For any company, focusing on customer retention has become extremely crucial- nowadays. The customers have turned choosier than ever before. Thanks to high-speed internet access and digital technology boom, they research extensively before buying products. Unless the existing customers are retained, the customer base cannot be expanded. Besides, retention proves to be affordable than the acquisition of new customers. The brands resort to various ways to boost customer retention and you may try the popular options for some purpose. However, it is important that you learn about top customer retention metrics.
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The Major Customer Retention Metrics You Should Have Focus On
It is important for any company to have a focus on vital customer retention metrics. Unless you do not know the nuances of these metrics, you will not be able to assess the efficacy of ticketing system has been deployed. This will impact the business growth prospects too.
Listed below are the top customer retention metrics:
- Customer Churn rate- This is possibly the most important retention metrics you need to know about. The brand’s Customer Churn rate denotes the rate at which the customers stop purchasing. It may involve the buyers who have not renewed a subscription, stopped buying from the website or not buying in a long time etc. A certain amount of buyer attrition happens in any company and that cannot be helped. However, when the annual churn rate exceeds 6-7%, you should take note. Higher churn rates are typically caused by buyer’s dissatisfaction with product range or service. It can also be caused by dissatisfaction owing to changes in brand policies.
- Revenue Churn Rate-The brand’s revenue churn rate is the percentage of revenue lost from the existing customers in a specific time period. This can be caused by factors like order cancellation, end of business contracts, etc. This is more relevant for companies offering services on a subscription model. It is a vital indicator of customer satisfaction. It should be measured both on a mass scale and individual level. It can also be calculated on a monthly and annual basis.
- Existing buyer Revenue Growth Rate- This is another important metrics for customer retention. If the rate is climbing steadily it means your company’s customer retention efforts are on track and customer satisfaction is at the desired level. A slump in this rate means your retention attempts are not effective and things need a revamp. Even if the existing customer revenue growth rate is stagnant it is not healthy for the organization. The motto of the company should be to enhance the revenue from all existing customers.
- Rate of Repeat Purchase- If the existing customers are not buying products repeatedly, something is wrong in your customer retention strategy. The repeat purchase rate is agood indicator of customer loyalty. It is mostly product related but you can also use it to assess repeat contract and subscription renewals. One unique and useful aspect of RPR is that it is applicable to specific demographics. By analyzing what types of consumers are buying what products repeatedly, you may understand buyer needs better and tweak the marketing strategies thereafter. It can be calculated monthly, quarterly or yearly. If the RRP decreases in a region or across a product range, you can analyze the root cause and take actions.
- Product Return Rate- It is relevant for brands that sell tangible products, unlike online subscriptions or services. The product return rate is a great indicator of customer satisfaction of the products. While products can be returned for so many reasons, you should not see product return increase as a good sign. Typically, B2C companies selling online can expect an average Product return rate of 20% and anything above this level can be viewed as detrimental for the company. In most cases, issues affecting PRR include quality of products, delivery and logistics issues and wrong product depiction in websites. It can also be calculated in time frames like month and year.
- Net Promoter Score- Conceptualized by Fred Reichheld, Bain & Company, NPS is meant for offering the brands better insight into customer relations. It helps you understand the overall satisfaction level of your buyers and if they want to refer others to buy from your company or not. By comparing the NPS to the brand’s customer churn rate and revenue growth rate in a timeframe, you can form a correlation that may be deployed as a benchmarking data for analyzing potential growth by customer retention, referrals. Usually, the buyers refer to a brand or its products to others including colleagues and friends when they are very happy with it.
NPS score helps you segregate the customers into roughly 3 sections- detractors, neutrals and promoters. The detractors can cause harm to the brand by spreading negativity and they will not refer your products. The neutrals are those customers who are happy but not delighted enough to refer your products to others. The promoters are happier customers who will promote the products without much prodding. You get the NPS average by subtracting the Detractors from the Promoters percentage wise. There are third-party online tools that can be used to get NPS accurately.
- Customer lifetime value- The customer lifetime value can be denoted as a projection of revenue expected from the customer relationship. This metric is calculated after analyzing previous purchasing behavior. When you learn about the lifetime value of a buyer, you can determine the amount to be spent on customer acquisition. You can also better calculate the ROI. A reason why many startups bite the dust is their customer’s acquisition costs exceed their lifetime value. The reality, however, is the calculation of this metrics is less accurate than the other retention metrics.
- Coupon/offer redemption rate- Like many other brands, you may offer your customers special offers and redemption coupons. This can be done on special occasions or for limited time frames. However, it is also important to check the redemption rate of such coupons. Compared to other metrics it is simpler to calculate. You need to see out of the total issued coupons how many have been actually used or redeemed! It shows if the customers are actually taking action or if they are getting motivated by the promotional campaigns or not. If the redemption rate is quite low, like 20%- it is time for you to take note and see where things are going wrong. It can be caused by a failure to assess customer preference and buying trends. It may also indicate the product lineup is not enticing enough for them.
Summing It All Up
There is no denying the fact that deploying some of these customer retention metrics can be helpful for your company. When you deploy these metrics using suitable tools and planning, you get realistic measures of customer satisfaction level. You can figure out what needs improvement and it becomes easier to guess if retention measures are working or not. However, you should not go overboard with these metrics. Using too many metrics can be daunting and you may be left puzzled. You can benefit by using specialized software that is made for this purpose. It is also necessary to have a well-crafted plan in place for assessing these metrics.
If you are interested in even more business-related articles and information from us here at Bit Rebels, then we have a lot to choose from.
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