It is crucial to measure the success of your retention strategies. Let's look at the key 8 customer retention metrics that you should not ignore.
Customer retention is taking center stage for businesses in 2022. Many business owners have started identifying the best ways to retain their customers. However, only a few know how to measure the effectiveness of their methods.
In order to know how well your business is doing, you should be tracking your customer retention metrics and key performance indicators (KPIs). These metrics track how successful your business is at retaining existing customers to make business decisions for your customer success strategy.
In this blog, we'll be discussing how to estimate customer retention, what other metrics you should be evaluating, and how you can use these insights to maximize your customer retention rate.
Let's look at the 8 key customer retention metrics that you should be tracking.
1. Customer Churn Rate (CCR)
This metric should be on the top of your list because it gives you insights into the number of customers you lost. Simply put, it is the percentage of customers that stopped coming to your store over a period. Their last purchase was months ago. For every business owner, winning back lost customers is easier than acquiring new ones.
The CCR should be low for your business to succeed and grow with repeat customers. You should focus on why your business is losing customers and work towards improving your retention strategies.
It is advisable to check your CCR at least once every month.
Monthly churn rate= (Customers you had at the start of the month- customers you have at the end of the month/customers at the beginning of the month) x100
- To reduce the churn rate, you need to encourage more customers to visit your store. You can start with a robust loyalty program, educate them about the same, and have enticing rewards that encourage participation and repeat visits.
- Apart from this, you will need to win back the customers who stopped coming to you. Re-activate them with a campaign or a personalized message that will make them want to come back.
- Focus on creating better in-store experiences to improve customer satisfaction.
2. Average Order Value (AOV)
This metric will tell you how much the repeat customer spends at your store every time they visit. In other words, it tells you the value of every customer for your business.
If your existing customers spend more money each time they visit your store, you can reduce your acquisition spend. As a result, you can focus your efforts and money on retaining loyal customers to grow your business.
The average order value for your business = Total revenue / total number of orders
You will need to select the date range as per the period for which you are calculating the average order value.
For instance, if you are calculating for a month, you need to check the total revenue you managed to gain in a month.
The average order value is a must-check metric for every business. It lets you know where you should focus your efforts and helps you channel your growth better. You can use the following strategies to increase the average order value for your business:
- Cross-selling: Cross-selling is a great way to increase the average order value. You can check their purchase history and recommend products that they can try.
- Product Combos: If you offer your customers an attractive combo, they are sure to pick it up even if it is at a higher price.
- Loyalty Program: If you let your customers know that they can earn points every time they visit your store, they will spend more. The order value will also increase if your customers find your rewards exciting. Do you want to create a loyalty program to boost repeat sales and improve customer engagement? Your search ends here.
3. Purchase Frequency (PF)
For any business owner, the frequency of visits and purchases matters a lot. This metric evaluates how often a customer makes purchases at your store. If the frequency is high, it adds up to your revenue. The higher the frequency, the more profits your store gains.
Purchase Frequency = Total Number of orders for the selected time/total number of unique customers for the time chosen.
Be sure to add unique customers to the calculation so that you get the absolute value for your business.
You can improve your purchase frequency by encouraging your customers to keep coming back to your store by sending personalized and relevant campaigns to engage with them.
Customers who are fond of your business would love to hear from you. An intelligent customer engagement strategy can significantly improve your relationship with your customers, thereby improving retention and purchase frequency.
4. Repeat Purchase Rate (RPR)
This metric estimates the percentage value of all the customers who made a repeat purchase at your store. If your RPR is high, it means more people are visiting your store, and your retention strategy is working for your business.
RPR = Total Number of customers that made a repeat purchase in the selected period / total number of customers during the period chosen.
You need to come up with creative new strategies to improve your repeat purchase rate. For example, a fun and engaging loyalty program can be a good start.
You can also increase the rate with new additions to your business like a new product, online order convenience, etc.
5. Time between purchases
What is the average time taken by your customer to revisit your store? This critical metric helps you understand your retention abilities and whether your strategies are working or not.
The time between purchases = The selected period (either a year or a month) / purchase frequency. *This metric is dependent on purchase frequency for your store.
It would help if you calculated it yearly to understand the impact of this metric on your retention rate.
You can reduce the time between purchases by offering your customers incentives to keep them coming back to you. The idea is to offer a deal or engage with them in ways that will improve their experiences and boost brand loyalty.
6. Redemption Rate (RR)
This loyalty performance metric is equally crucial in measuring the success of your retention strategies. It helps you to understand the effectiveness of your loyalty program. If your RR is high, it means your loyalty program is adding value towards making your business profitable.
Redemption Rate = Total Number of points redeemed / total number of points issued.
This rate should be high if you want to maximize ROI through loyalty. If your business has a low RR, you should focus on improving the following:
- Spread the word about your loyalty program
- Encourage your customers to redeem their loyalty points
- Create more relevant and exciting rewards
7. Customer Lifetime Value (CLV)
This key metric helps you evaluate the amount you can possibly spend on acquiring a new customer. If your customer lifetime value is high, it means your retention strategies are working. As a result, you can reduce the cost of acquiring. Your most loyal and satisfied customers would help you get more customers on board through word-of-mouth.
Customer Lifetime Value = Customer value * store’s average lifespan. *Customer value = average order value * purchase frequency Store average lifespan= 1 to 3 years. **You can also calculate the customer value for the specific segment.
8. Loyal Customer Rate (LCR)
The loyal customer rate helps you understand which of your existing customers are the most loyal ones. In addition, it helps you to differentiate between repeat, new and inactive customers.
This rate helps you determine if you need to refine your strategy to improve loyalty for your business. Because in the end, the only question that remains is- Were you able to retain more customers and create a loyal base for your business?
Try the formula below to find out!
LCR = Number of customers who purchased 4+ times in 365 days/ number of unique customers for your business in 365 days.
Once you start tracking these customer retention metrics, you will be able to judge how well your retention strategies are working for the business.
These metrics provide a comprehensive understanding of your business retention abilities and improve the ROI for your business. But keeping a track of all these metrics, and calculating them on a daily, monthly, or yearly basis can be time-consuming, right?
Don’t worry, Reelo helps you automatically calculate the metrics given above, and lets you send cool branded marketing campaigns that sell. Try Reelo for free today Forever free plan available!
Related blog: Do you think your customer retention strategies are working out, or are you just shooting in the dark?
It is time to find out!