Varos Glossary

Retention Rate

What is Retention Rate?

A product's retention rate measures the proportion of its original paying consumers that remain loyal to the brand after a certain period of time. Firms whose clients often purchase the same items from them and subscription-based businesses like SaaS software providers rely heavily on this indicator of customer satisfaction.

  • A product's retention rate is the percentage of its original consumers who are still using it after a specified amount of time has passed.

Retention rate is less important for companies that sell items to consumers just once over a lengthy period of time, such as those who make cars or refrigerators. But let's pretend these businesses also peddle guarantees and upkeep contracts in addition to their merchandise. As such, the retention rate may be a crucial indicator of the success of these ancillary sales.

Significance of Retention Rate

When assessing a company's health, many business owners and experts consider client retention to be the most important factor. Here are a few explanations of why.

  • It generates enormous returns- Long-term clients are more likely to have a positive impression of your business and to recommend it to their friends. In turn, this increases the likelihood that they will purchase other items from your company.
  • Far cheaper than trying to get brand new consumers- Maintaining revenue from returning consumers does not need extensive advertising and promotion efforts. They need a service or something that will reliably improve the quality of their professional or personal life. For this reason, it makes sense that acquiring a new client might cost up to five times as much as keeping an existing one, as stated by a study referenced in a Forbes article.
  • It shows whether or not the product is still resolving issues for the target audience- It is possible that a company's sales and profits might increase temporarily as a result of its expensive marketing, advertising, and sales activities to promote the debut of a new product. However, the business cannot tell whether the product is still useful unless customers keep using it. One of the finest long-term indicators of a product's success in meeting the needs of its ideal users is its retention rate.

How to calculate the retention rate?

There are three pieces of information needed to determine client retention over a certain time frame (often one year):

  • The total number of clients in your database at the start of the time frame= CS.
  • The total number of brand-new clients that bought your goods throughout the time frame= CN.
  • The final client count after the conclusion of the time frame= CE.

What the retention rate formula boils down to

  • Customer Retention Rate = 100* ((CE-CN) / CS)

An average retention of 90% rate is really impressive, showing devoted customers and satisfied company owners alike. However, there is room for improvement if the average user retention rate in an organization is under 50%.

Average customer retention rate by industry

  • The greatest employee retention rates may be found in the media and professional services sectors (84%).
  • The United States has a 25% turnover rate in the financial/credit and cable industries.
  • Employee retention in the hotel, travel and dining sectors is only around 55%.

Boosting Your Company's Retention Rate

Don't panic if the numbers don't add up to a retention rate you're happy with. Here are three easy ways to increase your retention rate:

  • Make use of product information - Understanding product analytics is a great approach to learn how people feel about your product. Data collected from your customers' actions will show you what aspects are most important to them.
  • Differentiate canceled from churned customers - Consumers who "churn" are those who suddenly cease using and/or paying for a product or service. They've completely disappeared. On the other hand, a canceled client has informed a business that they want to cease using the service and will churn soon unless they change their minds.

Businesses that give up on trying to keep consumers who have canceled are missing out on potential revenue.

  • Inquire customer reviews - Understanding the reasons behind customer turnover is essential for implementing effective solutions to retention problems. Companies that are dedicated to collecting client input regularly have a higher chance of addressing usability issues. Customer feedback should be gathered, evaluated, and acted upon to avoid more customer dissatisfaction.