Customer retention metrics sometimes go unnoticed, but they are crucial metrics that determine a company’s success. Businesses must track customer retention and identify trends to increase revenue.
How can you improve customer retention metrics?
Start by Identifying What’s Important to You
To keep your customers happy, you must understand what makes them tick. Tracking and improving customer retention metrics requires understanding what’s most important to your business and its customers.
Measures like this show how much value your business provides to its customers. But you decide how you define success in terms of customer retention.
You can set the goals you want to reach. Once you’ve set your goals, it’s helpful to identify the metrics that will be the most beneficial to measure progress and success, then follow those. Setting goals is a great way to start improving your customer retention metrics.
Common Customer Retention Metrics
There are many ways to measure customer retention, but some are more reliable and informative.
Customer Retention Rate
Customer retention rate measures the percentage of customers still loyal to your brand after a specified period. It’s a valuable metric that helps you understand how satisfied your customers are and their likelihood to stay with your company.
Customers who stick around longer provide value in two ways. Of course, you make more money the longer someone stays, but you also have more data to understand their wants and needs.
Customer churn is the percentage of customers who stop buying from your company in a given period. Tracking this metric helps you understand how well your company retains customers. Measuring carefully after every change you make can help you take better actions to improve it.
You can calculate customer churn by subtracting the number of new subscribers from the number of new subscribers who become paying customers. For example, if your website gets a lot of traffic every month and you know how many people convert.
Customer Lifetime Value
Customer Lifetime Value (CLV or sometimes LTV) is an essential metric for customer retention. It represents customers’ total revenue over their entire relationship with your company. It helps you determine what you can invest on average to obtain a new customer.
Existing Customer Growth Rate
The existing Customer Growth Rate is the percentage of your customers who have been with you for one year or more.
You can use this metric to determine if your product meets the needs of existing customers. It’s important because it shows you how many customers stay loyal to your brand and continue using your products and services.
Days Sales Outstanding
Days Sales Outstanding (DSO) is a metric often used in B2B that measures the average number of days it takes for a customer to pay an invoice.
The higher the DSO, the more likely it is your customers will default on payments and eventually churn. As a result of tracking this metric, you can determine whether you should extend credit or provide discounts to keep your customers from going.
Net Promoter Score (NPS)
Net Promoter Score (NPS) is one of the most common metrics to track customer retention. It measures the percentage of customers who give a company a 9 or 10 on a scale from 0 to 10 when asked, “would you recommend us?”
You can use NPS as a stand-alone metric or combine it with other metrics like Customer Effort Score (CES). The CES asks customers how hard it was to get help from your company and then calculates their score based on those results.
Loyal Customer Rate
The Loyal Customer Rate is a measurement of the percentage of customers who have remained loyal over some time.
You can use it to compare your retention rate to other companies and track your progress. It helps you understand what your customers want and how they feel about your business.
Tips for Improving Customer Retention
Knowing where you stand in terms of retaining customers and how to improve this metric is crucial for growing your business. Here are some tips that can help.
Build Strong Relationships With Your Customers
Establishing a connection with your customers and making them feel valued is crucial. Happy customers make repeat business easier.
Personalized services, such as sending a handwritten note when a customer makes a purchase or offering referral discounts, are ways to build loyalty.
Go Above Expectations
Customers are more prone to stay with a company if they have a positive experience. It means going above and beyond what is expected—for example, offering extra perks like free shipping or free returns if someone buys from your store.
Use Data To Spot Your Weaknesses
Data is everywhere and is an effective way to spot your company’s weaknesses because it shows you exactly where your customers are coming from and where they’re going. It also helps you understand why some customers leave so that you can fix the problems that make them unhappy.
Also, it helps you identify if a sales channel is underperforming. Is customer service slow to respond? Do you see a lot of churn in your top-tier customers?
These are signs that something is off with how you engage with your customers. Once you know what’s working and what isn’t, you can adjust.
Reward Loyalty to Your Business
Reward customers for good behavior and repeat business. You will encourage them to keep returning and give you the repeat business you need.
Loyalty can be increased by offering discounts or special deals to customers who have been with you for a while or are ordering in bulk. It can also be created through personalized customer contact.
Good Customer Retention Comes Back to the Data
Customer retention is more than how many customers you have—it’s about how long they stay with your company and how much they spend there. Ensure that every customer interaction leads to a purchase or other mutually beneficial action.
Data is extremely powerful for improving customer retention by providing the right products and services to the right people at the right time.
Data can help you do this by helping you understand what works best for each type of customer and what doesn’t work at all. You’ll find out where specific strategies are paying off and where others are falling short, allowing you to make changes.
Improving customer retention means more sales with less hard work to attract new customers to replace those who churn. Yet, this is only possible if you leverage your data to improve your customer retention metrics.
Founder’s CPA can help you identify specific actions to improve customer retention and grow your business faster. Contact the startup experts at Founder’s to get started today.