Approximately 80% of Americans take part in a customer loyalty program. Because of this customer retention measurement is necessary to better understand customers’ purchasing habits.
So which measurements give you the most information and how many of them do you need to measure? Read on to learn more about customer retention measurement.
Customer Retention Measurement Fundamentals
Below are 3 of the most common customer retention measurements. Once you have these fundamentals down, you can look at more complicated calculations to understand your customer’s habits.
Customer Churn Rate and Customer Retention Rate
The customer churn rate (CCR) is one of the basic calculations. It is the other side of the Customer Retention Rate (CRR). CCR is the number of customers you lose over time. CRR is the number of customers retained over the same period.
CCR equals the number of customers lost divided by the number of customers over the same period. A high CCR shows large numbers of customers lost and shows lower customer loyalty. You can get the CRR by subtracting the CCR from 100.
After you calculate these gross numbers, you can further divide your customers into natural segments to look at differences in CCR between segments. This allows you to better understand how retention programs affect specific segments.
Customer’s Average Lifespan
A customer’s average lifespan is the time they spend as an active customer. This is a little more difficult to calculate. Analytics guru Avinash Kaushik suggests using 1-3 years as a reasonable average.
Depending on your niche this number may be 1 or it may be 3. The more unique your niche the lower your Customer’s Average Lifespan.
Customer Lifetime Value
Customer Lifetime Value (CLV) is one of the most important retention metrics. While it is difficult to calculate, the knowledge of this number is important. CLV is a marker showing not only how long customers are with you but also how much they are spending over that time.
Loyal customers spend more while less loyal customers spend less. To calculate this number, get to know the values from your online store. You need to know the average customer spend amount and the lifetime rate of purchasing.
This number, like the others, can also be broken down and examined by key segments of your customer base.
While these are just a few of the many customer metrics that exist, they are important to understand as they give you a picture of your online stores’ health. You can also use these numbers to create revenue estimates that help to determine how much you should spend on marketing.