What Is Customer Retention?
Customer retention is a measure of the proportion of customers that are still active at the end of a measurement period, which might be a month, 12 weeks, 6 months, year-over-year, or any window of time that you want to evaluate.
The higher your customer retention rate, the better. A higher retention rate means you’re maintaining a level of customer satisfaction and providing a customer experience that fosters loyalty.
A high customer retention rate indicates that your retained customers trust your business and your products or services. As a result, these customers tend to increase their average order value over time, contributing to a higher customer lifetime value (CLV).
For years, it’s been said that it costs five times more to acquire a new customer than to retain an existing one.
However, thought leaders have recently offered a different perspective: while customer retention is a goal to strive for, you shouldn’t put all your efforts into retention at the expense of acquisition.
Companies should balance retention and acquisition costs, taking each customer’s potential lifetime value into consideration, according to Peter Fader, a Wharton marketing professor interviewed by Blake Morgan at Forbes.
Another perk to keeping more of your valued customers is that you have more time and opportunity to cultivate positive relationships with brand ambassadors.
Customer retention rate may be confused with customer churn rate. However, customer churn rate is the inverse of retention rate: The lower your customer churn rate, the better. A low churn rate means few of your customers stopped doing business with you or switched to a competitor.
Thanks to CallMiner