receive a tailored deal that suits their needs.

8. Enable integrations to build ecosystems

Enabling API integrations with other software tools and building an ecosystem around your product is crucial to retain your customers. Why? It reduces friction for customers who rely on multiple tools, as they can seamlessly work together. An integrated ecosystem increases customer satisfaction and loyalty by offering a comprehensive solution to their needs.

For example, the Snap-Ins feature of DevRev empowers users to seamlessly integrate their preferred apps and tools, unlocking powerful capabilities through their combined functionality. This not only enhances user convenience but also significantly boosts productivity, making it an invaluable asset for businesses looking to streamline their operations and provide top-notch customer support.

9. Improve your user onboarding

Studies show that complicated onboarding processes for SaaS platforms can make 74% of potential customers switch to other solutions. So, having a frictionless user onboarding process is a non-negotiable to increase customer retention and decrease churn.

The onboarding process should communicate your solution’s benefits to the customers and give the tools they need to succeed. To make your onboarding process solid, ensure you have personalized workflows that comprises well-timed email triggers, follow-up messaging, access to knowledge base and other self-service resources, and collecting frequent feedback to better optimize the onboarding process.

10. Use gamification to hook customers

Gamification is applying game mechanics to customer service to increase customer engagement, and ultimately, customer retention.

Implementing B2B gamification methods, like virtual rewards that can be redeemed for real-world rewards, progress bars, leaderboards, and quizzes, can help you boost customer experience. However, make sure you implement any gamification strategy after understanding customer expectations, especially when it comes to your product and industry to make gamification relevant and valuable to them.

11. Apologize sincerely when things go wrong

Like everything else in life, sometimes things won’t go as per plan in your business. Things could go awry sometimes, like a faulty update, erroneous billing, or unplanned downtime.

When such problems pop up, tender a sincere apology to your customers. Your apology should include taking ownership of the problem, explanation for why it happened, and the solution. This reassures your customers that you’re putting their interests first, and can convince them to stick with you.

12. Use AI-powered support software

Customer service and support come with multiple functionalities and tasks, and it’s only common sense to use tools to automate these. But using multiple tools come with unintended consequences like data fragmentation and manual handling of customer queries, which limits your ability to scale as an organization.

The solution? Using an AI-powered support platform like DevRev. Its native AI capabilities help you reduce manual efforts in resolving repetitive questions and unify customer and product experience to avoid data fragmentation. As a result, you’ll deliver enhanced customer support and boost your customer retention rate.

Read how Spotnana improved their customer experience using DevRev.

4 key metrics you should track with CRR

While customer retention rate (CRR) is an important metric for assessing the health of your business, it’s important to recognize other key metrics that complement CRR and provide a more holistic view of your business’s performance.

Here are 4 other metrics you need to track alongside CRR:

• Customer churn rate: The churn rate is the flip side of CRR. It measures the percentage of customers who discontinue their subscription during a specific time period. A low customer churn rate is a positive sign, while a high churn rate can be a red flag, indicating issues that need attention.
• Net Promoter Score (NPS): NPS measures customer loyalty and satisfaction by asking a simple question: “On a scale of 0-10, how likely are you to recommend our product to a friend or colleague?” Users are categorized as promoters, passives, or detractors. A high NPS indicates satisfied customers who are likely to refer your product or solution to others.
• Customer Lifetime Value (CLV): CLV quantifies the total revenue a customer is expected to generate during their entire relationship with your business. This metric helps you understand the long-term value of a customer and can guide decisions regarding customer acquisition and retention efforts.
• Customer Satisfaction (CSAT): CSAT measures customer satisfaction by asking them to rate their level of satisfaction with your product or service. It’s typically measured with a single question and provides a quick snapshot of customer sentiment.

Embark on your journey to boost customer retention

The number of customers who remain with your business long-term is more impactful than the number gained over time.

A high CRR shouldn’t be your short-term goal. Instead, it should be your long-term commitment. It is the result of constant efforts in understanding, managing, and meeting your customer expectations.

To excel in retaining customers, you should incentivize loyal customers, improve your offerings, seek customer feedback, and adopt an AI-native support platform to provide seamless customer support.

All these efforts combined empower you to deliver superior customer experience, fostering a positive brand reputation and serving as a powerful competitive advantage. Once your customers start choosing your brand over others, a high customer retention rate is just a piece of cake.