It takes 7 times more cost and effort to acquire a new customer than to retain one. A single customer that is lost is not a one-time revenue churn, but a month-on-month future revenue that’s lost. Hence customer retention should be a top priority activity that needs to be practiced in all organizations. Especially for subscription business, where they form a major part of the Monthly Recurring Revenue, which is the foundation of the business. So, aim for a long-term relationship with each of your customers.
The reasons for most customer attrition is often simple. If the right company vitals are continuously monitored, these can be identified early on and corrected to retain customers.
How to calculate Customer Retention Rate?
To calculate the Customer retention rate for this month:
Suppose at the beginning of this month, you had 100 customers, and you acquired 10 new customers.
The number of customers at the end of the month after cancellation is 105.
Then the customer retention rate is [(105 – 10) / 100] x100,
i.e the customer retention rate is 95% for that month.
A retention rate of 100% is the most ideal situation. But that is not always the case. The type of business you are running determines your ideal retention rate. Though some factors we do not have much control over, to a large extend the retention rate can be regulated with good service and providing the customer the value they first took your service for.
Since start-ups and SMB, are focusing mainly on acquiring new customers and growing the business. They tend to focus less on giving attention to customer experience and retention activities. This later turns out to be the reason for customer churn. Hence, a decreasing trend in the retention rate needs thorough investigation and corrective measures to be taken early on.
Always remember, the effort and cost in acquiring a new customer is way more than in retaining a customer! Hence focus on customer retention.