10 Customer Retention Metrics & How to Measure Them

If you had 100 customers at the start, 90 customers at the end, and 5 new customers, your retention rate would be 85%. This 85% could be your ... 10CustomerRetentionMetrics&HowtoMeasureThem Startusingourinteractiveservicemetricscalculatortoday. DownloadforFree OrenSmith Published: January19,2022 What’sthekeyingredientforgrowingyourB2Bbusinesswithoutneedingtoacquirenewcustomers?Customerretention.Afterall,themorerevenueyougeneratefromyourexistingcustomers,thelesspressureyouputonyourcustomeracquisitionefforts.Inotherwords,you’llbelesspressuredtoacquirenewcustomersifyourexistingonescontinuetobuy. Thechallenge?Withoutcustomerretentiondata,youwon’tknowifyou’redoingagoodjobretainingcustomers,youwon’tknowifyou’relosingtoomanyhigh-valueaccounts,etc.Ifyoudon’thavethisinformationandyoudon’tknowhowtogetit,youwon’tbeabletomakethebusinessdecisionsyouneedtoforyourcustomersuccessstrategy. Readontolearnhowtomeasurecustomerretention,whichmetricstotrack,howtocalculatethem,andwhythey'reimportant. HowtoMeasureCustomerRetention Determinewhatsuccessmeanstoyou. Identifythecustomerretentionmetricsthatcanhelpyouinformyourgoals. Getthedatayouneedtocalculateyourmetrics. Determineyourbenchmark. SetaSMARTgoal. Monitorthedataatanongoingcadence. Adjustasnecessary. 1.Determinewhatsuccessmeanstoyou. Firstthingsfirst,youneedtofigureoutwhatsuccessmeanstoyourbusiness.Thiswillvarydependingonyourscale,industry,orpreviousperformanceinthemarket. So,inordertoimprovesomething,youneedtodeterminewhatneedstobeimproved,andhowtoimproveit.Someexamplesofquestionsyoushouldaskyourselfinclude: Arecustomerlifecyclestooshort? Aretoomanycustomerschurning? Isittakingtoolongforthemtopurchaseagain? Onceyou’veidentifiedyourproblem,you’llunderstandwhatsuccessmeanstoyou. AcustomerlifecycleforourbusinessshouldbeX. X%fewercustomersshouldchurn. WeshouldbeabletoupsellthemXtimessooner. Andifyouwereabletoachievethissuccess,whatwoulditmeantoyourbusiness?Thoseresultscouldgiveyou$Xmorerevenueannually. Ifyouknowwhatyourareasoffocusare,youcanmoreconcretelymeasurethethingsthatmatter. 2.Identifythecustomerretentionmetricsthatcanhelpyouinformyourgoals. Youknowwhatsuccessmeanstoyou,butyouneedtofigureouthowtogetthere.Takeastepbackandlookatthefactorsthataffectthatdefinitionofsuccess. Differentmetricsareusedfordifferentgoals,andmeasuringthewrongthingcouldtakethefocusofftherightthings.Clickheretojumptothefulllistofmetrics. Forthisstep,customerretentionisgoodfordetermininghowwellcustomerslikeyourbusiness,whilechurnrateismorespecificallytoseethecustomerslost. Byisolatingthefactorsyouneedtolookfor,you’remorelikelytocalculatepreciseresultsthanifyouusedtoomanyvariables. 3.Getthedatayouneedtocalculateyourmetrics. Uponidentifyingthemetricsnecessary,pullfromyourdatatheinformationthat’sneeded.Ifyou’reusingacustomerrelationshipmanagementsystemtotrackyourcustomersandtheirbuyerjourney,thenyoushouldbeabletoeasilyextractthenumbersfromrecordedhistory. Forexample,we’llusethecustomerretentionrateforthissection.Thisformulacallsforthenumberofcustomersyouhaveatdifferenttimes. Customersatthebeginningoftheperiod Customersacquiredduringtheperiod Customersattheendoftheperiod Pullonlythedatarelatingtoyournumberofcustomersfromthosetimeperiodsandinputthemintothecorrelatingformula. 4.Determineyourbenchmark. Abenchmarkisastandardorpointofreferenceagainstwhichthingscanbemeasured.It’simportanttoknowyourbenchmarkbecauseitcantellyouwhereyouareincomparisontoyourpreviousdata,andseeifyou’reimprovingorfallingbehind. Forexample,we’llreferencebacktothecustomerretentionrateexampleforsettingabenchmark. CustomerRetentionRate=(CustomersattheEndofthePeriod)-(NewCustomersAcquired)/CustomersattheStartofthePeriod Ifyouhad100customersatthestart,90customersattheend,and5newcustomers,yourretentionratewouldbe85%.This85%couldbeyournewbenchmark. Nowaskyourselftwoquestions: Areweimprovingbasedontheoriginalbenchmark? Isourperformancegoodorbadvs.therestoftheindustry? Useyouroriginalbenchmarktosetrealisticgoalsforthecomingperiodtoseehowyoumeasureagainstit. 5.SetaSMARTgoal. Withyourbenchmarkinmind,it’stimetosetyourSMARTgoal.Thisgivescriteriatoguideinthesettingofobjectivesinthingslikeprojectmanagement,employeeperformancemanagement,andpersonaldevelopment. TheacronymSMARTstandsfortheparametersneededtoassignyourgoal: Specific:Makeyourgoalspecificornarrow. Measurable:Definehowyou’lltrackandproveitsprogress. Attainable:Makeyourgoalrealisticfortheperiod. Relevant:Alignyourgoalwithyourvaluesorpurpose. Time-based:Assignanenddatetoyourgoaltoprioritize. Remember,yourSMARTgoalisrelativetoyourbusiness,sodon’tovershootorexaggerateittocomparetoyourcompetitors. Sobacktothatcustomerretentionexample,youhaveabenchmarkof85%retainedcustomers.Basedonyourbusiness,youmaywanttomakeyournewSMARTgoal90%bytheendoftheyear,measuredmonthlyintheCRM,tocreateabusinessyourcustomerslovecomingbacktoandadvocatingfor. 6.Monitorthedataatanongoingcadence. Youwanttokeepupwiththemetricsyou'retrackingsothatyouunderstandwhatprogressyou'remakingtowardyourgoal.However,it'sunreasonabletowatchthedataeveryminuteofeveryday. Determinehowoftenyoupullthenumbersagain.Thiscouldcorrelatewithamonthlymeeting,quarterlyreport,oranothertimeframethatworksforyourbusiness. Youalsowantyourmetricstobeaccurate,socheckforanysurprisesinthenumbersandseewhatconclusionsyoucandrawuponastimeprogresses. 7.Adjustasnecessary. Whetheryoureachedyourgoalormissedthemark,youdon’tstopthere.Keepadjustingyourgoalsasyouscaleandgrowyourbusinesstoaccommodateanychangesyourbusinessexperiences,andkeepcustomerscomingbackto—orevenadvocatingfor—yourbusiness. Nowweknowhowtomeasurecustomerretention,butlet’sdialitbackanddefinewhatcustomermetricsareinthefirstplace. Whatarecustomerretentionmetrics? Customerretentionmetricsarefactors,orvariables,usedtomeasurethelikelihoodofretainingandattractingcustomerstoyourbusiness.Theseunitsofmeasurementareusedinvariousformulascreatedtodeterminetheperformanceofbusinessoperationsinagivenperiod. Whyarecustomerretentionmetricsimportant? Themorecustomersyouretain,themorerecurringrevenueyoucangenerateorthemoreupsellsandcross-sellsyoucansecurelater.Plus,acustomerwhostayswithyouishappywithyourproductsandservices,increasingthelikelihoodthatthey’llrefermorecustomerstoyou. Marketing,sales,customerservice,andevenproductmanagementteamscanallbenefitfromcustomerretentiondata.Thisinformationhelpseachteamfine-tunetheircontributiontothecustomerjourneyandcreatemoredelightfulexperiencesforyouruserbase. Whilethereareplentyofmetricsforyourbusinesscankeeptrackof,we'vecuratedalistofthemostimportantonesbelow.Let’stakealook. CustomerRetentionMetrics CustomerRetentionRate CustomerChurn RevenueChurn ExistingCustomerGrowthRate RepeatPurchaseRation ProductReturnRate DaysSalesOutstanding NetPromoterScore(NPS) TimeBetweenPurchases LoyalCustomerRate CustomerLifetimeValue Calculatingthisdatacanbetime-consuming.And,ifyou'relikeme,itcanbefrustratingtryingtocrunchnumbersonlytofindtheresultsdon'taddup.That'swhywe'vecreatedthecalculatorbelowtohelpyourteamgainaccurateinsights. FeaturedResource:CustomerRetentionMetricsCalculatorDownloadforFree HubSpot'sCustomerServiceMetricsCalculatorwasbuilttosaveyoutimeandcalculateyourbusiness'scustomerretentionmetricswithease.Allyouhavetodoisenterthenumbersforyourbusinessandinstantlyseeyourcustomerretentionrate,revenuechurn,customerlifetimevalue,andmore.Trackthesemetricsovertimetoseehowyourretentionisimproving. Nowlet’sgetdowntoit. 1.CustomerRetentionRate Measures:therateabusinesshasretainedcustomersoveraperiodoftime. Themoststraightforwardcustomerretentionformulais,well,theretentionrate.Youneedtounderstandhowmuchofyourcustomerpoolisbecomingloyalperperiodtoseeifyourcurrentstrategyisdrawingtheminatagoodenoughrate. HowtoCalculateCustomerRetention Ittakestimetoseehoweffectiveyourretentionstrategyisworking.Todothis,addupthenumberofcustomersyouhadatthebeginningofaperiod,thenallthecustomersthatonboardedinbetween,thenthenumberyouhadattheendoftheperiod. Subtractthenumberattheendfromthenewlyacquired,anddividethatsolutionbythenumberofcustomersyouhadinthebeginning. Ifyouhavearelativelysmallcustomerlist,semi-annualorannualtrackingwillsuffice. RetentionRateFormula CustomerRetentionRate=(CustomersattheEndofthePeriod)-(NewCustomersAcquired)/CustomersattheStartofthePeriod 2.CustomerChurn Measures:theratecustomersstopdoingbusinesswithyou. Perhapsthemoststraightforwardofcustomerretentionmetrics,yourcompany'scustomerchurnratereferstotherateatwhichcustomersstopdoingbusinesswithyou.Whetherthecustomerhasendedoroptedoutofrenewingasubscription,achurnedcustomerisacustomerthatyourbusinessdidn’tretain. Withthatsaid,attritioninyourcustomerbaseisnaturaltoacertaindegree.Forexample,acustomermayhavegonethroughamajorchange.Maybetheirbusinesswasacquiredortheywentbankrupt.Maybetheynolongerneedyourproductorservice. But,ifyourannualchurnrateisgreaterthan5-7%,it'stimetoevaluatethehappinessofyourcustomers—andfindoutwhytheremaybeaproblem.Ahighchurnrateistypicallyindicativeofyourproductorservicefailingtomeetyourcustomers'expectationsorgoals. HowtoCalculateCustomerChurn Howfrequentlyyoucalculateandexamineyourcompany'schurnratewilldependonthevolumeofbusinessyourcompanyconducts.Forexample,ifyouhavehundredsorthousandsofcustomers,itmaybeprudentforyourmarketing,sales,orcustomersuccessteamtotrackchurnmonthly. Ifyouhavearelativelysmallcustomerlist,asemi-annualorannualtrackingwillsuffice.Notethatnewcustomersyouonboardinwhatevertimeperiodyouchooseshouldnotbefactoredintothechurnrate. ChurnRateFormula AnnualChurnRate=(NumberofCustomersatStartofYear-NumberofCustomersatEndofYear)/NumberofCustomersatStartofYear ExampleofCustomerChurn Tocalculatechurnrate,wecanusetheexamplemetricsbelow. Let'ssayourcompanystartedSeptemberwith10Kcustomers.Attheendofthemonth,wefoundthat500leftourbusiness.Thiswouldmeanourchurnrateisfivepercent((10,000customers-9,500customers)/10,000customer=5%). Now,let'ssaywegained275customersduringSeptemberandlost500moreduringOctober.OurchurnrateforOctoberwouldthenbe5.11%((9,775customers-9,225customers)/9,755customers=5.11%). Retentionrateissometimesconfusedwithchurnrate.However,thesetwometricsaredistinctlydifferent. ChurnRatevs.RetentionRate Retentionrateistheratioofcustomersthatreturntodobusinessatyourcompany.Thisdiffersfromchurnratebecausechurnratereferstothenumberofcustomersyou'velostoveratime.Acompanywithahighchurnratewould,bydefault,havealowerretentionrate. 2.RevenueChurnRate Measures:theraterevenueislostfromexistingcustomers. Yourrevenuechurnrateisthepercentageofrevenueyou'velostfromexistingcustomersinagivenperiod.Forexample,revenuechurncanresultfromanordercancellation,aplandowngrade,oranendtoabusinessrelationship.ParticularlyforSaaS(SoftwareasaService)companies,revenuechurnrateisacriticalindicatorofcustomersatisfaction. Whileoverallrevenuechurnrateprovidesabird'seyeviewofcustomerhealth,itmustbetrackedonanindividualbasis.Yourcustomersuccessteam'sprimaryobjectiveistoproactivelyensurecustomersaren'thavingproblemsusingyourproductorservice,letaloneapproachingthepointwheretheydowngradetheirsubscription. Ifrevenuechurndoesoccur,it'spossiblethatyourcustomermaybeonthebrinkofleaving—andyouroperationsorservicesteammustquicklytakeactiontopreventthisfromhappening. HowtoCalculateRevenueChurnRate Youshouldcalculaterevenuechurnrateinmonthlyintervals.Startwithsubtractingthemonthlyrecurringrevenue(MRR)attheendofthemonthfromtheMRRyouhadatthebeginningofthemonth. Then,subtractanyrevenueyouaccruedfromupsellingorcross-sellingtoexistingcustomers.Finally,dividethisnumberbytheMRRyouhadatthebeginningofthemonth. Youmay,infact,endupwithanegativepercentage,whichwouldmeanyourrevenuegainsfromexistingcustomersoutweighedanylosses.Butremember,revenuefromnewcustomersshouldnotbeincludedinthiscalculation. RevenueChurnRateFormula MonthlyRevenueChurnRate=[(MRRatStartofMonth-MRRatEndofMonth)-MRRinUpgradesduringMonth]/MRRatStartofMonth ExampleofRevenueChurnRate Todemonstraterevenuechurnrate,let'suseasimilarexampletotheoneweusedabove. Forthisexample,let'ssaythatourcompanybeganSeptemberwithanMRRof$50K.Inthatmonth,welost$5Ktochurnandgained$2.5Kfromupgrades.Forthismonth,ourrevenuechurnratewouldbefivepercent.([($50,000-$45,000)-$2,500]/$50,000=5%). ForOctober,sincewe'vegained$2.5Kinupgradesaswellas$10KinnewMRRourstartingMRRisgoingtobe$57,500.Ifwelose$7Ktochurnandgain$3Ktoupgrades,ourchurnratewouldbe6.95%([($57,500-$50,500)-$3,000]/$57,500=6.95%). 3.ExistingCustomerRevenueGrowthRate Measures:therateyourbusinessisgeneratingrevenuefromcustomersuccess. Existingcustomerrevenuegrowthrateisveryimportantforyourbusiness. Aclimbingratewouldimplythatyourmarketing,sales,andaccountteamsaredoingagreatjobatmotivatingcustomerstoincreasespending.Italsomeansthatyourcustomersarequicklyrealizingthevaluefromyourengagement. Conversely,aflounderingorfallinggrowthrateshouldputyoursuccessteamonalert. Astagnantexistingcustomerrevenuegrowthratecouldalsobedangerousforyourbusiness.Afterall,acquiringanewcustomerisactuallyfourtimesmoreexpensivethanupsellingtoacurrentone,therebyhamperingyourorganization'sabilitytoscale. Ifyourexistingcustomeraccountsaren'tgrowing,you'reprobablynotspendingenoughtimeandbudgetoncustomerretentionandfailingtocapitalizeoneasilytappedsourcesofrevenue. HowtoCalculateExistingCustomerRevenueGrowthRate Onceagain,theformulabelowshouldonlytakeintoconsiderationrevenuegeneratedfromexistingcustomers.Nonewsalesareinvolvedinthismeasurement.Existingcustomerrevenuegrowthratecanbeappliedtoasingleaccountexaminedoveralongperiod,oritcanbemeasuredtoreflectthe"bigpicture." CustomerRevenueGrowthRateFormula MonthlyRevenueGrowthRate=(MRRattheEndofMonth-MRRattheStartofMonth)/MRRattheStartofMonth ExampleofExistingCustomerRevenueGrowthRate Forsimplicity'ssake,let'susethesameexampleastheoneabove. IfwestartSeptemberwithanMRRof$50Kthenlose$5Ktochurn,ourexistingrevenuegrowthrateis-10%(($45,000-$50,000)/$50,000=-10%).ForOctober,ifwestartat$57.5Kandlose$7K,ourexistingrevenuegrowthrateis-12.2%(($50,500-$57,500)/$57,500=-12.2%). 4.RepeatPurchaseRatio Measures:theratecustomerscomebackforanotherpurchase. Insimpleterms,therepeatpurchaseratio(RPR)isthepercentageofcustomersthathavereturnedtobuyfromyourcompanyagain.Thismetricisagreatindicatorofcustomerloyalty—oftenusedbymarketingandsalesteamstoassesstheperformanceandimpactofthecompany’scustomerretentionstrategy.Althoughthisparticularmetrictypicallyappliestoproducts,youcanalsoapplythesameformulatorepeatsubscriptionorcontractrenewals. What'sespeciallyusefulaboutrepeatpurchaseratiosistheirapplicationtospecificdemographics.Bytakingalookatwhichtypesofconsumersorcompaniesaremakingthemostrepeatpurchases,youcanadjustyourtargetbuyerpersonasaccordinglyandinformmarketingaboutwheretheireffortsshouldbeaugmentedorconcentrated. HowtoCalculateRepeatPurchaseRatio Thisisameasurementthatcanbecalculatedinanytimeframe—weekly,monthly,quarterly—andyourcustomersuccessteamwillstillfindthedatavaluable. InaB2Bcontext,forexample,youmaysellawidgetthat'susedinthemanufacturingprocessofseveraldifferentcustomerswhosellseveraldifferentproducts.Eachcustomer'sdemandforyourproductmayvarybasedonitsownsalescycle,manufacturingprocedures,etc.Onenewcustomermaymakeonelargepurchaseorderfromyouatthebeginningoftheyear,whileanothermaymakepurchaseseverymonth. Inthissense,theRPRshouldbetakenwithasmallgrainofsalt.IfyourcustomersuccessteamisreallyonitsA-game,they'llalsobenchmarkpurchasingfrequencyforeachindividualcustomerinadditiontotheoverallrepeatpurchaserate. RepeatPurchaseRatioFormula RepeatPurchaseRatio=NumberofReturningCustomers/NumberofTotalCustomers ExampleofRepeatPurchaseRatio Let'ssaywestartthemonthwith5Kcustomerssubscribingtoourproductorservice.Attheendofthemonth,only4Kofthosecustomersreturntoourbusiness.Inthiscase,ourrepeatpurchaseratiowouldbe80%(4,000customers/5,000customers=80%). 5.ProductReturnRate Measures:therateproductsarereturned. Anothermetricthatappliesspecificallytocompaniesthatselltangibleproducts(asopposedtoservicesorsubscriptions),isyourproductreturnrate.Thisistheproportionofyourtotalunitssoldthathavebeensentbacktoyou. Althoughproductscouldbereturnedformyriadreasons,productreturnsarenevergood,andtheultimategoalistokeepthisnumberasclosetozeroaspossible. WhiletheB2Cretaileraveragereturnratesforin-storeandonlinepurchaseshoveraround9%and20%respectively,productreturnsinaB2Bsettingcanbeabitmorelethal.GivenboththelargersalesvolumeandextendeddurationoftheaverageB2Bsalescycle,productreturnscanbeextremelyproblematicforyourcustomerretentionstrategy.Customerserviceteamsmustquicklymakeamendsbeforethesale(and/orcustomer)islostentirely. Productreturnrateismostcertainlyadatapointthatcustomersuccessteamsmustpaycloseattentionto.Notonlycancustomersuccessmanagersuseittojustifyreachingouttointernalpartiesandjumpstartingthedamagecontrolprocess,buttheycanalsousetheinformationtolettherightpeopleknowwheretheproductoritsdeliveryneedstobeimproved. HowtoCalculateProductReturnRate Thetimeframeforyourproductreturnratewillalsodependonyoursalesvolume.What'seffectiveforanothercompanymaynotworkforyours.Buthere'sthebaseformulaandit'simportantthatwhateverperiodyouchoosetocontextualizethecalculation,youconsistentlyadheretoit. ProductReturnRateFormula ProductReturnRate=NumberofUnitsSoldThatWereLaterReturned/TotalNumberofUnitsSold ExampleofProductReturnRate Forthisexample,let'ssaywe'reasportinggoodscompanysellingbaseballcleats.InSeptember,ourmostpopularitemsold10Kunits,but7Kwerereturnedlaterthatmonth.Ourproductreturnratewouldbe70%,whichmayindicateasignificantproblemwiththatshoe(7,000unitsreturned/10,000units=70%). 6.DaysSalesOutstanding Measures:daystakentocollectpaymentfromasale. Inanutshell,dayssalesoutstanding(DSO)canbedescribedastheaveragenumberofdaysthatreceivables(customerdues,bills,payments)remainoutstandingbeforethey'recollected.DSOnotonlyshowshowwellyourcompany'saccountsreceivablesarebeingmanaged,butalsohowcommittedacustomeristomaintainingahealthyworkingrelationshipwithyourbusiness. ThelongertheDSO,thelongerit'stakingcustomerstopaytheirbills—whichmaybeabadomenforyourcustomerretentionstrategy.It'simportanttolookatDSOasawholetoidentifytrendingbehaviorsandwhatyoucandotocombatDSOfiguresontherise. Butonanindividualbasis,alengthyDSOcouldmeanyourcustomerisdissatisfiedwithyourcompany'sproductorservice,orthatyourmarketingandsalesteamsarenurturingandclosingcustomerswithcreditorcashflowproblems.Remember,effectivecustomersuccessstrategiesbeginbeforetheacquisitionstage. HowtoCalculateDaysSalesOutstanding DSOisusuallyappliedtotheentiresetofinvoicesthatacompanyhasoutstandingatanygiventime,ratherthantoasingleinvoice.YoucandetermineyourDSOonamonthly,quarterly,orannualbasisbydividingthenumberofaccountsreceivableduringtheselectedtimeperiodbythetotalvalueofcreditsalesduringthesameperiod.Then,multiplyingtheresultbythenumberofdaysinthattimeframe. Thefinalfigureisequatedwiththeaveragenumberofdaysittakesyourcompanytocollectonaninvoice.Butforsimplicity'ssake,we’lluseanannualDSOformula,whichcanbefoundbelow. DaysSalesOutstandingFormula AnnualDaysSalesOutstanding=(AccountsReceivable/AnnualRevenue)×365Days ExampleofDaysSalesOutstanding Let'ssayourhypotheticalcompanymade$100Kinsalesthisyear.Ofthat$100K,$75Khasbeencollected.Inthiscase,ourannualDSOwouldbe274days(($75,000/$100,000)x365days=274days)andourmonthlyDSOwouldbe23days(($75,000/$100,000)x31days=23days).Thatcouldbeloworhighdependingontheindustryyou'reworkingin. 7.NetPromoterScore®(NPS) Measures:customersatisfactionandhowlikelycustomersaretoreferyourbusinesstoothers. NetPromoterScorequantitativelymeasuresgeneralsatisfactionandloyaltytoyourbrand.Onceyou'vecalculatedyouroverallNetPromoterScore,itwilltellyouifyourcustomersarecontentandwillingtoreferyourproductsorservicestoothers. What'smore,ifyoucompareyourNetPromoterScoretoyourrevenuegrowthrateandcustomerchurnrate,youmaybeabletopredictpotentialgrowththroughcustomerretentionandreferrals. WhileahighNPSdoesnotguaranteegrowthandretention,identifyingandincentivizingbrandevangelistscanhelpdrivereferralbusiness.Thiscanworkexceptionallywellalongsidecontentmarketinginitiativessuchasthecreationofcasestudies,websitetestimonials,andotherformsofsocialproof. Conversely,apoorormiddlingscoreprovidestheopportunitytoaddressasatisfactionproblembeforeit'stoolate. HowtoCalculateNetPromoterScore Assimpleasitmaysound,thisscoreisdeterminedbyaskingyourcustomeronequestion:"Howlikelyareyoutorecommendourcompanytoafriendorcolleague?" That'sit!Thecustomeristhenpromptedtochooseascorebetween0and10.Notethatonly9'sand10'sarepromoters,andanycustomergivingaratingof6orbelowisconsideredtobeadetractor. Ifyoufeelitwouldbehelpful,youcanaskafollow-upquestioninyourNPSsurvey(somethingalongthelinesof"Willyousharewhy?")—butkeepinmindthatresponseratesdecreaseasthenumberofquestionsaskedincreases. Then,youcancalculateNetPromoterScorebysubtractingthepercentageofdetractorresponsesfromthepercentageofpromoterresponses. NetPromoterScoreFormula NetPromoterScore=%ofPromoters-%ofDetractors ExampleofNetPromoterScore AsmartcompanywoulddistributeanNPSsurveyafteracustomerservicecaseisresolved.Ifafteramonth,weobserved50promoters,25neutralscores,and10detractors,ouroverallNPSwouldbe47(50/85=59%,10/85=12%,59%-12%=47). 8.TimeBetweenPurchases Measures:Theaveragetimecustomerstaketobuyfromyouagain. Timebetweenpurchasesmeasuresthetimeittakesforanaveragecustomertobuyfromyouagain.Thisisanimportantretentionmetricbecauseitshowsyouhowhappycustomersarewithyourproductorserviceandhowwillingtheyaretotrycompetitorsinyourmarket. Whentrackingthismetric,it'simportanttocompareittoothermetricslikecustomersatisfactionandNPS.Forexample,ifyou'renoticingalotoftimebetweenpurchases,thatmayindicatethatyourproductorserviceisn'tdifferentiatingitselffromothersinitsindustry.Or,itcouldmeanthatyourproductiswell-built,andcustomersdon'tneedtobuyitagain.Comparingtimebetweenpurchaseswithothercustomersatisfactionmetricsisagreatwaytoidentifyoverallstrengthsandweaknessesinyouroffer. HowtoCalculateTimeBetweenPurchases Tocalculatetheaveragetimebetweenpurchases,you'llneedtokeeptrackofthepurchasedatesforallcustomers.ACRMcanhelpyoudothis,asitcansetupcontactpropertiesthatrecordwhenevercustomersmakerepeatpurchases. Onceyouhavearecordingsystem,you'llneedtoaddtogethereverycustomer'saveragepurchaserate.Forexample,ifacustomerbuysfromyoutoday,thenbuysanotherproductaweekfromnow,theirpurchaseratewouldbesevendays.Iftheyboughtfromyouagaintwoweekslater,thentheiraveragepurchaseratewouldbe10.5days. Afterfindingthesumofallindividualpurchaserates,dividethatnumberbyyourtotal repeatcustomers.Besuretoexcludeanynewcustomers,asthismetricshouldonlymeasureyourexistingoneswhomaderepeatpurchases. TimeBetweenPurchasesFormula TimeBetweenPurchases=SumofIndividualPurchaseRates/NumberofRepeatCustomers ExampleofTimeBetweenPurchases Forthisexample,it'llbeeasiertoexplaincalculationsusingtheExcelsheetbelow. InSeptember,oursmallbusinessonlyhadfiverepeatcustomers.Bycalculatingtheaveragepurchaserateforeachindividualcustomer,wecanseehowlongittookforeachonetopurchasefromusagain.Averagingthesenumberstogetherleavesuswithanaveragetimebetweenpurchasesbeing8days(40days/5customers=8days). 9.LoyalCustomerRate Measures:thenumberofcustomerstorepeatpurchaseoveraperiod. Loyalcustomerratesimplyreferstothenumberofcustomerswhohavemadearepeatpurchasewithyouwithinagiventimerange.Sinceyourmostloyalcustomersbuyfromyouthemost,thismetricidentifiesthepercentageofyourcustomerbasethat'sdemonstratedloyaltytoyourbusiness. It'simportanttoknowhowmanyloyalcustomersyouhavebecausethesepeoplearethemostvaluablemembersofyourcustomerbase.That'sbecausetheynotonlydrivethemostsales,butthey'realsothemostlikelytosharepositiveword-of-mouthaboutyourbusiness.Byknowingwhotheseloyalcustomersare,youcancapitalizeonopportunitiestogathertestimonialsandencouragecustomeradvocacy. HowtoCalculateLoyalCustomerRate Loyalcustomerrateiscalculatedbyfirstidentifyingthetotalnumberofcustomersthatyourbusinesshadduringagivenmonth,quarter,oryear.Thisincludesbothexistingcustomersandnewones. Then,youneedtofindboththenumberofexistingcustomerswhomadeanadditionalpurchaseandthenumberofnewcustomerswhomademultiplepurchases.Addthosevaluestogethertogetyourtotalnumberofloyalcustomers. Finally,divideyourtotalnumberofloyalcustomersbyyourtotalcustomerstogetyourloyalcustomerrate. LoyalCustomerRateFormula LoyalCustomerRate=NumberofRepeatCustomers/TotalCustomers ExampleofLoyalCustomerRate Inthisexample,let'ssaywehad20KtotalcustomersduringSeptember.Ofthat20K,2Kwereexistingcustomerswhomadeadditionalpurchasesand3Kwerenewcustomerswhomademultiplepurchases.Byaveragingthesevaluestogether,wewouldfindthatourloyalcustomerratecomesoutas25%((2Kcustomers+3Kcustomers)/20Kcustomers=25%). 10.CustomerLifetimeValue Measures:therevenuegeneratedbyasinglecustomer. Customerlifetimevalue(CLV)measureshowmuchrevenueisgeneratedbyasinglecustomer.Whetheryousellindividualproductsorservices,oryousellsoftwarebilledannually,thisisametrictotrackconsistently.Ideally,you'dseeCLVriseorstayconstant,asashrinkingCLVsuggestsyou'reeithercapturinglow-valuecustomersorlosingcustomersfasterthanyouhadinthepast. HowtoCalculateLifetimeValue First,determinetheaveragerevenueamountyoucanexpectfromacustomeroverayear.Youdeterminethisnumberbydividingyourgrossannualsalesbythetotalnumberofuniquecustomersinthatyear. Then,you'llwanttodeterminehowlongacustomerstayswithyourbusinessintermsofyears. Fromthere,you'llmultiplytheaveragerevenuepercustomerbytheaveragelifespanofthecustomertoproduceyourcustomerlifetimevalue. CustomerLifetimeValueFormula CustomerLifetimeValue=CustomerValue*AverageCustomerLifespan whereCustomerValue=AveragePurchaseValue*AverageNumberofPurchases ExampleofCustomerLifetimeValue ASaaScompanybillscustomersannuallyforsoftware.Thecompanytookin$5millioninrevenuelastyearandhas2,000customers.Dividingitsrevenueof$5millionbyitscurrentcustomerbaseof2,000producesanaveragerevenueof$2,500percustomerperyear. Thecompanyanalyzeditscustomerlongevityanddiscoveredtheaverageamountoftimeacustomerdoesbusinesswiththesoftwarecompanyisthreeandahalfyears. Multiplyingtheaveragerevenueof$2,500bytheaveragelifespanoffourandahalfyearsyieldsacustomerlifetimevalueof$11,250. Whilethesearethetopmetricsyoushouldbetrackingforcustomerretention,there'smoredatayoucananalyzetoimproveyourcustomerexperience.Let'swrapupbyexploringthosealternativesinthesectionbelow. TheImportanceofCustomerRetention Yourcompanymustallocatetimeandresourcestoimprovingcustomerretention.Ifputtingtogetheracomprehensivecustomerretentionorsuccessplancurrentlyfeelsoutofreach,thenstartsmall.Begintrackingthemetricsmentionedhere,andyourcustomerbasewillgrowexponentially. NetPromoter,NetPromoterSystem,NetPromoterScore,NPSandtheNPS-relatedemoticonsareregisteredtrademarksofBain&Company,Inc.,FredReichheldandSatmetrixSystems,Inc. Editor'snote:ThispostwasoriginallypublishedinJanuary2018andhasbeenupdatedforcomprehensiveness. Topics: CustomerRetention Don'tforgettosharethispost! 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