What makes you return to a business to purchase goods or services? Is it the low prices, attentive employees, or consistent customer service? Savvy business owners know the value of repeat customers, who are essential for a business’s success. The rate of returning people who make purchasing decisions, known as customer retention, tends to be robust when customers’ expectations are met.
Customer retention is crucial for a business’s survival and growth. Besides the repeat purchases themselves being good for a business’s earnings, returning customers tend to talk about their favorite businesses and brands to family, friends, and colleagues. They might even post on social media and leave positive comments or reviews. These devotees have the potential to organically add value and be part of a business’s loyal customer base.
What is a customer retention rate?
A customer retention rate is a percentage, from 0% to 100%, of current customers who make repeat purchases measured over a specific time period. A robust customer retention rate typically signifies satisfied customers; a lower rate might mean a business is facing challenges—and the potential of losing customers.
Customer retention statistics are an excellent indication of a business’s health, risk, and survival. The time period that’s measured could be weeks, months, quarters, years, or whatever segment of time a business owner is trying to capture for data analysis.
Customer-centered strategies like personalized, friendly service tend to attract repeat customers. In a Treasure Data/Forbes survey, 74% of those surveyed are likely to make purchases based on a buying experience; 77% think the customer experience is just as important as the quality of the products or services.
The opposite of customer retention is customer churn, which is when repeat customers stop buying, or end subscriptions. It is also measured over a specific time period, called the customer churn rate, or attrition rate. Obviously, no business owner wants customer churn, which can be caused by a poor customer service experience or a completely unrelated circumstance, like a customer moving across the country.
Each industry has an average customer retention rate. For example, the average banking customer retention rate is relatively high, at 75%, as customers generally keep bank accounts at one bank. The rate of insurance customer retention statistics is even higher, at 83%. Meanwhile, the hospitality sector (which includes restaurants) has a comparatively low rate, at 55%, potentially due to the multitude of restaurant choices and massive competition, despite the frequency at which many people dine out. Comparing two retention rate averages of different industries, therefore, is like comparing proverbial apples to oranges.
How to calculate customer retention
Business owners can use the equation CRR = [(E-N) ÷ S] x 100 to calculate customer retention rates. It’s a straightforward formula that includes:
E = number of customers at the end of the measured period.
N = customer acquisitions during the measured period.
S = number of customers at the start of the measured period.
Let’s say an online beauty box subscription company wants to know its retention rate over a year. It started with 200 customers (S), ended with 175 (E) and had 20 new customers (N). Its retention rate, with 155 as the result of subtracting (N) from (E), would be:
If math isn’t a strong point, this calculator might be a more painless way to calculate the customer retention rate.
Because of trackable purchasing methods woven into ecommerce—like SaaS, and B2B businesses—it’s easier to gather data and calculate customer retention rates compared to brick-and-mortar shops, where customers and their habits are not as easy to track. If you have a Shopify store, you can improve retention rates by building customer groups based on customer engagement, or lack of engagement.
Still, physical businesses that sell to the public—from boutiques to massive chain stores—can implement strategies to track some returning customers’ activity. These include loyalty programs, store-issued credit cards, gift cards, memberships, surveys, mailing lists, and online purchasing.
What are the top 3 keys to customer retention?
Multiple customer retention factors determine when—and if—a current customer might purchase again. Each facet of the customer experience is important, but to retain customers, it boils down to customer satisfaction.
Great customer service
Attentive customer service tends to attract the repeat customer. Whether it’s buying a specialized SaaS for work, groceries at a supermarket chain, or returning a faulty watch, customers appreciate individualized customer assistance. According to a Gartner report, there is an 82% probability of repurchasing or renewal when customers feel they’ve received value from a customer service interaction, and a 97% probability of positive word of mouth.
Feeling understood and valued
When customers peruse an ecommerce platform, app or a physical store and feel they’re being spoken to through the product selection and marketing visuals, they’ll more likely return. Buyers who feel valued by businesses and have a positive customer experience, tend to be loyal to a business or brand. However, brand loyalty can be difficult to predict due to shifting buying habits through technology and life-changing events like the COVID-19 pandemic.
Having a sense of community
Customers often return to businesses when they feel a sense of community with the brand’s messaging, fellow customers enrolled in a loyalty program, or even the founders and employees. The Local, a small English-language news platform in Europe, has reduced its churn rate to less than 4%—nearly unheard of in the media industry. The outlet has accomplished this by actively engaging with readers and analyzing its customer retention trends to see what keeps readers subscribing.
Customer retention statistics
Customer retention rates vary by sector and industry, primarily due to frequency of purchase—say, for a streaming service subscription compared to an automobile—and availability. Different industries have a range of retention rates, Statista compiled a list of 2018 global average customer retention rates:
- Media companies: 84%
- Professional services: 84%
- Automotive and transportation 83%
- Insurance industry: 83%
- IT services: 81%
- Construction and engineering: 80%
- Financial services: 78%
- Telecom industry: 78%
- Health care: 77%
- IT and software industry: 77%
- Banking: 75%
- Consumer services: 67%
- Manufacturing: 67%
- Retail: 63%
- Hospitality, travel, and restaurants: 55%
If your customer retention rate isn’t measuring up to the industry average, there are numerous actionable measures you can take. Retention software like Zendesk and Gainsight helps with retaining existing customers. Even talking shop within a community, troubleshooting customer churn, and discussing actionable insights drawn from customer feedback with fellow entrepreneurs can all generate ideas for experimental DIY customer retention programs. And if you’re building and tracking customer groups in your Shopify store, you can use these to run email automations to re-engage customers or visitors and turn them into retained customers.
What can customer retention analysis achieve?
Analyzing customer retention stats can help business owners on multiple fronts, as existing customers are likely to spend 67% more than new customers. In the financial services sector, a Bain & Company report found that even a “5% increase in customer retention produces more than a 25% increase in profit.”
When business owners analyze and compare their repeat customer statistics to previous periods, it can illuminate what services and business strategies are contributing to repeat purchases, increased revenue, or churn. Perhaps there are patterns or a common complaint, like poor customer service. Both physical and virtual businesses can try implementing various marketing strategies, such as email campaigns, social media marketing, and loyalty programs to engage retained customers and boost customer statistics.
Despite the benefits of analysis, Rob Markey, a partner at Bain & Company, advocates for businesses to value winning customer loyalty over quick profits—even making the case for publicizing a company’s retention metrics and customer acquisition statistics for potential investors.
Customer retention statistics FAQ
What is the average retention rate for customers?
The average retention rate varies between sectors and industries, but 55% is the average retention rate for hospitality businesses, while the average for IT services is 81%.
What does 80% retention rate mean?
If a business has an 80% retention rate, that means 80% of its retained customers have purchased again. The criteria and definition of a “repeat buyer” however, is different by business. An online boutique might define a repeat buyer as someone who purchases once a year, while a subscription box service might define a repeat buyer as someone who receives their box once a month.
What is a KPI (key performance indicator) for customer retention?
There are several KPIs for customer retention. One is an increased repeat purchase rate, which is when a customer transitions from buying once a month, for example, to three times a month. Another KPI is analyzing customer satisfaction scores that (hopefully) improve over time. A painful KPI is a business’s churn rate, which may encourage a business to implement customer retention strategies to attract customers who have slowed down their purchases.
How do you measure customer retention?
The customer retention rate equation CRR = [(E-N) ÷ S] x 100 measures a business’s customer retention rate over a given time.
E = number of customers at the end of the measured period
N = customer acquisitions during the measured period
S = number of customers at the start of the measured period
This equation primarily helps ecommerce and B2B businesses that have easier-to-track purchasing data—since all payments are made online—versus businesses housed in physical retail shops. Another option is a customer retention rate calculator