How to Accurately Calculate Your Customer or Member Retention Rate

INTRODUCTIONYour customer retention rate is one of the best ways to measure how successfully your company or organization is at maintaining customer relationships. You need to know which types of customer you are keeping, and at which point in the relationships other customers or members might leave, so that you can identify problematic issues and make necessary adjustments.

INTRODUCTIONThere are a lot of things that businesses and membership organizations can do to improve customer or member retention.A few examples are: • Creating personal outreach programs• Boosting customer engagement • Increasing the value of your organization’s private

community

Just How Important Is Customer or Member Retention?

HOW TO ACCURATELY CALCULATE YOUR CUSTOMER OR MEMBER RETENTION RATE

FACT #1) EXISTING CUSTOMERS COST LESS THAN NEW ONES According to a recent study by social media marketing software provider, Flowtown, this is even more impactful than we expected. The study found that maintaining existing customers costs six to seven times less than acquiring new customers.

FACT #2) INCREASED CUSTOMER RETENTION RATES INCREASE PROFITSIncreasing your customer or member retention rates also helps increase your profit. A study done by Bain and Company reports that increasing customer retention rates by just five percent led to an increase in profits between 25 and 95 percent.With statistics like these, you shouldn’t wait any longer to get a clear picture of where your organization stands on its customer or member retention rate.

Five Steps to Calculating Your Customer or Member Retention Rates:

((CE-CN)/CS)) x 100

HOW TO ACCURATELY CALCULATE YOUR CUSTOMER OR MEMBER RETENTION RATE

STEP #1:The first thing you need to do to calculate your retention rate is identify the specific period of time you’re focusing on.Perhaps you’re looking at the last year, or the last six months, or maybe you’re interested in quarterly or monthly retention rates. Regardless, the formula is the same—it’s just your figures that will vary.

STEP #2:Next, you need to know how many customers you had at the end of that period of time.If you’re calculating a current retention rate at the end of the period during which you’d like to measure, this might be as easy as determining how many customers you currently have. This number is represented by CE in our formula.

STEP #3:You also need to know how many new customers were acquired during your period of interest so that you don’t include them as retained customers in your final calculation. This number is represented by CN in our formula.Now you’re ready to do your first calculation: subtract your CN number (new customers acquired during the period) from your CE number (number of customers at the end of the period).

STEP #4:The final number you need to know is how many customers you had at the start of your period of interest. This number is CS in the formula.For your next calculation, you will take the solution to Step 3 (CE-CN) and divide it by how many customers you had at the start of your period (CS). This covers the first part of the equation: ((CE-CN)/CS).

STEP #5: Finally, you want to turn that number into a percentage by multiplying it by 100. Your final number is your customer retention rate for your period of interest.

Customer Retention Rate Example

HOW TO ACCURATELY CALCULATE YOUR CUSTOMER OR MEMBER RETENTION RATE

EXAMPLE Your company or membership organization started the year with 500 customers. Over the course of a year, you gained another 50 customers and lost 20.CE = 530, CN = 50, CS = 500((530-50)/500) x 100 = 96%Your company’s customer retention rate is 96%.

What is a Good Customer or Member Retention Rate?

HOW TO ACCURATELY CALCULATE YOUR CUSTOMER OR MEMBER RETENTION RATE

CUSTOMER RETENTION RATEWhile the percentage you’re striving for will depend on the goals and financial models of your company or membership organization, the higher the number, the better.In a perfect world, all of our retention rates would be 100%, but history tells that isn’t likely to happen due to forces both within and outside your control. Still, for most industries, shooting for above 90% is a great goal.

Customer Retention Rate Takeaway

How to Accurately Calculate Your Customer or Member Retention Rate

TAKEAWAYMaintaining customer relationships is a tried and true method for increasing customer satisfaction and loyalty. Private online customer or member communities help to maintain strong relationships with your current customers or members.Your private online community can also give you insight into which customers or members are at risk of ending their relationship with your organization so you can take steps to earn back their trust, attention, and business.