Customer Retention Metrics (Growth marketing)

Customer retention metrics are key performance indicators (KPIs) that measure how effectively a business keeps its customers over time, with common examples including Customer Retention Rate, Customer Churn Rate, and Customer Lifetime Value (CLV). These metrics help assess customer satisfaction, identify areas for improvement, and predict future revenue

1. Customer Retention Rate

How to calculate and improve customer retention rate (+ formula)

Customer retention rate measures the number of customers a company retains over a given period of time. Calculate retention rate with this formula: [(E-N)/S] x 100 = CRR.

Identify the time frame you want to study

Collect the number of existing customers at the start of the time period (S)

Find the number of total customers at the end of the time period (E)

Determine the number of new customers added within the time period (N)

2. Customer Churn Rate

Your customer churn rate is simply the inverse of your customer retention rate. For instance, if your retention rate is 90 percent, then your churn rate is 10 percent. The simplest way to determine your churn rate is to take the number of churned customers during a given time frame, divide it by the total number of customers at the beginning of that same time period, and then multiply the result by 100.

Customer churn rate formula: (Churned customers / Original number of customers) x 100

3. Customer lifetime value

Customer lifetime value (abbreviated as CLV or sometimes LTV) is a measure of how much profit the average customer contributes to a business over their entire lifecycle. There are several CLV formulas, ranging from simple to complex, but most of them attempt to account for the costs of acquiring and retaining customers.

One CLV formula is: (Average order value x Repeat purchase rate) – Customer acquisition cost

Another way to calculate CLV is: (Average number of transactions in a time period x Average order value x Average gross margin x Average customer lifespan) / Total number of customers

CLV is an important metric because it points to whether your company needs to invest more in marketing campaigns to acquire new customers or in a retention strategy to keep the customers you’ve got.

4. Repeat purchase rate

Repeat purchase rate is the percentage of customers who do business with a company again after their first purchase.

Repeat customer rate formula: Number of return customers / Total number of customers

Some companies go a step further and calculate loyal customer rate, which measures customers who made more than two purchases. The number of transactions it takes for a customer to qualify as “loyal” is at your discretion. The loyal customer rate formula is the same as the one above; it merely isolates a smaller number of customers.

Purchase Frequency: 

Shows how often customers make a purchase within a specific timeframe. 

Net Promoter Score (NPS): 

Measures customer loyalty and satisfaction by asking customers how likely they are to recommend the company to others. 

Customer Effort Score (CES): 

Measures how much effort a customer had to expend to get an issue resolved or a request fulfilled. 

Revenue churn Rate

Revenue churn tells you how much monthly recurring revenue (MRR) you lost over a given period of time.

Revenue churn formula: (MRR lost within the time period / MRR at the beginning of the time period) x 100

Unlike customer churn rate, revenue churn doesn’t measure the total number of customers—it measures their impact on your bottom line. This information is useful if you have a tiered pricing model, no set average order values, or many customers who downgrade rather than churn.

Active Users (Daily, Weekly, Monthly): 

Measures user engagement by tracking how many customers use a product or service on a regular basis. 

Product Return Rate: 

The percentage of products that are returned by customers.