Customer Retention

Customer retention is the opposite side of churn. A business with high retention keeps most of its customers from one period to the next.

The retention rate is often calculated as the number of customers at the end of a period, minus new customers gained, divided by the number at the start. For example, if a company starts the year with 1,000 customers, gains 300 new ones and ends with 1,100, it retained 800 of its original customers, a retention rate of 80%.

Retention matters because keeping a customer is usually much cheaper than finding a new one. Loyal customers also tend to buy more over time, recommend the business to others and be less sensitive to price. Small improvements in retention can significantly increase profits and customer lifetime value.

Common retention strategies include providing excellent service, rewarding loyalty, personalising offers, staying in regular contact, resolving complaints quickly and continually improving the product. Businesses track retention closely and investigate when it falls, since declining retention can signal problems with quality, value or competition.