The Essential Guide to Customer Retention KPIs (2023 Update)
In today's competitive business landscape, retaining customers is as crucial as acquiring new ones. This emphasis on customer retention is more than just a trend; it's a core strategy that impacts a company's bottom line. To efficiently retain clients, companies must focus on various key performance indicators (KPIs) that shed light on their customer relationships and satisfaction levels.
Why are KPIs Important in Customer Retention?
KPIs provide quantifiable measures of performance. They serve as benchmarks for assessing how well a business is doing in specific areas, especially in customer retention. By understanding and tracking the right customer retention KPIs, companies can:
- Understand their customer base and expectations better.
- Identify areas of improvement in the customer journey.
- Formulate effective customer retention strategies.
- Enhance the user experience and customer satisfaction.
List of the top 12 customer retention KPIs:
- Customer Retention Rate (CRR)
- Net Promoter Score (NPS)
- Customer Churn Rate
- Customer Lifetime Value (CLV)
- Repeat Purchase Rate (RPR)
- Customer Acquisition Cost (CAC)
- Customer Satisfaction Score (CSAT)
- Monthly Recurring Revenue (MRR)
- Revenue Churn Rate
- Average Revenue Per Customer
- Customer Engagement
- Number of New Customers
Let's dive deeper into each of these KPIs:
1. Customer Retention Rate (CRR)
Definition: This metric calculates the percentage of existing customers a company retains over a given period.
Why it Matters: CRR reflects how well a company maintains its existing customer relationships. A higher CRR indicates satisfied customers and successful retention efforts.
How to Collect the Data: CRR can be calculated using the formula: (Totalnumberofcustomersattheendoftheperiod_−_Numberofnewcustomersduringtheperiod)/Totalnumberofcustomersatthestartoftheperiod x 100
Tools to Help Track: CRM tools like Salesforce and HubSpot can help businesses keep tabs on their customer base and calculate CRR.
2. Net Promoter Score (NPS)
Definition: NPS measures customer loyalty by asking customers how likely they are to recommend a company to others.
Why it Matters: NPS gives insights into customer satisfaction and loyalty. Customers are categorized as promoters, passives, or detractors based on their responses.
How to Collect the Data: Survey customers with the question, "How likely are you to recommend our product/service to others?" on a scale from 0 to 10.
Tools to Help Track: Delighted, SurveyMonkey, and Qualtrics are commonly used for NPS surveys.
3. Customer Churn Rate
Definition: This metric represents the percentage of customers who stop using a company's product or service during a specific period.
Why it Matters: A high churn rate may indicate dissatisfaction among customers.
How to Collect the Data: Use the formula: (Numberofcustomersatthestartoftheperiod_−_Numberofcustomersattheendoftheperiod)/Numberofcustomersatthestartoftheperiod x 100
Tools to Help Track: ChurnZero, Totango, and Gainsight can assist in tracking and analyzing customer churn.
4. Customer Lifetime Value (CLV)
Definition: CLV is the total net profit a company makes from any given customer.
Why it Matters: It helps companies understand the value a single customer brings over their lifespan.
How to Collect the Data: Calculate the average purchase frequency, average revenue per purchase, and average customer lifespan. Multiply these together to get CLV.
Tools to Help Track: Google Analytics, Kissmetrics, and Mixpanel can be instrumental in calculating and tracking CLV.
5. Repeat Purchase Rate (RPR)
Definition: RPR measures the percentage of customers who have made more than one purchase within a given period.
Why it Matters: A higher RPR indicates loyal customers and successful repeat business.
How to Collect the Data: Use the formula: (Numberofcustomersmakingrepeatpurchases/Totalnumberofcustomers)_x_100
Tools to Help Track: Ecommerce platforms like Shopify and Magento offer insights into customer purchase history.
6. Customer Acquisition Cost (CAC)
Definition: CAC is the average cost a company spends to acquire a new customer.
Why it Matters: It's essential to ensure that the cost to acquire customers is less than their lifetime value.
How to Collect the Data: Sum all costs spent on acquisition (like marketing and sales expenses) and divide by the number of new customers acquired.
Tools to Help Track: Ad platforms like Google Ads and social media insights can help track acquisition costs.
7. Customer Satisfaction Score (CSAT)
Definition: CSAT measures immediate customer satisfaction post-interaction with a product or service.
Why it Matters: It gives instant feedback on customer experience and expectations.
How to Collect the Data: Post-purchase or interaction surveys usually measure CSAT.
Tools to Help Track: Zendesk, Freshdesk, and HappyFox are popular tools for collecting CSAT data.
8. Monthly Recurring Revenue (MRR)
Definition: MRR tracks the total predictable revenue a company can expect every month.
Why it Matters: Crucial for SaaS companies, MRR provides insights into business growth and stability.
How to Collect the Data: Sum all recurring revenue from active users and subscriptions.
Tools to Help Track: Chargebee, Recurly, and SaaSOptics can help SaaS companies track MRR.
9. Revenue Churn Rate
Definition: It represents the amount of monthly recurring revenue lost from churning customers.
Why it Matters: Revenue churn gives insights into how much lost revenue is associated with customers leaving.
How to Collect the Data: (MRRatthestartoftheperiod_−_MRRattheendoftheperiod)/MRRatthestartoftheperiod x 100
Tools to Help Track: ProfitWell and Baremetrics provide comprehensive insights into revenue churn.
10. Average Revenue Per Customer
Definition: This is the average revenue generated from a single customer over a specific period.
Why it Matters: It helps businesses gauge their upselling, cross-selling, and customer value.
How to Collect the Data: Divide the total revenue by the total number of customers over the given period.
Tools to Help Track: Tableau, Looker, and Domo offer advanced analytics to track this metric.
11. Customer Engagement
Definition: This KPI measures the depth of the customer's relationship with a brand, considering factors like purchase frequency, social media engagement, and referrals.
Why it Matters: Higher engagement often correlates with increased customer loyalty and retention.
How to Collect the Data: Analyze customer interactions across various touchpoints, like website visits, social media activity, and email click-through rates.
Tools to Help Track: Google Analytics, Hootsuite, and Mailchimp can measure various facets of customer engagement.
12. Number of New Customers
Definition: Simply put, it's the total number of customers acquired within a specific time frame.
Why it Matters: While this isn't strictly a retention metric, monitoring new customers alongside retention metrics gives a holistic view of business growth.
How to Collect the Data: Tally all the new customers acquired during the specific period.
Tools to Help Track: CRM tools like Zoho and Microsoft Dynamics 365 can keep track of new customer data.
Concluding Thoughts
Effectively retaining customers is a key to business success. By understanding and tracking the right customer retention KPIs, companies can ensure they're meeting customer expectations and cultivating long-lasting customer relationships.
For businesses looking for a streamlined process to pull data from their customer data systems and organize KPI reporting, Portable is the go-to solution. Portable not only aids in gathering the data but also offers templates and tools to help businesses efficiently track their customer retention metrics, ensuring they stay ahead of the curve and maintain a thriving and loyal customer base.