af98.png "Northpass By Gainsight logo")
What's Customer Retention & How Do You Improve it in 2023?
Table of Contents
Customer retention is the rate at which customers continue to work with a business. Retention is the opposite of churn, which measures the percentage of customers who stopped using a product or service.
What do those letters mean?
S: The total number of customers at the beginning of the time period.
E: The total number of customers you have at the end of the time period.
N: The total number of new customers acquired during the time period.
That's confusing, so let's break that down—here's an example of how to measure customer retention:
Step #1: Determine the time period you want to measure (i.e., you want to measure your customer retention rate for the past 12 months).
Step #2: Figure out how many customers you had at the beginning of the time frame you want to measure (S). For this example, let's say you had 100 customers at the beginning of the year.
Step #3: Figure out how many customers you have at the end of that time period (E). For this example, let's say you have 95 customers.
Step #4: Figure out how many customers you acquired during that time period (N). For this example, let's say you acquired 25 new customers during the year.
Step #5: Put everything into the formula. For this example, that'd look like this:
[(95-25)/100] x 100 = Customer Retention Rate (CRR)
In this example, your customer retention rate for the year was 70%.
Retention is the percentage of customers who have stayed with you over a certain period of time. On the other hand, the churn rate is the number of customers you’ve lost over a period of time. While retention indicates success, churn is the opposite and a sign that you may want to reevaluate your product and processes.
So, what's a good customer retention rate in 2023? Although 100% is obviously the ideal customer retention rate, that's not a realistic goal to aim for—you'll always have customers who churn for one reason or another.
Instead of setting your sights on perfection, target these average customer retention rates by industry:
Unfortunately, different sources will give you different averages, so use these as a baseline to determine your ideal customer retention rate.
Regardless of the variance, we can agree that most industries are clearly struggling to retain their customers. That's bad news considering 72% of customers swit
