Customer Retention
The ability to keep customers over time and prevent them from switching to competitors.
Category
Customer Experience
Full Definition
Customer retention is the ability of a company to keep its customers over time. It's measured by retention rate (or its inverse, churn rate) and is critical for sustainable business growth.
Why Retention Matters: - Acquiring a new customer costs 5-25x more than retaining one - A 5% increase in retention can increase profits by 25-95% - Existing customers are 50% more likely to try new products - Loyal customers spend 67% more than new ones
Retention Rate Calculation: Retention Rate = ((Customers at End - New Customers) / Customers at Start) Γ 100
Common Use Cases
Real-World Examples
Scenario
A subscription box company notices 40% of customers cancel after month 3. They analyze feedback and find the boxes become "predictable."
Outcome
They introduce customization options and surprise items. Month-3 retention improves from 60% to 78%.
Scenario
A gym tracks that members who attend 3+ times in their first month have 85% annual retention vs. 35% for those who attend less.
Outcome
They create a "First 30 Days" program with trainer check-ins and class recommendations. First-month engagement doubles.
Scenario
A B2B software company finds that customers who use a specific feature have 90% annual retention vs. 60% for those who don't.
Outcome
They make that feature part of onboarding and promote it heavily. Overall retention improves from 72% to 84%.
Related Terms
Churn Rate (Churn)
The percentage of customers who stop doing business with you over a given period.
Customer Loyalty
The likelihood that customers will continue to do business with you and recommend you to others.
At-Risk Customer
A customer showing signs of potential churn who requires proactive intervention.