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What is Customer Retention Rate and How to Improve it

Here's everything you need to know about customer retention rates and how these key metrics can help you build customer loyalty.

In many cases, customer loyalty can make or break a business. Cultivating a loyal customer base can lead to consistent sales, which improves your bottom line. Loyal customers also tend to refer other people to your company and play a big role in helping you establish a favorable brand reputation. If you’re interested in measuring customer loyalty as far as your own business is concerned, then one of the key metrics to pay attention to is your customer retention rate. Your customer retention rate is a metric that represents the number of customers who remain customers over a given period of time.

Calculating your customer retention rate is one way in which you can quantify customer loyalty and see how many customers are choosing to stay with your business within a certain timeframe.

With a better understanding of your customer retention rate, you can identify both strengths and weaknesses within your business. By cutting down on churn and increasing your customer retention rate, you can make progress in building a loyal customer base and optimizing your bottom line.

In this article, we explain what customer retention rate is and why it’s important. We also share the customer retention rate formula with you so that you can gain a better understanding of how to calculate the customer retention rate for your own business. Read from start to finish for an in-depth look at customer retention rate or navigate the article using the links below.

What is customer retention?

Customer retention describes a company’s ability to get return customers and generate repeat business.

Businesses with good customer retention capabilities have customers who return to the business again and again over time, continuing to engage with the company and make multiple purchases within a certain time period.

Businesses with poor customer retention capabilities, on the other hand, rarely see repeat business and instead lose customers after the initial sale or interaction.

Your customer retention rate is a specific metric that measures the percentage of customers who continued to make purchases over a given timeframe. A high customer retention rate indicates a high rate of return customers, while a low customer retention rate points to several one-time purchases and little repeat business.

Why is it important to retain customers?

Any business owner will tell you that customer retention is extremely important when running a business. Keeping customers happy to the point where they decide to come back for more is key for both short- and long-term success.

Regardless of the industry you work in, you always want your customers to have a positive experience with your organization, as this can help you build relationships, improve your reputation, and generate referrals.

Maintaining a high customer retention rate is also important when it comes to profits. That’s because retaining an existing customer is typically much cheaper than acquiring a new customer.

In fact, acquiring new customers can be five to 25 times more expensive than retaining existing customers. This makes sense when you think about what goes into acquiring new customers: the money you spend on marketing efforts, sales personnel, contracts, and more can quickly add up.

In addition to helping you avoid the costs of acquiring new customers, maintaining a high customer retention rate can have a remarkable impact on your bottom line. Even increasing your customer retention rate by a small amount can have a significant impact on profits. According to one study, a 5% improvement in customer retention rate can lead to a 25% to 95% increase in profits.

Also, keep in mind that retaining customers isn’t just about maintaining high-profit margins—a high customer retention rate can help you connect with your target audience, develop a loyal following, and build a brand with a credible reputation.

What is the customer retention rate formula?

In order to calculate your customer retention rate, you must start by choosing a given time period. This could be a year, a month, a week—whatever time period makes the most sense for your business.

Once you have chosen a time period, you just need to determine the total number of existing customers you had at the beginning of the timeframe, the total number of customers at the end of the timeframe, and the total number of customers acquired between the beginning and end of the chosen timeframe.

To express the customer retention rate as a percentage, the customer retention rate formula is as follows:

This formula makes it easy to calculate the customer retention rate for your business. With the three numbers listed above, you can quickly calculate customer retention rate and gain insight into a key aspect of your business.

What factors impact customer retention?

Your customer retention rate isn’t a metric that’s set in stone. By changing certain aspects of your business—particularly the ways in which you treat and interact with your customers—you can take steps toward improving your customer retention rate.

So what actually impacts customer retention rate?

Below, we’ve listed some of the key factors that tend to play a major role in influencing your customer retention rate. Pay close attention to these factors as you strive to boost your customer retention rate and build better relationships with your customers.

Customer satisfaction

By ensuring your customers have positive interactions with your brand, you can increase customer satisfaction and, in turn, boost your customer retention rate.

After all, satisfied customers who have had good experiences with your brand in the past are those that are more likely to return in the future. Even a single positive experience can lead to a loyal customer who continues to make purchases from your company for years to come.

Improving customer satisfaction is often easier said than done. This may be in part because you don’t fully understand which aspects of your customer journey are most satisfying to customers—or, on the other hand, which aspects may be driving them away from your business.

One of the best ways to gauge customer satisfaction and get actionable data is to provide an opportunity for customers to give you feedback.

For example, you might request customer feedback after they make a purchase or interact with one of your customer service reps. You can also use Mailchimp’s free survey tool to send out surveys to your audience, which allows you to measure customer satisfaction and better understand your audience.

With customer satisfaction data and insights on hand, you can address weaknesses and double down on strengths. By taking steps to improve customer satisfaction, you can potentially improve your customer retention rate and build a more engaged audience.

Brand trustworthiness

Brand trust describes the level of confidence consumers have in your brand when it comes to delivering on what you promise. A high level of brand trustworthiness can go a long way in helping to build customer loyalty and retain customers. That’s because customers want to buy from brands that put their values into action, meet expectations, and deliver on their promises.

Making hollow promises and consistently falling short of the expectations you set for your company is a quick way to lose customers. Even relatively loyal customers will likely switch over to another brand if they find their expectations aren’t being met.

By establishing your brand as trustworthy, you can increase your customer retention rate and even keep customers who may have had one or two negative experiences with your brand. If your audience views your brand as trustworthy, they may be willing to overlook a single negative interaction because they have confidence in your brand as a whole.

So how do you develop brand trust? The keys to brand trust are transparency, authenticity, and the ability to set clear expectations for customers. Avoid making promises you can’t deliver on, add value to the lives of your customers, and own up to mistakes when they occur. This can help your brand appear as trustworthy in the eyes of your audience.

Quality of service

Of course, quality of service plays a large role in customer retention. Almost everyone values a company that offers excellent service in addition to a good product. And, in a crowded industry, providing high-quality service can make you stand out from competitors.

After all, if two companies offer a very similar product, but one of them has higher service quality, customers will typically flock towards the brand that offers the better experience.

With this in mind, it’s important to take steps to optimize your customer service department and offer support at every step along the customer journey. Use audience management tools to personalize customer service interactions and speed up resolution times.

Additionally, invest in your customer service department and track customer satisfaction by sending out surveys and analyzing relevant customer service metrics.

What is considered a good customer retention rate for a business?

What’s considered a good customer retention rate varies widely depending on the type of business you run and the industry you work in. While your aim should always be to retain 100% of your customers, this rarely works out in reality and may not be possible in certain industries.

Some industries have much higher average customer retention rates than others. While certain industries come close to a 100% customer retention rate, other industries average a much lower rate.

For example, insurance companies tend to have a high customer retention rate, in large part because it’s a hassle to switch from one insurance company to another. In contrast, the e-commerce retail industry tends to have a fairly low customer retention rate because there’s a lot of competition and customers can easily switch from one retailer to another.

In order to evaluate your own company’s retention rate and determine whether or not it’s good, you must research competitors within your industry. By comparing your customer retention rate to your closest competitors, you can get a better idea of how you fare when it comes to customer retention.

How do you improve your customer retention rate?

If you believe that there’s room for improvement as far as your customer retention rate is concerned, then you may want to take steps to boost your retention rate. When you improve customer retention, you can make your business more profitable while building better relationships with consumers.

Interested in improving your company’s customer retention rate? Then you’re in the right place. Below, we list a few key tips that can help you reduce churn and increase retained customers for your business.

Set clear metrics

As you undertake the project of improving your customer retention rate, one of the first steps you might take is identifying key performance indicators (KPIs) that can help you track performance.

As with anything, it’s important to set goals and track progress when you set out to optimize customer retention management and boost your retention rate. By setting clear benchmarks and evaluating performance based on key metrics, you can objectively analyze your progress as you strive to meet your goals.

There are several metrics that you might want to keep track of as you attempt to improve your customer retention rate. In addition to calculating your customer retention rate, other metrics to keep in mind include:

Engage with customers

Making an effort to engage with customers can build trust, which, in turn, can help you improve your customer retention rate. By proactively engaging with customers, you can forge a relationship while also keeping your brand top of mind. This can make your brand pop into customers’ minds the next time they’re ready to make a purchase.

There are several ways in which you can engage with customers. For instance, you can use Mailchimp to run automated email marketing campaigns with personalized messages that appeal to the needs of specific audience segments. You can also do things such as interact with customers on your social media pages or even host in-person events in your community.

Encourage customer feedback

Not sure what your strengths and weaknesses are as a brand? Turn to your customers for honest answers and genuine feedback. Encouraging customer feedback can help you identify aspects of the customer experience that could be improved upon. Customer feedback can also reveal things that your business does really well and with a better understanding of your strengths, you can more effectively capitalize on them.

There are many ways to solicit customer feedback. If your focus is on improving your company’s customer retention rate, then consider asking customers to rate their purchasing experience or provide a space for feedback after a customer service interaction.

You can also gather customer feedback and measure satisfaction by sending out surveys. With Mailchimp, you can send out personalized surveys at the right moments so that you reach customers and gain valuable insights. By reaching out to your customers for feedback, you can identify ways to improve your customer retention rate and more effectively run your business.


Remarketing is a digital marketing tactic that encourages individuals who have already interacted with your brand to take a specific action or make a purchase. You can probably guess why remarketing can help with customer retention—by targeting those who have already made a purchase or interacted with your brand, you can turn them into repeat customers through the use of personalized ads. As you begin a retargeting campaign, consider using behavioral targeting tools to create more personalized ads.

Add rewards programs

Rewards programs incentivize your customers to return to your business and make repeat purchases. By rewarding customers with a benefit or discount based on their purchase activity, you can boost customer loyalty and improve retention.

If you’re looking for inspiration, there are several major brands out there that have been very successful in implementing customer loyalty programs. For example, Starbucks has a gamified customer loyalty program where customers can earn stars by making purchases and completing specific objectives. The stars customers earn can unlock tiers of benefits, creating a fun and exciting experience that incentivizes the customer to choose Starbucks over other coffee shops.

Turn new visitors into retained customers

As a business owner, your aim is to maintain the highest customer retention rate possible. A high customer retention rate indicates that you’re doing something right, whether it’s providing excellent customer service or streamlining the customer journey.

If you’re hoping to improve your company’s customer retention rate, start by using the right tools for the job. Mailchimp’s all-in-one marketing platform makes it easy to carry out customer retention strategies by allowing you to effectively engage with customers, set up the customer journey, gather feedback, and review analytics and reports.

Try out Mailchimp’s CRM software today and see for yourself how it can help you establish better relationships with your customers.

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