How To Improve Customer Retention Rate? (10 Best Ways)

customer retention rate

Modern-day customers have a truckload of options — a fact that tends to push companies to aggressively improve their customer service programs.

The effectiveness of such programs can easily be measured by tracking the customer retention rate. What is the customer retention rate, you ask? Well, that’s precisely what we are discussing in this post.

Once we define the customer retention rate, we will move on to topics like customer retention rate calculation, its importance, key metrics to track customer retention, and ways you can improve customer retention rate.

Let’s get started!

Table of contents
What is customer retention?
What is customer retention rate?
How to improve customer retention rate?
1. Consistently collect customer feedback
2. Make it easier for customers to reach you
3. Improve customer onboarding
4. Enhance your online presence
5. Update your value proposition
6. Ensure low response times
7. Give more options to reduce churn rate
8. Develop a loyalty program
9. Pivot or re-engage inactive users
10. Conduct competition analysis

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What is customer retention?

Customer retention is essentially a metric that allows businesses to track customer loyalty. In other words, it is a metric organizations track to measure their capacity to keep their customers over time.

By monitoring customer retention, companies are able to identify the number of loyal customers, predict customer satisfaction, track customer engagement, repurchase behavior, and emotional relationships with a brand.

Keeping track of customer retention is imperative as it is critical to a company’s profitability since the cost of acquiring new customers is much higher than that of retaining existing customers.

Let’s dive deeper and learn about customer retention rates.

What is customer retention rate?

How can we measure customer retention at a company?

After all, we want to have foolproof insights into how our customer service programs, products, and services are performing in terms of retaining existing customers.

This is where the customer retention rate comes into the picture.

How to calculate retention rate (customer retention rate formula)?

Retention rate or customer retention rate is determined by first identifying the period of time. This can be anything from a month to a quarter to a fiscal year or more.

Next, we look for factors that impact the customer retention rate. Such as the number of customers at the start of the period, the number of customers at the end of the period, and the number of new customers acquired by the company during the period.

These statistics are significantly critical to the calculation. So, make sure the records are error-free. Now that you have all the factors, you can go ahead and use the following formula to calculate customer retention rate for the said period —

(E-N)/S X 100 = Customer Retention Rate

S = Total customers at the start
E = Total customers at the end
N = Total new customers gained in the period

calculate retention rate, calculating retention rate, customer retention metrics

How to improve customer retention rate?

Now that we are well-acquainted with the concept of customer retention rate, it’s time we discuss the strategies companies can implement to quickly improve retention.

Let’s get started.

1. Consistently collect customer feedback

How often do you solicit customer feedback? Since retaining new customers is cheaper than bringing in new ones, you should make sure the company never neglects its current customer base.

The existing customers are nothing but gold mines as they can offer valuable feedback on what they like and don’t like in your products and services.

Couple customer feedback with your retention strategy to improve user experience, customer support, and other factors that directly impact business-customer relationships.

2. Make it easier for customers to reach you

Customers should be able to reach you without any friction. This is because your customers will try reaching out to you only when they are in trouble or need to know more about some features.

If they can’t find someone to talk to on the phone, the interaction will soon turn sour.

Bad customer service is one of the top reasons why customers leave. So, make sure the inbound calls are forwarded to the right people, and quickly.

3. Improve customer onboarding

How seamless is your customer onboarding process? Customers shouldn’t feel any friction when interacting with your brand.

Therefore, you should prioritize onboarding process smoothness and efficiency to ensure customers easily understand your products and services and make informed purchases.

Making the onboarding process smooth and seamless involves providing checklists, sending timely onboarding emails/tooltips, and more.

To sum up, companies should ensure that onboarding is designed to help customers make better decisions.

4. Enhance your online presence

Are your customers able to use your online resources properly? Do they have access to your website and social channels? These are some questions you would want to consider when trying to improve customer retention rate.

Moreover, companies might want to update their online presence regularly, publish informative content, and even use it to automate transactions and capture leads.

Ensure your online customer service (email, social media, live chat) is quick and effective.

5. Update your value proposition

Customers are smart enough to figure out what’s in it for them. Therefore, pay attention to what you are offering to your existing customer base.

Customer retention rate can be improved by communicating the positive changes you have been bringing to the products and services you offer.

This can only be achieved if you have ample understanding of the customer pain points, and have established a workflow to solve them more effectively than your competitors. Make sure you regularly revisit and update your value proposition.

6. Ensure low response times

If there’s one thing customers hate to do, it is waiting. Reaching a human at your company shouldn’t be a big deal for your existing customers.

Besides, customers expect a quick turnaround time once they register their complaints.

Therefore, your company should establish a policy regarding returning voicemails and messages, and figure out which complaints (across all communication channels) to respond to first.

7. Give more options to reduce churn rate

Companies are able to reduce churn rate by intelligently implementing strategies that allow them to catch customers before they leave.

As a business owner, this is a massive advantage as you now have a system to figure out when to come up with lucrative offers and keep customers from leaving.

If you provide alternatives like pausing subscriptions, customers will not resort to cancellation. Offer such customers incentives, discounts, add-ons, and more to make them stay.

8. Develop a loyalty program

One of the most effective ways to keep your existing customer base intact is by developing an exciting loyalty program. What is a loyalty program? These are schemes that are designed to reward customers for staying with a brand.

A customer service program is often tiered and comes with loads of discounts, exclusive features, and gifts for customers who enroll in it.

The idea behind designing a loyalty program is to keep your customers happy and use customer loyalty to leverage word-of-mouth marketing.

9. Pivot or re-engage inactive users

Companies that are finding it hard to retain customers can also consider taking the pivot approach. In this, they will have to strategize their entry into a completely new market or develop ways to re-engage the inactive users.

The idea behind pivoting is to reduce the fierce competition and tackle the challenge of declining purchases by entering a new market with a new value proposition. At the same time, you can re-engage previous customers with lucrative offers.

10. Conduct competition analysis

What is your competition up to when it comes to improving customer retention rates? What are they doing to keep their customer base intact?

You will have to conduct a thorough competition analysis to investigate their products, services, and customer experience strategy.

This can be done by buying their products and being a part of their onboarding process. You may even analyze their customer support service by giving them a call or signing up for their newsletter.

customer retention rate formula, churned customers, user churn

Why is customer retention rate significant?

Now that we have discussed the basics of customer retention rates, let’s move ahead and discuss the various benefits of consistently monitoring customer retention rates.

1. Enables smarter and more sustainable growth

Sustainable company growth heavily depends on how well you keep your customer base intact. Keeping track of customer retention rates allows companies to lower costs and increase profit.

As we have mentioned in some of our previous posts, a five percent increase in customer retention can help companies boost their profits by twenty-five percent!

2. Boosts customer lifetime value

CLV or Customer Lifetime Value is a metric worth tracking as it directly reflects the effectiveness of your customer retention strategies.

One of the most important reasons why we suggest you work on your customer retention strategies is to increase customer loyalty, which will push customers to spend more over the course of time.

3. Generates more customer insights

When you track customer retention rates, you will unravel new insights into your existing customer base.

This is achievable if you make the most of your legacy data by generating behavioral and purchase patterns and using the insights to make better business decisions.

The insights can then be mapped with the reasons why certain customers make certain decisions, and help develop better customer retention strategies.

4. Encourages referrals and strengthens customer loyalty

You don’t just want customers to be a part of your organization, you also want them to bring in more customers.

This is possible only by providing incentives to existing customers for improved customer acquisition rates.

Improving customer loyalty through customer retention strategies makes it easier to encourage referrals and build a business based on recommendations.

5. Makes acquisition cheaper

Customer retention is also important because it is much cheaper than customer acquisition. Customers that you already have an ongoing relationship with can be persuaded to make more purchases.

New customers come with the cost of acquisition, which can be anywhere between four to ten times the cost of retaining customers.

6. Helps reduce customer churn

A current customer is more likely to buy from you than a prospect. This means that new customers are hard to acquire. Therefore, companies do everything in their capacity to reduce customer churn.

The benefit of customer retention strategies is that they help businesses figure out which customers are about to leave and implement simple tactics to provide them with reasons to stay.

measure retention rate, customer satisfaction, customer expectations

How to conduct customer retention analysis?

Let’s dive deeper and understand the process of customer retention analysis. Here are the key steps involved —

1. Set the time period

The very first step is to determine the timeframe for which you want to conduct customer retention analysis. This can range from weeks to months to years, depending on your specific business model.

2. Calculate customer retention rate

We have already discussed how you can calculate customer retention rate. Use the retention rate formula by consolidating the statistics for the set time period.

To calculate retention rate, you will have to subtract the number of new customers from the number of total customers in the timeframe.

Then divide the result by the total number of customers at the start of the time period, and further multiply the result by a hundred.

3. Refer to key retention metrics

Some of the key customer retention metrics you would like to use during retention analysis are cohort analysis, revenue churn, Net Promoter Score (NPS), repeat purchase rate, and Customer Lifetime Value (CLV).

4. Conduct cohort analysis

An effective cohort analysis helps companies derive deeper insights into how their customer retention strategies perform. This is done by grouping customers with similar attributes and analyzing their customer behavior to identify patterns and trends.

5. Examine the benchmarks

How well are your customer retention strategies performing with respect to your competitors? Use market standards and benchmarks while comparing your retention rate with that of your competitors.

6. Improve retention rate

Lastly, use the tactics and strategies we have mentioned in the post to improve your customer retention rates. Let’s discuss a few, shall we?


Businesses lose and gain customers, and there are times when you just cannot do anything about it.

However, consistently tracking customer retention rates makes it easier to couple your customer service efforts with valuable insights.

As a company, you should strive to improve your customer retention rate by discovering and addressing customers’ issues and encouraging them to keep coming back.

We highly recommend you implement the tactics mentioned in this customer retention rate improvement guide. Did you find this post helpful? Stay tuned for more informative posts in the future.

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