Retention Rate | Definition
Retention rate is the percentage of customers who continue paying for a product or service over a certain time period. This metric is popular with subscription-based business models where customers purchase a product on a cyclical basis.
Customer retention rate is calculated by dividing the total number of unique users that activate at least one session, divided by the number of installs within a given time period. This ratio shows the number of retained customers to the number at risk.
Why is retention rate important?
Retention rate is an important metric for many companies. It’s a good indicator of how well a product or service is performing and the overall health of a company. Being able to retain customers has many benefits such as:
- Cutting acquisition costs: Companies that master customer retention can reduce customer acquisition costs (CAC). This is because customer lifetime value (LTV) increases hand in hand with higher retention rates. A higher LTV/user acquisition (UA) ratio indicates a healthy business and happy customers.
- Increasing revenue: Retained customers are more likely to reengage financially with your company. An established relationship will lead them to buy and spend more frequently than newly acquired customers. They recognize the worth of your products or services and will likely return.
- Building longevity: Your customers are the foundation of your business’s long-term success. Customer loyalty goes a long way, especially in economic uncertainty when every transaction counts. Investing in these relationships improves your company’s future financial stability.
Keeping a high retention rate and low churn is more cost effective than spending money to acquire new customers. The rate shows that the customers you have worked hard to acquire value your product and want to stay with you.
Retention rate equation
To calculate retention rate, you will need three things:
- The number of customers at the start of a set time period (CS)
- The number of new customers during that time period (CN)
- The number of customers at the end of that same set time period (CE)
For example, a subscription service that bills its customers monthly wants to know the retention rate from the last quarter. At the start of the quarter they had 392 customers. Within that quarter they acquired 24 new customers, and at the end of the quarter they had 312 customers.
312 – 24 / 392 = 73%
This company has a retention rate of 73% in that quarter.
What is a good retention rate?
Of course, a customer retention rate of 100% is the goal. This would mean that you don’t lose a single customer; however, this is not possible to achieve. Realistically, you should aim for 85% customer retention rate to stay strong and relevant. Every industry and vertical is different, though. Depending on your business, the retention rate could change.
Here are some examples:
- Insurance: 84%
- Retail: 63%
- Banking: 75%
- SaaS: 35%
- Hospitality: 55%
- Media: 25%
- Fintech: 37%
Businesses that operate on a subscription basis should have higher retention because they rely on consistent sales. Other businesses that offer single purchases might have a harder time getting the same customers to come back.
If a company has a high retention rate, they are likely providing their customers with a valuable product or service. A high retention rate can confirm that your product is solving your customer’s problems or fulfilling their needs.
A low retention rate is a good indicator that your company is having a hard time keeping current customers or acquiring new, loyal customers. If this is the case, an evaluation of the product and marketing strategies could be needed. It could also indicate that your product needs to be improved or updated to satisfy your customers needs.
How to increase customer retention rate
Of course, to increase retention you need to gain loyal customers, but how do you find those customers?
Target a specific audience
Start by identifying your target audience. Who will use your service or product? Look at your current loyal customers; who are they? Once you can answer these questions, direct your marketing efforts to acquire more customers like your current, loyal customers.
Ask for customer insights and opinions
Ask your customers what they like and dislike about your product or service. Getting insights directly from the source is a simple and effective way to know what your customers want. From there, you can evolve your offerings to fit the needs of your customers. As the needs and wants of your customers change, so should your products and services.
Personalize and customize product offerings
As you improve the product, don’t forget about your customer’s experience. As you try to capture a large, loyal audience, make sure you’re also making each customer feel special. Personalize your marketing efforts to speak to your current customers as well as new customers.
Offer discounts and loyalty programs
Loyalty programs offer rewards in the form of discounts, special offers, or access to new products. Customers become motivated to purchase more because they can earn rewards that go towards future purchases. Sending discount codes also motivates customers to make a purchase. Consider sending offers after a first purchase or if a customer opts in to email newsletters.
Retention rate and Kochava
Kochava has multiple resources available to support your business’s upward growth with tailored re-engagement strategies across paid and owned media efforts, resulting in increased growth through audience activation. You can increase retention by utilizing detailed behavioral insights to reduce your customer churn rate. Engage current users effectively and tailor future marketing efforts by excluding users who exhibit uninstaller-like behavior.
Kochava analytics helps you visualize all collected data from your apps and marketing campaigns to analyze performance and understand how users engage with your app. You can see total app installs, users, in-app events (these are actions/conversions completed), revenue, and cost. Your analytics will only be as good as the underlying data, so make sure your data signal is clean with Kochava solutions.