Most businesses struggle to retain their existing customers to grow their business to the next level. It’s important to integrate customer retention marketing practices in your business in order to keep your sales growing and increase your profit revenue.

What is Customer Retention?

First, let’s talk about what is Customer Retention. Customer retention is about keeping the existing customers who have previously bought your product and services to buy again from you in the future rather than buying from your competitor’s product and services.
Why Customer Retention is Important for Businesses?
Now that we have defined the meaning of customer retention, let’s look at why customer retention is so important for businesses.

1. Cost of retaining customers is less than cost of acquiring new customers.

In most businesses, existing customers are the most valuable assets that a company has. Estimates of lifetime customer value vary by industry, but this rule of thumb applies to all. It costs much less to retain customers than it does to acquire new ones. And because they are familiar with your company, your products, and service, existing customers are more likely to buy from you again.

2. Customer defection rate has a positive effect on a company’s profitability

Good customer retention is essential to any organization because a slight reduction in the customer defection rate has a positive effect on profitability of a company. Companies with high retention rate of customers tend to grow faster. However, customers can only be retained if they are loyal and motivated to resist competition. When customers are merely satisfied with the service they receive they may still walk away.

3. You can focus on doing what you know is the best for your customers.

Acquiring new customers takes time. You need to create a customer acquisition strategy, implement it and analyze what is working and what is not. All of these activities are time-consuming. You should devote more resources and focus on the customers who have been very long with your company to keep them happy and satisfied.

How to Measure Customer Retention Rate?

So now you have understood what customer retention is and why it’s important, let’s look at how to measure customer retention rate in your business.
Here’s how we calculate Customer Retention Rate:
Number of customers at the beginning of a year: …………………….
Number of customers acquired during that year: …………………….
Number of customers at the end of that year: ……………………..


Let’s say we have 300 customers at the beginning of the year. We acquired 300 customers during that year. But number of customers left at the end of the year is only 200.
Retention rate: – 200/600 x 100 % =-33.33 %
Retention rate Formula:
Number of customers at the end of year/ (number of customers acquired during that year + number of customers at the beginning of the year).

Number of customers lost during that year=400

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