Customer Retention

Why Customer Retention Rate is Important?

An effective customer retention strategy plays a crucial role in improving conversion rates. Learn why customer retention is so important for your business

A new customer lands on an ad and purchases from a brand. The brand, in turn, keeps communicating with the customer by sending relevant offers, and discounts to bring them back to their store. At every step, the brand ensures that the customer is happy each time they complete a purchase.


Happy Customers = Higher Customer Retention Rates

The more happy your customers are, the greater the revenue you will generate. In fact, the cost of losing one customer is equivalent to 7x the resources used to convert them. Hence, having an effective customer retention strategy in place plays a crucial role in delivering exceptional experiences, improving conversion rates, and keeping customers happy.

What is Customer Retention Rate?

Customer retention can be defined as the brand's ability to get customers to come back to their digital or retail store. Retention rate is a percentage metric that measures the sum of customers retained by the end of a specific time period. Many factors can directly affect retention rates such as subscription cancellations or closing a contract.

The question in the essence of retention is “ Did a user perform the desired action, leave, and then return back to perform another action?” If the answer is yes, then the customer has been retained. If the answer is no, the customer is churned.

Here’s a helpful churn analysis template that you can use to determine what is affecting your retention.

How do you Calculate Customer Retention Rate?

A brand’s success is greatly defined by not only the ability to acquire new customers but also the ability to satisfy existing customers. It promotes customer loyalty and increases ROI. In order to proceed forward with your customer retention strategy, you need to first understand your current customer retention rate. To calculate the rate at a given period the formula will be:

Customers at the end of the period – customers acquired during the period/customers at the start of the period x 100

For instance, let's say in a given quarter, you have 44 customers, you gain 20 customers and 13 customers churn. Your rate would be -

51- 20 / 44 x 100 = 70%

Once you have established the rate, consider assessing your churned customers to determine the reasons why they left or if there are similar reasons for churned customers.

What is a Good Customer Retention Rate?

A good customer retention rate depends on each industry. What may be a good rate for a software service provider may not be the case for an accounting firm. For instance, if you are a retail store you may not have repeat purchases when compared to the media industry.

For most industries, a good CRR is below 20%. However, for the media and finance industries the CRR is about 25%. E-commerce and SaaS brands have a higher rate - at around 35%.

What are Some Customer Retention Examples?

Retention is the key to improving a brand’s profitability. There may be several reasons why a brand may lose customers, but more often than not, it is mostly because there is not a concrete retention strategy in place. Here are some key areas brands need to focus on to level up their profitability game:

The Convenient Mantra

Shoppers love convenience. In fact, 97% of consumers have abandoned a purchase because the service wasn’t convenient enough, showing that e-commerce needs to compete on more than price. Consumers' choices on where, how, and why they shop have completely redefined modern retail. A great example of this is Starbucks. This coffee goliath focused on the smell and sounds of its coffee shop to provide an exceptional customer experience. But as the shopping needs of modern consumers have changed, they adopted an innovative customer retention strategy to order and pay on the go from the Starbucks app. This way customers can place an order and pay, receive an alert when it's ready and pick it up from their nearest store.

The Personalization Mantra

Personalization is the smart way of doing business. Whether you are shopping at Ikea or browsing on Amazon, personalization is the key to conversion. In fact, a report found that companies that excel at personalization generate 40 percent more revenue from those activities than average players. By leveraging the power of personalization, brands can cater to their customer's needs based on their purchase behavior, search intent, demographics, and more

A classic example of this is Amazon. Amazon personalized interactions with customers based on browsing history, purchase intent, and more to deliver exceptional experiences. In addition, they use recommendation engines to send dynamic recommendations that not only enhance the shopping experience but also help them increase their average order value.

The Loyalty Mantra

Customer retention and customer loyalty are interconnected. In order to power retention, one must take into account how often shoppers are coming back to your store. A loyalty program is a great way to get repeat purchases by giving customers a reason to come back. Flipkart rewards its customers with “super coins” on every purchase. However, they can only have Flipkart plus (loyalty program) that offers free delivery, exclusive offers, and more if the customer collects a certain number of coins and purchases “Flipkart plus” with it.

The Connected Mantra

A brand must stay connected with its customers by leveraging different channels of communication. A strong email marketing game poses a great advantage to incentivize repeat purchases among existing customers. The key to good communication is to offer some genuine value that loyal customers expect and at an expected frequency. In addition, brands are seen to leverage WhatsApp marketing to drive one on one conversations with customers. You can send WhatsApp promotional messages by leveraging data and sending notifications based on your customer's last interactions.

How do you Improve Customer Retention Rate?

The goal of any brand is to maintain a consistent customer base and increase loyalty by delivering better services every time a customer purchases a product. Here are some ways that you can use to maintain a consistent retention rate:

#1. Customer Experience

68% of customers stop shopping with a brand because of poor treatment and poor customer relationships. Customer experience is an integral part of improving customer retention rates. In order to gain repeat purchases, it is important to collect feedback from shoppers, analyze the data and take necessary measures to address the issue. In addition, brands must ensure that the customer has what they need to use your products such as how-to videos, and guides. In fact, 70% of customers expect a company’s website to include self-service options such as support content, walkthrough videos, case studies, etc.

You can also leverage AI to deliver an exceptional customer experience. Deploying chatbots allows your brand to interact with customers, collect data and use analytics to ensure a seamless experience.

#2. Follow up on Existing Customers

Staying in touch and keeping your customers updated is the key to retention. When you send a personalized message to your existing customers, they feel more connected to the brand. This results in building great relationships and fostering happy customers.

It is much easier to get referrals from happy customers than to acquire new ones. A great way to do that is to offer some benefit in return for referrals. Google Pay offers a certain amount for every referral that signs up.

#3. Deliver more than Promised

Seventy-six percent of customers feel that companies should understand their needs and expectations. Modern consumers expect much more than high-quality products. In addition to quality products, consumers also expect personalized interactions across channels. Brands need to be proactive to meet their customer's expectations. Hence, the best way to get ahead is to leverage data to deliver exceptional experiences. Collect consumer behavior data, demographics, browse and purchase history, and more that can be used to personalize the shopper's experience.

However, keep in mind that if you can't deliver, don't over-promise. If you can't deliver what you have promised, customers may lose their trust in your brand.


It is also wise to nurture your existing customers rather than spend 5x to acquire new customers. In order to increase your customer retention rates, it is crucial to building long-lasting relationships. Any relationship takes time to build and one of the best ways to do it is to engage and interact at every point in the customer’s journey. Are you ready to build exceptional relationships with customers? Book your demo with Vizury today.

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