Customer retention refers to the ability of a company to retain customers. Customer retention is impacted by how many new customers are acquired and how many existing customers churn — by cancelling their subscription, not returning to buy, or closing a contract.

What is customer retention management?

Customer retention management is maintaining relationships with current customers to delight them long after purchasing your product or service. In doing so, you encourage these customers to remain loyal to your business.

Who manages customer retention?

Customer retention is typically managed by customer success. The role of this team is to work with and delight your customers throughout their relationship with your company (no matter how long or short this time frame might be).

Customer success teams should work directly with your customers to improve and maintain retention rates and work with other teams within your organization to do so as well.

For example, customer success should help teams like sales or customer service and support — roles that have the potential to directly impact retention — organize, manage, and improve all aspects of the customer experience. This way, your entire business works together towards consistently improving customer retention.

 

CUSTOMER RETENTION FORMULA

Customer retention rate is calculated using the following formula: [(# Customers at End of Period — # Customers Acquired During Period) / # Customers at Start of Period] x 100

"For example: Imagine you start the year with 20 customers, gain five new customers in the first quarter, and have one customer churn.

[ (24 - 5) / 20 ) ] x 100 = 95% retention

Here's another example: You have 44 customers, you gain 12 new customers, and 13 customers churn:

[ ( 43 - 12 ) / 44 )] x 100 = 70% retention

Once you know your rate, consider doing an audit of your churned customers to determine similarities in reasons for leaving or types of customers that leave. You might find customers with a certain budget or company size likelier to churn than others.

Why is customer retention important?

Customer retention measures how successful a company is at acquiring new customers and how successful they are at satisfying existing customers. It also increases ROI, boosts loyalty, and brings in new customers.

Retaining customers is also easier and more cost-effective than acquiring new ones. Returning customers spend more and buy more often and refer friends and family. Only a 5% increase in customer retention can increase company revenue by 25-95%.

The numbers don't lie: Retaining customers brings companies a ton of ROI.