Customer Retention Rate (Meaning + How to Calculate)

Content Writer
March 27, 2024

Most sales and marketing teams work around the clock to acquire new customers. However, retaining loyal buyers can be equally, if not more, important for your bottom line. Yet, 44% of businesses fail to measure their retention rate, missing out on important information.

In this article, we’ll explore the meaning of customer retention rate, how to calculate it, and the best customer retention strategies to improve your business. Let’s begin.

What does customer retention mean?

The customer retention rate illustrates how many customers purchase your products or services over a specific period. A high retention rate is also a signpost that your organization is set up for success, your products or services address the needs of your target audience, and your brand messaging hits the right spot with your buyers. Ideal, isn’t it?

A good product, however, is not enough on its own. There are many customer retention strategies you can implement across your organization to make sure your business thrives. But first, let’s discuss how to calculate your average customer retention rate.

How to calculate the customer retention rate?

Ideal retention rates can vary vastly depending on industry or business size; however, in general, the higher your customer retention rate, the better your organization is performing. In several industries, the top competitors have an average of 94% retention rate.

Calculating your customer retention rate using a formula is fairly straightforward. However, in real life, you’ll likely use software such as your CRM to calculate it for you. Nonetheless, understanding the basics is still important so you can keep a tab on your operations at all times.

Step 1: Select a specific period that you would like to learn more about. Depending on your needs, this can range from a month to a year.

Step 2: Use the customer retention rate formula below, and then multiply by 100 to get a percentage.

Customer Retention Rate = [(Total number of customers at the end of the period - customers gained during the period) / Customers at start of the period] x 100

If your business starts the month with 500 customers, loses 100 of them through this period, but gains 50, your retention rate would be 80%.

[450 (customers at the end of the month) - 50 (customers gained)]/ 500 (customers at the beginning of the month)=0.8

0.8 x 100= 80% customer retention rate.

Why is customer retention rate important?

Perfecting your customer retention strategy can benefit your business for many reasons:

  • Customer retention metrics provide a great insight into the health of your organization, shining a light on your customer satisfaction and product profitability. Building on these metrics, you and your teams can ensure you bring out the most of your operations daily.
  • Increasing your customer retention rates can increase your profit significantly. According to research, a 5% increase in customer retention can result in a 25% boost to company profits.
  • High retention rates increase the chance of customer advocacy and word-of-mouth referral, bringing new customers to your doors without effort. 86% of customers suggest that they would recommend a company to their friends after a positive experience.

Best ways to increase customer retention

There are many ways to increase customer retention across your business. We have listed our favorite strategies below so you can start streamlining your operations today.

Seek out feedback

If your customer retention rate is lower than ideal, it’s important that you reach out to your customers to identify potential issues. This can be achieved in many ways, from automated feedback surveys and behavior analysis to your support teams actively reaching out to your customers. The more feedback you receive, the more likely you will fix the gap in your organization’s performance.

Offer incentives

If your bottom line allows, you might want to attempt to catch your fleeing customers with incentives such as discounts or special features to stop them from leaving. Allowing users to pause their subscriptions instead of canceling or offering flexible subscription solutions to fit their exact needs might also solve your problems in this instance.

But don’t just reward the leavers! Ensure you have strong loyalty programs that reward your long-term customers to maximize success. 53% of buyers suggest that discounts and loyalty schemes can positively affect their customer loyalty so make sure to get this right.

Reassess your pricing and product

If your organization operates in a highly competitive environment, your competitors can often tempt your buyers with lower prices or better products. 78% of customers claim that a fair price is one of the most important factors in their search.

To stay ahead of the pack, it’s important to continuously execute market research and improve your product quality. Readjusting your strategy should be a key part of your processes.

Opt for multi-year contracts

In the B2B environment, opting for long-term multi-year contracts can ensure your retention rate remains high year-round. Although highly beneficial, they can often be complex and lengthy to execute, forcing business leaders to drop prices to encourage companies to commit.

Ace your customer support

Customer support is one of the most important aspects of your organization to get right.. Ensuring that customer requests are handled efficiently and quickly can be a key factor in retaining customers. Solutions like Thena can help businesses easily monitor incoming tickets.

Nestled within Slack, Thena provides award-winning support straight from the platform your end-users regularly access. With our conversational ticketing system, business leaders can rest easily knowing that no request ever goes missing.

Boosting Customer Retention with A Feature-Focused Approach

FeatureDescriptionHow it Increases Customer Retention
Proactive Outreach & analyzes historical data and identifies at-risk customers based on past interactions or sentiment analysis.Enables proactive outreach to address potential issues before they escalate, demonstrating attentiveness and building trust.
Personalized Support ExperiencesLeverages customer data and conversation history to suggest relevant knowledge base articles, recommend solutions, or connect customers with the most suitable support agent.Makes customers feel valued and understood, leading to a more positive brand perception.
Improved Self-Service surfaces relevant knowledge base articles or FAQs directly within Slack conversations, empowering customers to find solutions independently.Reduces reliance on support agents and empowers customers to resolve minor issues efficiently, increasing satisfaction.
Faster Issue ResolutionAutomates repetitive tasks (e.g., ticket routing, status updates) and facilitates collaboration among support agents within Slack channels.Ensures issues are addressed swiftly, minimizing customer frustration and wait times.
Real-time Sentiment AnalysisIdentifies negative sentiment within customer conversations, allowing for prompt intervention and resolution.Enables proactive issue mitigation and demonstrates responsiveness to customer concerns, fostering trust and loyalty.
Reduced Communication SilosBreaks down communication barriers between departments through seamless collaboration tools within Slack.Ensures customer inquiries are addressed holistically and all relevant information is readily accessible, leading to faster resolutions and a more positive customer experience.
Multilingual Support(Optional) Enables real-time translation within Slack conversations, eliminating language barriers.Provides a more inclusive customer experience and demonstrates your commitment to catering to a global audience.
Continuous provides data-driven insights into customer interactions, helping identify areas for improvement in your knowledge base, agent training, or overall support processes.Empowers you to continuously optimize your customer support strategy and proactively address evolving customer needs, leading to higher satisfaction and retention rates.

FAQs: Customer Retention Rate (CRR) in B2B SaaS

General Understanding:

What is Customer Retention Rate (CRR)?

Customer Retention Rate (CRR) shows how well your B2B SaaS hangs onto customers over time, like a month or a year. It's a mirror to how happy your customers are and how solid your subscription game is.

Why is CRR important for B2B SaaS companies?

Landing new clients costs a pretty penny. That's why keeping the ones you've got matters so much. A beefy CRR means you've hit the sweet spot with your market, your users are smiling, and your cash flow is steady.

Benchmarks and Averages:

What is a good CRR for a B2B SaaS company?

What's considered "good" for CRR shifts with things like industry type, how complex your product is, and the size of your company. Yet, a common goal is to reach a CRR of 80-85% or more.

How does CRR compare to churn rate?

CRR and churn rate sit on opposite sides of the scale. While churn rate shows how many customers you're losing over a certain time, CRR showcases how many you're keeping. For instance, if your CRR is 90%, it means your churn rate is 10%.

Improving Customer Retention:

What are some strategies to improve CRR in B2B SaaS?

Put customer success at the heart of everything! Offer top-notch customer support, engage before they ask, tailor experiences, and keep the help coming with resources like how-tos and webinars. Make your product a breeze to use and listen to what your customers tell you. Fix what bothers them, enhance your product.

How can help improve CRR? pushes the boundaries with AI to make support feel more personal, streamline tasks, get the emotional gist of feedback, and spot customers who might be thinking of leaving. This leads to quick fixes, happier customers, and less of them leaving, which means better retention.

Specific Scenarios:

My CRR is lower than expected. What should I do?

Dive into churn data to figure out why customers are leaving. Usual suspects? Bad onboarding, not seeing the product's worth, or not-so-great customer support. Tackle these problems and work on bettering the customer experience.

How can I measure the impact of CRR improvement initiatives?

Keep an eye on your CRR and watch for shifts post-strategy updates. Use customer satisfaction surveys and feedback tools to gauge if your changes are hitting the mark.

Wrapping up

Keeping an eye on your customer retention rate is crucial for the health of your business. Investing in effective customer retention strategies can help boost your bottom line and stay ahead of your competitors.

At Thena, we can maximize the efficiency of your customer support processes, keeping your loyal customers happy and boosting your customer retention rate in the long run.

Request a free demo today.

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