Customer Retention Guide: How to Maintain a Strong Customer Base

Customer Retention Guide: How to Maintain a Strong Customer Base
Learn the key metrics for measuring customer retention and how to keep people coming back.
by Mary Hohn Jul 23, 2019 — 3 min read
Customer Retention Guide: How to Maintain a Strong Customer Base

When you’re a small business owner, your customers are your most valuable asset. While you need to grow your customer base to increase sales, it’s even more critical to keep your existing customers coming back. By doing this, you can guarantee more revenue while using fewer resources.

To build a loyal customer base — and set your business up for success — here is a customer retention guide.

What is customer retention?

Customer retention is the ability of a company to keep its customers over a specified period of time. Retaining customers and focusing on customer success are fundamental to your business in the long term, for various reasons, including:

The difference between customer retention and acquisition

Both retention and acquisition are essential business strategies to grow your sales, but it’s critical to know when you should focus on each of them. If you’re just starting out, you need to build your customer base. However, once you’ve established this base, focusing on customer retention is a more budget-friendly, reliable way to generate predictable revenue.

Customer retention formula

To figure out your customer retention rate (CRR), you need to define a set period of time (e.g., a quarter or a year), and you need the following information for that period:

Once you have those numbers, you can plug them into the customer retention rate formula, which is:

(E–N) / S x 100 = CRR

As an example, let’s say you start the quarter with 50 customers, gain 10 new customers, and lose five customers:

((55–10) / 50) x 100 = 90% retention rate

Important retention metrics

As you’re assessing and optimizing customer retention, make sure you measure these key metrics:

Definition Formula
Repeat customer rate measures the percentage of customers who come back for another purchase. (Repeat customers / total customers) x 100
Repeat purchase probability estimates the likelihood of customers making a repeat purchase. (Number of customers that purchased your product X how many times) / total number of customers
Purchase frequency/rate calculates how often customers are making purchases over a set period of time. Number of purchases / number of customers
Time between purchases shows you how long a typical customer goes before making a repeat purchase, and is typically calculated over a year-long period. 365 days / purchase frequency
Average order value tracks the average dollar amount customers spent per order over a given period of time Total revenue / number of orders
Customer lifetime value (LTV) indicates the total revenue a business can expect from a single customer. Average order value / purchase frequency
Customer churn rate is the number of customers you lose over a set period of time. Number of customers lost / total number of customers

Square’s POS system collects important information using individual buyer profiles, such as a customer’s first visit, last visit, frequency of visits, total visits, average spend, and total spend. You can gain valuable insights into key retention metrics through the analytics dashboard that comes with Square.

Customer retention strategies

As you track your retention metrics in your POS or through other avenues, consider implementing these customer retention programs to help you improve your customer retention rates:

Mary Hohn
Mary Hohn writes for Square, where she covers topics that affect business owners — from starting a business to growing a business — and the tools and technology that help them succeed.

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