How to Measure Customer Retention

Get ready to do a little math. While not my typical lesson, this is very important. It's about customer retention—which can lead to customer loyalty.

Loyal customers are important to all businesses regardless of industry or size—large, small, B2B or B2C. Most businesses know their numbers, but do they know the right numbers? It's easy to measure customer satisfaction at different levels. We find out how they liked our experience. We know that if they liked the experience, that is the first step in getting them to come back. The "getting them to come back" number is different than the, "were you happy with us?" number. I'd love for customers to rate our business as a five out of five every time, but the number that is almost as important—maybe even more so—is the one that proves to us that the customer came back. That's your customer retention number.

If this is of interest to you—and it should be—then get out a pad of paper and a pencil. It probably wouldn't hurt to have a calculator, either. Let's get started.

According to Zendesk, the customer retention rate measures the number of customers a company continues to do business with over a given period of time. It's a percentage of existing customers that maintain loyalty to the business within that window of time.

The formula for calculating customer retention is pretty simple. First, you need three pieces of information:

1. You need "S" – the number of existing customers at the START of the period of time.
2. You need "N" – the number of NEW customers added in the period of time.
3. You need "E" – the total number of customers at the END of the period of time.

Subtract the number of new customers added over a period of time (N) from the total number of customers at the end of that same period of time (E). That's E minus N. Divide the resulting number by the number of customers at the start of the time period (S). Finally, multiply that number by 100 and you'll have the percentage of customers who stay.

In other words: [(E – N) ÷ S] × 100 = customer retention rate.

Obviously, the closer you are to 100% the better. Very few companies can say, "We retain 100% of our customers!" But if you're close, you're in the zone. When you continue to bring in new customers and get existing ones to return, that's a recipe for success and growth!

Shep Hyken is a customer service expert, keynote speaker, and New York Times bestselling business author. For information, contact 314-692-2200 or www.hyken.com. For information on The Customer Focus™ customer service training programs, go to www.thecustomerfocus.com. Follow on Twitter: @Hyken

(Copyright © MMXX, Shep Hyken)

This article was republished with permission and originally appeared at Shep Hyken.

Graphic courtesy of Shep Hyken.