Retail KPI Examples | Customer Retention

Customer Retention

Measure the ability of your organization to retain customers over the long term.

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Formula

Number of repeat purchases / first time purchases

Services

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Role

C-Level, VP / Director

Overview

The Customer Retention KPI measures the ability of your organization to retain customers over the long term and to generate recurring revenue from existing customers. It's hard to overstate the value of customer retention for any organization, as research shows that a modest 5% increase in customer retention can increase profits anywhere from 25% to 95% (source: The Economics of E-Loyalty). In addition to that fact, generating revenue from loyal customers is considerably less expensive than acquiring new customers.

Successful customer service strategies are focused on going that extra mile and seek to exceed customer expectations so they become loyal brand advocates. In the age of social media, a review on Google or Yelp can make or break a business. Consider tying your customer retention KPI to social media measurements to gain a better understanding of customer sentiment and to help nourish positive engagements.

The values associated with this KPI may vary greatly in significance from one business model to another. For instance, a SaaS startup that generates revenue based on subscription licensing needs a high retention rate (>98%) to successfully grow the business and sustain it over the long run. On the other hand, while customer retention is equally important to automobile dealerships, they can still grow the business even if they have a lower customer retention rate (a rate which may spell disaster for a SaaS startup).

Key terms

  • Retention rate: The number of customers that make repeat purchases from your organization.
  • Attrition rate: The number of customers that no longer make purchases from your organization.

Success indicators

  • A high or increasing customer retention rate.
  • Positive brand sentiment on social media platforms.

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