20+ Strategies To Increase Customer Retention Rate
Hacks to Improve Retention Rate
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Retention Rate: Key Statistics and Facts
About Retention Rate
There is a metric that shows how well we have created a subjective value named Conversion Rate.
There is also a metric that shows how well we have built actual value, called Customer Retention Rate.
These metrics provide significant insights into a digital business.
Customer Retention Rate: Definition and Importance
Understanding CRR can be challenging due to its complex logic. Let's break it down.
To grasp the logic of Retention, we need to understand how cohort analysis work. We have prepared an image with measurements to explain:
Each row represents a cohort. The numbers represent purchases (or any relevant metric like visits, feature clicks, events, etc.). Let's focus on the highlighted cohort.
- In January 2022, there were 126 first purchases.
- The people who made their first purchases in January 2022 went on to make 12 purchases in the next month (February 2022).
Let's calculate Retention Rate:
- 1-Month Retention Rate of this cohort is calculated as 12/126 * 100% = 9.5%.
- 2-Month Retention Rate of this cohort is calculated as 11/126 * 100% = 8.7%.
- 3-Month Retention Rate of this cohort is calculated as 7/126 * 100% = 5.5%.
And so on.
In simple terms, Customer Retention Rate is the percentage of customers who choose to stay after a specific period.
Here's how you can calculate Retention Rate:
X-Month Retention = (X-Month Purchases / 0-Month Purchases) * 100
You can apply the same logic to calculate N-Day or N-Year Retention Rate, depending on your industry. For example, mobile apps often use N-Day retention for decision-making. This metric can also serve as a Key Performance Indicator (KPI) because it is closely tied to revenue.
As we can see, the majority of customers who made a purchase did not return to make another one. They consistently dropped off each month.
This curve clearly illustrates the trend:
When aiming to improve Retention, it is crucial to analyze and focus on strengthening early retention: conversion in the first renewal (for example, in the case of SaaS) or in the second purchase (for example, in the case of e-commerce). These metrics determine the trajectory of the entire Retention curve.
Additionally, financial metrics such as Revenue or Margin can be used instead of Purchases to understand the average monetary returns after 3/6/12 months of customer acquisition. This provides insights into the Return on Marketing investment.
Products with strong retention can achieve the payback of Customer Acquisition Cost even after a year, which is acceptable.
Max KrasilovCo-Founder of Romichi
Customer Retention Strategies and Tactics
The main driver of customer retention rate is value, user experience, and the product's competitive advantages. Whenever a problem arises, people choose between solutions on the market, and your product should solve it better than others.
Use this hack to understand your crucial customer segments and how to work with them, increasing value:
This research can provide you with an understanding of your core jobs and additional jobs that are good to have in the future to increase value.
Let's determine another major retention driver:
- Remarketing: Retain users through email, push notifications, and retargeting ads, reminding them about your product or offering incentives to encourage repeat purchases and engagement.
- User Experience: Reduce "transaction costs," in other words, cognitive expenses, enhance navigation, accelerate loading times, and make your core user flows more intuitive to satisfy users.
- Gamification: Include game-like elements into your product, such as ratings, achievements, challenges, and rewards; it can increase user engagement and motivate customers to continue using your product and do it in the right way.
- Loyalty System: Build a loyalty program that rewards customers for their continued support, fostering a sense of appreciation and encouraging repeat purchases, prolongations (if we're, e.g., SaaS) or usage.
- Engagement: Leverage social media platforms and create valuable content to help you interact with your customers. Building a community around your product would definitely increase CRR.
Use Romichi's collection of Growth Hacks to get inspired and improve retention.
