In this post, We’ll explore a Business metric called “Customer Retention Rate”
What is it?
It is a metric that helps an organization monitor the % of customers retained.
Let me give you an example:
|Year||Number of Customers||Retention Rate|
Do you notice the third column that keeps a tab on the percentages of customer retained? This is the basic Idea behind customer retention rate.
How is it used?
This metric correlates with other key business performance measures like: customer service, product quality, customer loyalty. Think about it. If the customer retention rate is higher than the organization must be doing “something” right – that something could be: great loyalty program, great customer service or great product quality! If it’s low then it requires some action from decision makers – they would want to know the reasons so that they could fix the situation.
In earlier post, we talked about Customer Lifetime Value – now higher customer retention rate would also help us have a higher customer lifetime value.
Also it’s important to realize that the cost of acquiring a new customer is typically higher than keeping existing customer – and so organization that sells products/service like to measure the customer retention rate.
Also, if you customer data then you can drill down to find trends in the retention rate. Questions like: Which Age group has the highest retention rate? or which has lower? Retention rate for male customers? And also predicting customer retention rate of a new customer?
In this post, we learned about a business metric “customer retention rate”.
And as a reminder, This series is meant to understand Business Metrics from Analytics Perspective.