Where do you spend more of your time — discussing how to get more customers or members — or how to keep the customers or members that you have?
According to Google over the past decade, we, as a society, clearly spend more of our time looking for ways to grow our organizations than we do trying to keep our current customers or members.
With all of the time, resources, and money you put into acquiring your customers or members, it is important to know that your efforts aren’t wasted when customers don’t stick around.
Understanding your customer retention rate is one of the best ways to measure how successfully your company or organization is maintaining customer relationships. On a more granular level, you need to know which types of customer you are keeping and at which point in the relationships customer or members might leave, so that you can identify problematic issues and make necessary adjustments.
There are a lot of things that businesses and membership organizations can do to improve customer or member retention, from personal outreach programs to boosting engagement and the value your customers/members are receiving using your organization’s private online community.
Before we get into strategies and tactics, you must start with the basics of customer retention and how to effectively measure it.
Just How Important IS Customer or Member Retention?
It’s a common assumption in the marketing world that it costs more money to get new customers than to keep the ones you currently have.
According to a recent study by social media marketing software provider, Flowtown, that’s even more evident than we’ve always suspected. The study found that maintaining existing customers costs six to seven times less than acquiring new customers.
Not to mention, the best thing about current customers is their likelihood of becoming repeat buyers or expanding their financial relationship with your organization. You’ve already done the work of gaining their trust and studies have shown customers are much more likely to buy from companies with which they have an existing relationship.
Increasing your customer or member retention rates also helps increase your profit. This study by Bain and Company reports that increasing your 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. In fact, we’ve broken down the formula for calculating your customer retention rate into five easy to understand steps, so you can become proactive with your retention strategy right now.
Five Steps to Calculating Your Customer or Member Retention Rates
Though there are more complicated formulas out there, we’re keeping it simple with a proven classic: ((CE-CN)/CS)) x 100. Don’t worry—it’s not as confusing as it looks.
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, maybe you’d rather just examine 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.
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, it might be as easy as determining how many customers you currently have. This number is represented by CE in our formula.
You also need to know how many new customers were acquired during you period of interest, so that you don’t include them as retained customers in your final retention measurement. 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).
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)
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.
See? That wasn’t so bad, was it? Now, to illustrate things even further, let look at an example. Remember, our formula is ((CE-CN)/CS) x 100.
Download our free pocket guide to customer community ROI to learn how to measure the effectiveness of your community.
Customer 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?
While the percentage you’re striving for will depend on the goals and financial models of your company or membership organization, obviously 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 or Member Retention Rate Takeaway
They say knowledge is power—and knowing your customer or member retention rate is no exception. Once you are aware of your percentage, you can start making plans to improve it.
Maintaining 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 company or organization so you can take steps to earn back their trust, attention, and business.
If you would like to learn more about member retention for associations and membership organizations, Socious is co-leading a session at the ASAE Great Ideas Conference on the role that active online communities play in increasing member retention on March 10, 2014.