The 4 Customer Retention Metrics You Need to Know

Written by Juan Gomez | Nov 30, 2016 12:07:52 AM

"There is only one boss: the customer, and he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else."

Sam Walton, founder of both Sam's Club and Walmart, is behind this insightful quote. He said something not many business owners embrace, but it really isn't far from the truth.
Although his words take a jab at many business owners' egos, Walton meant well, and he certainly had a point. The majority of a company's power lies in the hands of its customers, as it should. Your business should have the customers at the very center of its existence, and the context of your online marketing strategies should be equipped to retain them. This isn't a matter of guessing what the customer wants; this is a matter of science and customer service.

Use the right metrics to reveal the true health of your relationship with the customer. Where do you both stand? What does this say about the future of your business? Let's review some helpful metrics provided by Inc.com, which you can apply to your business for desirable results.

Your Customer Retention Rate

This metric helps you determine whether your customer service team is meeting the needs of your customers. More specifically, it determines whether your online marketing strategies are encouraging customers to stick around for a desirable amount of time. This can be measured on an annual, monthly, or weekly basis.

A popular formula to calculate this metric is ((CE-CN)/CS)) x 100. "CE" represents the number of customers at end of the period. "CN" represents the number of new customers acquired during the period. "CS" represents the number of customers at the start of the period. Determining a good measurement depends on your industry and your goals.

Your Customer Lifetime Value

This metric determines the amount of revenue you can earn from a customer relationship, which is based on only previous purchasing behavior. Therefore, it doesn't indicate the actual amount of money you'll bring home. Furthermore, you can learn how much to spend on customer acquisition, in addition to learning your ROI.

It's imperative to keep your customer acquisition costs at your lifetime value score or below. You don't want to spend more than your relationship is worth, right? Here's the formula: Customer Lifetime Value = (Average Order Value) x (Number of Repeat Sales) x (Average Retention Time). You'll know whether your online marketing strategies are working as this value increases over time.

Your Repeat Purchase Rate

This next metric indicates the percentage of customers who have bought your products or services more than once. It provides good insight about customer retention. Here's the formula: Repeat purchasing rate = Number of customers who have shopped more than once/total number of customers. Tracking this data using cohorts can provide a more detailed analysis.

For example, tracking data daily, weekly, or monthly can let you know if the set of new marketing tools you may have recently implemented led to an increase or decrease of repeat purchases. Maybe these marketing tools make it easier or harder to navigate your website or access special promotions via social media.

Your Redemption Rate

This metric indicates whether your customers are making purchases by using the coupons you supply. More specifically, it gives you the percentage of coupons redeemed. Coupon distribution should be part of your online marketing strategies. If your customers know that they don't have to pay full price for something they want, they're more likely to take action.

Calculate this formula: Number of coupons redeemed/Number of coupons issued. Utilize display advertising techniques that showcase discounts through ads on the web pages that your customers view. Automatically apply special coupon codes for online checkouts to show customers what they could save before they purchase anything-- get them amped up!

The bottom line is that none of these metrics are difficult to calculate, and they give you valuable information about your progress! Use them to run the numbers on a regular basis-- weekly, monthly, quarterly, or annually, depending on your needs. Keep a report of your calculations to visualize the strengths and weaknesses of your online marketing strategies in numbers.

Need help? We can assist you in strengthening your weak areas. Schedule a consultation so we can help effectively market your business.

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