Customer retention rate tells you how many customers keep using your product or service over a certain time. It helps you understand if people like your business enough to stay.
You may be a business owner with a high-quality product. And, you are heavily focused on getting new customers. Rightly so, but what if those customers leave just as fast? Will it help your business grow in the long run? The answer is a big NO.
Be aware that simply having a great product isn’t always enough to keep customers coming back. Other things like customer service, easy-to-use design, and competition also affect whether people stay loyal to your business.
To measure this, you usually calculate customer retention rate. A high retention rate means customers are happy and keep coming back. In contrast, a low rate means your customers are leaving, which can hurt your business growth and profits.
Want to know more? In this article, let’s study what a customer retention rate is and how it is calculated. We will also learn its importance and see how it differs from churn rate. Lastly, we will know what is a good customer retention rate (industry-wise).
What Do You Mean by Customer Retention Rate?
Retention rate is the percentage of customers who continue to use your product or service over a certain period. It shows how well your business keeps customers coming back:
- A high retention rate means most customers stay with your business. This allows you to keep earning a steady revenue.
- A low retention rate means your customers are switching to alternatives. They are not interested in using your products or services anymore. Such a situation reduces your business revenue.
Please note that customer retention rate heavily depends on your quality of customer service. A recent study shows that about 96% of customers will switch and leave your company due to poor customer service.
Retention Rate vs. Churn Rate
Several business owners use the terms customer retention rate and churn rate interchangeably. However, these two terms are complete opposites:
- Retention rate tells you how many customers stay with your business.
- Whereas churn rate tells you how many customers leave your business.
Both these rates maintain an inverse relationship. If your churn rate is high, your customer retention rate will be low, and vice versa.
How to Calculate Customer Retention Rate?
By calculating customer retention rate, you can understand how many customers continue using your business over a period (like a month or a year). It helps you understand if your business is keeping customers or losing them. To calculate it, follow these simple steps:
Steps to Calculate Retention Rate
- Choose a period. This could be 30 days, 3/ 6 months, or a year.
- Find the number of customers at the start of the period (CS).
- Find the number of customers at the end of the period (CE).
- Find the number of new customers gained during this period (CA).
- Now, use the customer retention rate formula:
- Customer retention rate = CE – CACS x 100
Practical Example
For more clarity, let’s study an example. Assume that you want to calculate customer retention rate for February, 2025. Based on data analysis, you found that your business had:
- 100 customers at the start of the month (CS)
- 150 customers at the end of the month (CE)
- 80 new customers joined during the month (CA)
Now, you apply the customer retention rate formula:
Customer retention rate = 150 – 80100 x 100
Customer retention rate = 70%
So, your customer retention rate is 70%. This means 70% of your original customers stayed with you, while 30% left or churned away. Using the customer retention rate, you can calculate your churn rate as follows:
Churn Rate =100 – Customer Retention Rate (%)
Churn Rate =100 – 70% = 30%
What is a Good Customer Retention Rate?
Please understand that there is no single value that applies uniformly to every business. Different industries have different customer retention rates. That’s because some businesses find it easy to keep customers, while others struggle due to high competition.
Thus, you should ideally know the average customer retention rate in your industry and then compare it with your business. For your reference, below are five key industries and their average customer retention rates:
1. Retail: 63%
Retail businesses have a lower customer retention rate. That’s because customers have many options and can easily switch brands. Besides competition, there are discounts, and new trends that influence buying decisions.
Since acquiring new customers is relatively easy, some retailers focus less on keeping existing ones. However, most businesses still try to increase their customer retention rate by offering:
- Personalised experiences
- Loyalty programs
- Strong customer service
2. Banking: 75%
Banks have a higher customer retention rate. That’s because customers rarely switch accounts unless they move to a new location or have major life changes. Most people use the same bank for many years because switching is inconvenient.
Also, banks build strong relationships with customers by offering:
- Superior banking services
- Complimentary financial advice
- Personalised banking solutions
- Reward programs
3. Telecom: 78%
The telecom industry also maintains a high customer retention rate as they use loyalty programs and bundled services to ensure customers stay. Since only a few big telecom companies operate in India, customers often find it pointless to switch. Rewards like discounts, free data, and better customer support also encourage loyalty.
4. IT Services: 81%
IT service providers have high customer retention rates because they directly impact a client’s success. When a business depends on IT services for operations, it becomes difficult for them to switch providers.
However, if an IT company fails to meet expectations, customers may leave quickly. Therefore, to maintain high retention, most IT service providers offer excellent technical support and keep up with technological advancements.
5. Insurance: 83%
People usually keep their insurance for years. That’s because finding a new provider and switching policies is still complicated in India.
However, due to increasing competition (especially from new digital startups), this trend is changing. A recent study shows that about 41% of consumers are likely to switch their insurance company in favour of a more digitised one. In the future, this might lead to lower customer retention rates.
Increase Customer Retention, Achieve Business Stability
To achieve long-term business success, you must try to increase your customer retention rates. A high retention rate means your customers are satisfied and loyal. Every industry has different benchmarks, but the goal remains the same — keeping customers coming back!
You can do so by providing:
- Strong customer service
- Personalised experiences
- Rewards, exclusive discounts, and loyalty programs
Please note that customer retention rates increase by 5% for every 1% increase in customer satisfaction. At Atidiv, we specialise in omnichannel customer experience (CX) outsourcing to boost your customer retention. With our expertise, you can enhance and retain more customers easily. Partner with Atidiv today!
FAQs On Customer Retention Rate
1. Why do my customers leave even when I offer great products?
Despite having a great product, your customers can leave due to:
- Poor service
- Lack of engagement
- Better offers from competitors.
To increase your customer retention rate, you should try to improve customer experience (CX).
2. How can I increase my customer retention rate without spending too much?
You can focus on cost-effective strategies like:
- Excellent customer service
- E-mail follow-ups
- Running loyalty programs
Also, try to offer personalised deals and proactive support. These measures keep customers satisfied without large marketing expenses.
3. How do I measure customer retention rate?
You can use the customer retention rate formula:
Customer Retention Rate = Customers at the End – New Customers Gained Customers at the Start x 100
By tracking your customer retention rate monthly or yearly, you can easily spot trends and improve retention.
4. What are common mistakes that hurt customer retention?
If your business is facing a low customer retention rate, it could be due to:
- Ignoring customer feedback
- Slow response times
- Lack of personalisation
- Complex purchasing processes
Also, if you don’t adapt to customer needs, you may lose your customers to competitors.
