What is Customer Retention Rate: How to Calculate and Improve It

Customer retention rate (CRR) is a crucial metric for any business aiming for long-term success. Understanding how to calculate CRR is essential for maintaining a customer-centric focus.

Beyond CRR, various other customer retention metrics are available for assessment. Continue reading to discover the formulas for measuring your business's retention success.

What is customer retention rate (CRR) and why is it important?

According to the Harvard Business Review, getting a new customer can cost anywhere from 5 to 25 times more than just keeping the ones you already have. Putting in the work to build a great customer retention strategy will absolutely pay off in the long run, as it's way cheaper than constantly chasing new customers.

So, what's the deal with your customer retention rate? Simply put, it's a way to figure out the percentage of your existing customers who stick around for a certain amount of time. Keep an eye on that customer retention rate, and you'll have some awesome data to help you figure out the best ways to improve your sales and services.

Let's say you started this month with 50 customers. By the end of the month, 40 of them were still with you. If you crunch those numbers using the customer retention rate formula (we'll get to that!), you'd see your retention rate is 80%. That means a solid 80% of your customers decided to stay on board. Pretty good!

But hold on, you also have to keep new customers in mind. For instance, losing 10 of your original 50 subscribers but bringing in 15 new ones doesn't magically bump your retention rate over 100%. If you just try to cover up the customers you lost by signing up new ones, you might be missing some real underlying issues with your business.

Instead, you need to really nail down how you're keeping customers happy and how you're reducing the number who leave (or churn). This basically comes down to two key things:

• Boosting how much people use your product/service and how great their experience is.
• Making sure your customers consistently see the value they're getting from what you offer.

How to calculate customer retention rate

To calculate your Customer Retention Rate (CRR), use the following straightforward formula:

CRR = ((Total Customers at End of Period - New Customers Acquired During Period) / Total Customers at Start of Period) x 100

While this calculation can be done for various timeframes, an annual period is generally recommended. Measuring monthly or quarterly may not provide sufficient data to draw meaningful conclusions about your customer retention. Ensure the "end" and "new" customer counts correspond to the same time period you select for the calculation.

Example: Calculating customer retention rate

Here is an example demonstrating how a small online business calculates its customer retention rate.

The business began 2024 with 500 customers and concluded the year with 450. Throughout the year, they gained 75 new customers.

To calculate the customer retention rate, the company would use the following formula and figures:

Calculation:

((450 - 75) ÷ 500) × 100 = 75%

What’s a good customer retention rate?

While a 90% Customer Retention Rate (CRR) is the ultimate goal, it's unrealistic to eliminate all customer attrition. Businesses should instead aim for the highest possible CRR, with 85% being significantly better than 65% (which indicates less than two-thirds of customers are loyal).

The fundamental step for improvement is to regularly calculate and track your CRR. This concrete data offers clear insights into the effectiveness of your retention strategy, moving you past reliance on mere guesswork. By using CRR data as a foundation, you can establish precise goals and benchmarks, and make informed decisions on whether to maintain current tactics or develop new ones for better retention.

Average customer retention rates by industry

A low customer retention rate (CRR) suggests customer dissatisfaction, but what constitutes a "good" CRR is highly dependent on your industry, business size, and the specific products or services you offer.

To help put your own CRR into perspective, the following list shows the average customer retention rate by industry, based on Statista data:

• High Retention (80%+):
  • Media companies: 84%
  • Professional services: 84%
  • Automotive and transportation: 83%
  • Insurance: 83%
  • IT services: 81%
  • Construction and engineering: 80%
• Mid-Range Retention (75% - 79%):
  • Financial services: 78%
  • Telecom: 78%
  • Health care: 77%
  • Software: 77%
  • Banking: 75%
• Lower Retention (Below 70%):
  • Consumer services: 67%
  • Manufacturing: 67%
  • Hospitality: 55%
  • Ecommerce: 30%

How to improve your customer retention rate

Armed with all that data, you might be thinking, "Okay, but what can I actually do about this?" Good news! Here at Soran, we've got tons of customer retention strategies to keep your customers coming back for more. Here are a few solid ways to do it:

• Start a loyalty or rewards program: Give your customers a reason to shop again! Offer points, sweet discounts, or exclusive cool stuff for frequent purchases. Think a free coffee after ten buys at your local spot, or maybe early access to sales for the "silver" members at your favorite online clothing store.
• Talk to them after the purchase: The sale isn't the finish line; it's just the beginning. Check in with customers to make sure they're happy and see if they need any help. A software company could send a helpful "mastering the basics" email series, or an appliance maker might proactively send maintenance tips and friendly warranty reminders.
• Make the experience super smooth: Your product or service should be easy and painless to use. For an e-commerce site, this could mean way clearer navigation or a super-simple checkout. For a SaaS product, it might be a clean, well-organized help center packed with easy-to-find tutorials.
• Build a cool brand and share your values: People stick with companies they feel a real connection to. Show off what your company stands for, and create ways for customers to hang out. A sustainable goods company could host chill virtual workshops on zero-waste living, or a fitness brand might create a private social media group for sharing workout wins and getting motivated together.

Conclusion

Keeping your current customers happy is way cheaper than constantly chasing new ones. That’s why you really should be keeping an eye on metrics like customer retention rate, churn rate, and customer lifetime value.

When you regularly check and analyze these numbers, you'll get a better idea of what you need to fix in your customer retention game plan. If you keep tweaking things, before you know it, you'll see that you're keeping more customers satisfied, and your sales will show that loyalty.

Soran can help you figure out how to calculate your customer retention rate and boost your results. Book a demo today to learn more about our whole set of results-driven retention tools.