Do you have any knowledge of the client retention rate? Or have you truly understand how to calculate your customer retention rate? Firms using old business models are substantially different from those functioning in contemporary business environments like telecoms, insurance, SAAS, and other subscription-based businesses. Only long-term customers who pay recurrent fees to the company may make this enterprise profitable. Simply said, maintaining customers is the secret to a modern business’ longevity.
Businesses nowadays are paying much more to acquire new customers than they do from a single transaction. Only if the consumer continues with the company for a long period can these fees be recovered. In actuality, acquiring a new client is five times more expensive than keeping an old one. For more specific information on how to calculate your customer retention rates, here is a thorough explanation of it.
About Customer Retention Rate
The percentage of customers a company keeps over time is known as the customer retention rate. The retention rate, put simply, is the proportion of repeat consumers a company has. These pleased clients who do business with the organization again are loyal consumers.
The percentage of a company’s current clients who keep doing business with it is known as the retention rate. Customers who repeat purchases within a specified time frame and customers who renew their subscriptions within that time frame are all included in this group. The goal of the customer retention rate measure is to track a company’s performance and client acquisition and retention capabilities.
Steps on How to Calculate
There is a formula that you must be familiar with before you can begin to calculate client retention. Note that the following formula is used to determine client retention:
Retention Rate = ((E-N)/S) x 100
- Number of customers at the end of the period (E)
- Number of new customers acquired during the period (N)
- Number of customers at the beginning of the period (S)
This calculation for customer retention rate takes three factors into account. The time frame used to compute the retention rate is called the period. It can be in the form of days, weeks, months, or even years that might pass. Next are the customers who make further purchases. These are clients who conduct business with your organization repeatedly. Last is the customers at the start of the time frame. This represents the total number of current clients at the start of the time frame.
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Example of How to Calculate Your Customer Retention Rate
There is a company PT. XXX which wants to calculate the level of customer loyalty. Where in January 2022 PT. XXX has 100 subscribers. Then lost 15 customers. Then right in March PT. XXX managed to collect as many as 25 new subscribers. So that PT. XXX closed the company’s three-month period with a total of 110 customers.
Therefore, from the above sample, it can calculate as below:
- Customers at the end of the three months (E) = 110 customers
- New customers during the period (N) = 25 customers
- Customers at the beginning of the three months (S) = 100 customers
Answer or Solution:
- Customer retention rate = ((110-25)/100) x 100
- Customer retention rate = (85/100) x 100
- Customer retention rate = 0.85 x 100
- Customer retention rate = 85%
The total retention rate is 85% which is a pretty good rate. Each company has a different level. Taking retention rates into account is just as important as estimating your revenue growth.
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Various Factors on Customer Retention Rate
Customers will continue doing business with you unless they have a good cause to leave. These causes, though they differ from industry to industry. Frequently this can happen as a result of the following things.
- Customer Satisfaction
Consumer satisfaction is measured by contrasting customer expectations with actual customer experiences. The consumer is more inclined to stick with the company if the experience exceeds expectations.
- Customer Success
Customer success is when consumers use offers to achieve their objectives. In such circumstances, people frequently continue doing business with the company and take advantage of the offer.
- Customer Dependence
Customers are more likely to stick with a firm if they depend on its services to complete their responsibilities.
- Barriers to Leaving
A client may find it tough to quit and opt to stay with the company if they are bound by an agreement or may be missing something.
Closing and Conclusions
The approach how to calculate your customer retention rate involves counting the number of customers who stick with the business over an extended period. The greater the quantity, the more devoted clients you have. It is crucial to use technology to support all of the procedures and methods that businesses employ to control relationships with current and future clients. Therefore, make sure to understand the above steps well and use appropriate tools to help you with it.
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Furthermore, you also need to remember that this retention rate is mostly affected by various factors as mentioned previously. Therefore, the company will need to take various steps to avoid those factors getting worse. By having an appropriate way how to calculate your customer retention rate, you will be able to decide what steps need to perform to manage your customer well in the end.