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What's a healthy customer retention rate goal?

27 April, 2023 · 5 min read·Business
What's a healthy customer retention rate goal?
Learn about what a healthy customer retention rate goal should be for your business in this informative blog post. Discover the benefits of retaining customers and how to track and achieve your retention rate goals.

In today’s highly competitive business climate, it’s more important than ever to retain your existing customers. It’s no secret that retaining your current customers is easier and more cost-effective than acquiring new ones. In fact, the chance of selling to old customers is 60%-70%. For new customers, this figure is only at around 5%-20%.  

In this blog post, we’ll explain what customer retention rate is and why it’s important, explore what a healthy retention rate looks like, examine the factors that impact customer retention, and suggest strategies for improving your rate. Finally, we’ll show you how to measure and monitor your retention rate progress to ensure continued success.

Understanding customer retention rate

Customer retention rate measures the percentage of customers who continue to do business with a company over a given time period. It is a crucial metric that helps businesses develop a better understanding of their customers' loyalty and purchasing behavior.

Businesses that understand the importance of customer retention rates can create a plan to improve their overall customer experience. In turn, this can lead to higher revenue, repeat business, and greater customer satisfaction. Essentially, customer retention provides a clear outlook on how your business is doing from your customer's perspective.

A healthy customer retention rate is crucial to a company's success. Did you know that it can be up to six times more cost-effective to retain an existing customer than acquire a new one? Besides, businesses with high retention rates also experience a sustainable competitive advantage over their competitors by gaining knowledge of customers' motivations, preferences, and behaviors.

Various factors affect a company's customer retention rate, the most significant being the overall customer experience. Other factors include customer satisfaction, quality of customer service, pricing, convenience, and much more. However, with the appropriate steps in place, the customer retention rate can grow, leading to greater customer loyalty and more revenue opportunities.

The importance of customer retention rate and retaining existing customers

Retaining customers is as important as acquiring new ones. A high customer retention rate indicates customer satisfaction and loyalty. It is a cost-effective strategy that provides more opportunities for up-selling and cross-selling.

In fact, an increase in customer retention rate by 5% can lead to an increase in profits of 25% to 95%. Repeat customers are usually more willing to purchase and refer their friends and family. The relationship developed between the business and the customer will go a long way in promoting customer loyalty.

A high customer retention rate also offers insights into the quality of products or services provided by the company. A satisfied customer will remain loyal and will talk positively about the company, while an unsatisfied customer might leave negative reviews and drive away potential customers. That’s why you should invest time and resources in improving customer satisfaction and retention.

Another importance of customer retention is the ability to withstand competition. Businesses with a high user retention rate usually have a competitive edge, as customers are loyal to their brand. However, today's market is pretty competitive. So businesses must ensure that their customer retention strategies are top-notch to stay ahead. A high customer retention rate will help businesses retain their market share, offsetting the impact of competitors.

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What is a healthy customer retention rate?

A healthy customer retention rate means your customers are happy with your products or services. It also means they’re more likely to return to you for future business.

There isn't a set number that defines a healthy customer retention rate since it varies by industry, product, and company. For most businesses, a retention rate above 80% is considered healthy. But what if you’re in a highly competitive industry? Then try to aim for above 90%. A retention rate of over 90% is exceptional and sets your business apart. A low retention rate, on the other hand, indicates a need for improvement in customer service or product quality.

A healthy customer retention rate can lead to several benefits for your business. These include reduced customer acquisition costs and customer churn, increased revenue, and improved brand reputation. Returning customers are more likely to refer your business to others. And once they do, this leads to an increased customer base through word-of-mouth. Also, you won't need to spend a lot of money on marketing campaigns to attract new customers. Why so? It’s simply because your retained customers are already doing it for you.

If your business has a sub-par customer retention rate, you should analyze why this is the case. Negative experiences, poor customer service, and high product costs are among the most common reasons customers leave. After identifying the cause, you should take steps to improve customer satisfaction, enhance service quality, and introduce new products to retain customers. Your retention rate should be monitored regularly to track progress and implement further improvements to meet your business needs.

Factors affecting customer retention rates

There are various factors that can impact customers’ decision to stay with a company.

Customer service quality

Customers who receive excellent support are more likely to remain loyal to a company. Meanwhile, those who are dissatisfied with a company’s level of service are more likely to look elsewhere.


Another factor that can affect customer retention rate is communication. Communicating with your customers is a must. So remember to update them through newsletters, emails, or social media posts. Regular updates can keep them engaged and informed about new products, services, and promotions. On the other hand, what if customers go long periods without hearing from a company? Then, they may forget about it and be less likely to remain a customer.

Flexibility of a company

Customers also value companies that are flexible and adaptable. Brands must be willing to listen to feedback. They must be willing to make changes based on customer needs and preferences. By doing so, they’re more likely to retain business. Avoid seeming rigid or unwilling to evolve. Otherwise, your customers are more likely to switch to a competitor that can meet their needs.

Overall customer experience

Customers place a great deal of value on the overall experience they have with a company. This can include everything from the ease of purchasing products or services to the quality of packaging and shipping. Companies that prioritize the customer experience are more likely to retain business. Meanwhile, those that fail to create a positive experience may find that their customers are more likely to migrate to a competitor.

Strategies to improve your customer retention rate

Deliver positive customer experiences

Happy customers are loyal customers. They value a personalized, efficient, and memorable shopping experience. If you provide them this, customers are more inclined to come back in the future. Appealing to the emotional bond that customers feel for a brand can also be efficient as customers connect with brands on an emotional level, and this leads to long-term customer loyalty.

Offer customer loyalty programs

Another helpful customer retention management strategy is to offer customer loyalty programs. These programs offer exclusive perks, rewards, and discounts to customers. They incentivize customers to continue using the brand's products or services. Customers are more likely to return to a business if they feel that they’re being rewarded for their loyalty.

Improve communication

You can also improve customer retention rates by providing high-quality and consistent communication. Customers like to stay clued in on the latest updates, sales, promotions, and news from a brand. By reaching out to customers regularly with newsletters, emails, or SMS campaigns, the brand can make sure the customer feels valued and appreciated. Moreover, these strategies are cost-effective and can be automated or outsourced to reduce workload and streamline the process.

Listen to feedback

Listening to customer feedback and addressing their concerns is another excellent retention strategy. Businesses should create opportunities for customers to provide valuable feedback or share their complaints via various channels, including social media or online reviews. By hearing and addressing customer concerns and complaints, the business can improve its services or products continually, demonstrate its dedication to customer satisfaction, and build trust with customers.

Measuring and monitoring your customer retention rate progress

Measuring and monitoring your customer retention rate progress is crucial to ensure that your strategies are making an impact on your business. You need to regularly check if you are on track to achieving your target retention rate or if you need to make adjustments to your existing strategies. This will help you maintain your existing customers and acquire new ones.

One way to calculate customer retention rate is by using the retention rate formula.

Customer retention rate = ((number of customers at the end of the period - number of new customers)/number of customers at the start of the period)) x 100 

You can calculate retention rate monthly, quarterly, or yearly, depending on your business goals. Measuring your customer retention rate regularly will help you get insights into how much of an impact your retention strategies are making.

Apart from measuring, it is equally important to monitor your retention rate progress. This will help you identify trends in your retention rate and quickly detect any issues that may arise. You can use a dashboard to track customer retention metrics. Aside from retention metrics, you can also monitor other important metrics to help you understand the overall health of your business. Afterward, you can tweak and refine your strategies to see which works best for your business. 

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