Article | 5 min read

How do you calculate your customer retention rate?

Creating a loyalty programme based on trust takes time and money. Customer loyalty ultimately depends on the trust they have in a product.

Last updated May 3, 2023

Customer loyalty comes by respecting and continuously exceeding customer expectations.

According to a study published by Rare Consulting, 83% of customers say that their loyalty to a brand is mainly down to the fact that they trust them.

The same study also reveals that while price (81%), quality (80%) and convenience (55%) are the key factors in making a purchase, companies and brands that are liked (86%) and trusted (83%) benefit from more loyal customers.

Creating a loyalty programme based on trust takes time and money. Customer loyalty ultimately depends on the trust they have in a product. And this is exactly what inspires them to buy again.

Even if a loyalty programme makes it easier to gauge your customer loyalty, you should still calculate your loyalty or retention rate as it will help you make intelligent improvements to your business to create even more loyal customers.

How do you measure customer loyalty?

Loyal customers bring in more than new customers, who cost more to acquire and spend less. They’re incredibly important because loyal customers are the ones that allow your business to grow whilst maintaining consistently high profits.

There are a number of different ways to measure retention but they all have the same aim: to work out how many loyal customers your company has. Here are the main ones:

Customer churn rate

Customer churn rate is an important metric that can help you better understand why previously loyal customers have stopped using your product or service. It allows you to calculate your account closure rate, subscription cancellation rate, contract or agreement non-renewal rate, change in decision rate or change in supplier rate.

Tracking how many customers you’ve lost over a given period is vital for a complete picture of everything that’s happening in your business. All you have to do is divide the number of customers you’ve lost over a given period by the number of customers you’ve gained over the same period.

You can then compare your churn rate to the average for your industry. For example, according to a report from Statista, the average churn rate for financial services is around 25%, compared with 18% in the travel sector.

There are also a host of different tools you can use to better understand your churn rate. For example, you can carry out surveys or monitor social media for messages from your customers.

Repurchase rate

The repurchase rate is the percentage of your customers who have made repeat purchases over a given period.

It’s a hugely important indicator as regular customers are extremely profitable. Plus, making sense of your repurchase rate helps you spot and understand why some customers become regular buyers. You can then leverage this knowledge in future marketing campaigns to increase your lead conversion rate.

Engagement rate

This metric goes hand in hand with your repurchase rate because it gives you an even clearer idea of how many customers are regularly engaging with your programmes.

It measures engagement by looking at the number of customers who are earning or spending points in your loyalty programme over a specific period of time (e.g. a month or year).

Your engagement rate can provide real insight into the performance of your programme. In short, examining the number of customers who are engaging with your programme (i.e. earning and exchanging points) can help you scale your loyalty programmes and improve the customer experience.

Customer lifetime value

Customer lifetime value is another important metric that looks at how much each customer will generate for your company over their entire relationship with your brand. Although it’s important, it’s not always easy to calculate.

Here’s the general formula:

Customer lifetime value = (average order value) x (average number of orders) x (average customer lifespan)

In more simple terms, you can calculate your customer lifetime value by multiplying how much your customers spend on average by how long they remain customers on average. As you would expect, the longer a customer buys from your company, the higher their lifetime value.

Customer retention rate

We can use the customer retention rate (CRR) to help us gauge customer loyalty. That’s because calculating your CRR reveals how many customers have stayed with you – or remained loyal – over a given period.

Here’s the formula:

CRR = ((E-N)/S) x 100

E = The number of clients you have at the end of a given period (week, month, quarter, year, etc.).
N = The number of new customers you’ve gained over this period.
S = The number of clients you had at the start of the period.

Tracking referrals

If you’ve launched an affiliate or referral programme, you can track the number of new customers subscribing to your service thanks to word of mouth. Tracking referrals not only allows you to track the number of customers who stay but also the number of customers who are happy to spread the word.

First rate with Zendesk

Investing in loyalty is about far more than just preventing customers from leaving. It’s about maximising your growth opportunities,

which means, on top of the metrics mentioned in this article, you’ll also need knowledge base tools to help you collect, organise and process customer data.