How is Your Customer Retention Rate Measured? Top retention metrics and how to measure them

Read time: 5 mins

To crack the nut of customer retention, you need two things: An understanding of retention metrics and an appreciation of the significance of those metrics. 

While both are crucial, It’s this second part of the equation that tells the story beneath the raw data, allowing you to build trust with your customers and foster long-term relationships.

Today, we’re going to show you how to do both.

The customer retention rate

The standard way to measure you customer retention rate is to gather three key pieces of data:

• How many customers you had at the start of the period (S)
• How many new customers you acquire during the period (N)
• The total number of customers at the end of the period (E)

When you have these figures, put them into the following formula: 

• (E-N)/S x 100 = customer retention rate

If you want to know how to put this into practice, you can see a worked example in our comprehensive guide to customer retention. 

Top customer retention metrics

Retention is not a one-size-fits-all deal. There are plenty of other metrics to help you measure how well you’re keeping customers engaged and buying from your brand. A good retention metric is one that provides clarity, gives you a benchmark to work from, and points the way forward. 

Finding these metrics is easier said than done: sometimes it’s unclear why, or even if, a customer has churned. So use the retention metrics below, and to really understand what’s driving buying decisions, incorporate advocacy data to build a more complete picture of retention.

Metrics that measure purchases

Most attempts to calculate retention start with looking at purchases over a given period. 

• Average Customer Lifetime (ACL): Refers to the average length of time a customer remains engaged or active before they churn. You can work out ACL by adding the length of time each of your customers stays with your brand and dividing that number by your total number of customers. 

• Customer Lifetime Value (CLTV): This metric, closely related to ACL, is the total value of your customers over their whole relationship with your brand. It can be calculated at the level of individual customers, as an average of your entire customer base, or as an average of particular customer segments. 

• Purchase Frequency: This allows you to understand how often customers are coming back. Set a time period and divide the number of total sales by the number of customers who purchased during the period.

• Average Order Value (AOV): By tracking AOV over time, you can see if you’re successfully encouraging customers to purchase more in each transaction. You calculate AOV in a similar way to purchase frequency: choose a period of time to measure sales over but, this time, divide total revenue by number of sales.  

Churn rate 

Churn rate is the percentage of customers who discontinue their relationship with you during a certain period of time — whether in the form of cancelled subscriptions or a failure to make a purchase. 

Subscription-based businesses typically calculated churn rate by dividing the number of customers lost during that period by the total number of customers at the beginning of the period.

Businesses that rely on repeat purchases (retail, for example), measure customer churn as the percentage of customers who do not make repeat purchases within a certain period.

If you’re one of them, calculate churn rate by dividing the number of customers who have not made a purchase within a defined timeframe (e.g., six months or a year) by the total number of customers at the beginning of the period. 

Brands will often measure churn by looking at the inverse of this measurement, the repeat purchase ratio.

Understanding and improving retention with customer advocacy

If all you’re doing is tracking sales and customer churn, you’re only getting a surface-level view. Going beyond this and using advocacy data allows you to uncover the motivations, preferences, and behaviours of your most loyal customers.

Net Promoter Score (NPS)

NPS is a health check on how satisfied your customers are . Send a survey asking “On a scale of 1-10, how likely are you to recommend us to a friend?”

• Customers who respond with 9 or 10 are promoters (9 or 10 score): highly satisfied customers who are likely to recommend the product or service
• Those who say 7 or 8 are passives
• People who score 6 or less are detractors 

You can work out your overall NPS score by subtracting the percentage of detractors from the percentage of promoters.

Other advocacy metrics

Advocacy data gives you a host of insights into how your customers are feeling about your brand, capturing how engaged and active they are regardless of whether they’re ready to make a purchase at the particular point you’re measuring.

• Referral Rate: How many friends your customers refer and how often they do it is a great proxy for measuring retention. If your customers are sending others your way that's a pretty good sign they’re happy with you and want to stick around.

• Referral Conversion Rate: By tracking the number of referred friends who actually become new customers, you gain insight into the effectiveness of your referral strategy. High conversion rates indicate that your advocates are referring the right type of people and your offer is attractive to them.

• Advocate Engagement: Are your customers actively sharing referral codes with their contacts, or are those referral codes gathering dust? The level of advocate engagement is a crucial component of advocacy data as active advocates are typically your most satisfied and retained customers.

• Advocacy Frequency: How often are your customers advocating for your brand? Regular advocacy indicates an engaged and satisfied customer base, which can contribute to improved retention.

Building these advocacy insights into your analysis of customer retention gives you a deeper understanding of what’s motivating your customers to stick or twist. It shows you where and when you should be targeting your retention efforts, helping you create relevant customer experiences that grow long-term relationships and nurture your most valuable brand fans.

Mention Me is your Customer Advocacy Intelligence Platform that puts customer love at the heart of your marketing strategies. We offer tools and expert support designed to identify, activate and nurture your brand's most valuable customers.

Ready to turn your satisfied customers into life-long, passionate advocates? Let’s start a conversation. Our solution empowers you to identify true advocates, harness their authenticity and drive organic, sustainable growth. It’s time to take action and elevate your customer advocacy game with Mention Me.

Get in touch today!