Key B2B Customer Retention Metrics and how to Measure themWritten by Dynamicweb on 31.03.2022, 00:00
Growing a business is about more than just attracting new customers. Through focused customer retention efforts, B2B businesses can generate increasing revenue from existing customers. Increasing customer retention by just 5% can yield more than a 25% profit increase.
When planning your customer retention strategies it’s helpful to have a clear definition of customer retention metrics, which metrics are valuable, why those metrics are important, and how to measure them. A survey conducted in 2021 showed that customer retention rates were among the leading metrics tracked by marketing professionals across the world. Continue reading for an overview of customer retention metrics and how they should be measured.
What are customer retention metrics?
Customer retention metrics are the quantitative values that measure the likelihood that customers will conduct repeat business. Customer retention metrics are important because they accurately reflect the overall performance of business operations, lead to upsells and cross-sells, and result in word-of-mouth referrals.
Customer retention data can be used by the sales team, marketing department, and product management teams to refine their contributions to the creation of a successful customer journey. There are many metrics that can be measured, and these may vary slightly depending on each business’s definition of success.
The following list includes the most important, and commonly used customer retention metrics.
Customer Retention Rate
The customer retention rate measures the rate at which a business retains customers over a specific period of time. This metric provides insight into the degree of efficacy of your existing retention strategy. If your customer retention rate is low, it indicates that something in the customer journey needs to be improved and you aren't building long-term relationships with your customers..
How to calculate your customer retention rate:
Customer retention rate = (Number of customers at the end of the time period) - (Newly acquired customers) / Customers at the beginning of the time period
[(310-13)/303] x 100 = 98%
The customer churn rate measures the number of customers lost over a given period of time. This metric is important because high churn rates can signal that your product or service may be failing to meet your customer’s needs or expectations.
For high volume businesses, the churn rate can be assessed as frequently as every month. For lower volume businesses, the church rate can be assessed as infrequently as once per year. Over the chosen time period, a small amount of attrition is normal, however, an unusually high churn rate should be followed by an evaluation of your customer satisfaction levels.
How to calculate your customer churn rate:
Customer churn rate = (the number of customers at the beginning of the time period - the number of customers at the end of the time period) / the number of customers at the beginning of the time period
Similar to customer churn but calculated in revenue, the revenue churn rate describes the rate revenue is lost from existing customers. This metric describes the frequency of events like order cancellations, service plan downgrades, or the end of a B2B relationship. For SaaS companies, revenue churn rate is especially valuable to understanding customer satisfaction.
How to or calculate? your revenue churn rate:
Monthly Revenue Churn Rate = [(MMR on the first day of the month - MMR on the last day of the month) - MRR in upgrades during the month] / MRR on the first day of the month
Existing Customer Revenue Growth Rate
The existing customer growth rate measures the rate your company generates additional incremental revenue from customer success. This metric provides insight into the performance of your marketing and sales efforts along with the degree to which customers receive ongoing value from your business. This metric can be measured on a monthly basis.
How to calculate your existing customer revenue growth rate:
Existing customer revenue growth rate = (MRR on the first day of the month - MRR on the last day of the month) / MRR at the start of the month
Repeat Purchase Ratio
The repeat purchase ratio measures the rate at which customers return and make another purchase. This is important because it indicates customer loyalty levels. The more customers who come back and buy two, three, or even ten times, the more loyal and valuable each customer is.
Knowing your customer loyalty is essential because it can help drive revenue faster with a lower effort. After all, returning customers are usually more likely to convert than a new customer, and acquiring new customers is expensive.
How to (or calculate your repeat purchase ratio:
Repeat purchase ratio = number of returning customers / number of total customers
Product Return Rate
The product return rate describes the rate at which products are returned to the business. For B2B companies that sell tangible goods, product returns can be problematic due to the large sale volumes and lengthy sales cycles.
It’s worth noting that your return rate is the highest level metric you can use when evaluating your return policy and process. It shows you what percentage of your orders are being sent back as a percentage of all of your orders.
How to or calculate your product return rate:
Product return ratio = number of units returned / number of units sold
Net Promoter Score
The Net Promoter Score (NPS) measures customer satisfaction and the likelihood customers will recommend your business to others. A high NPS score indicates high customer satisfaction and is a positive indicator for word-of-mouth marketing. Ask your customers, “On a scale from 1 to 10, how likely are you to recommend our business to a friend or colleague?” Ratings below 6 qualify as detractors, and ratings of 9 or 10 are promoters.
How to find calculate your Net Promoter Score:
Net promoter score = % of promoters - % of detractors
Customer Lifetime Value
The customer lifetime value (CLV) metric measures the amount of revenue generated by each customer. Customer lifetime value is the total revenue you as an eCommerce business earn from a customer over time. It is a good metric to size up customer satisfaction, loyalty and the viability of a brand.
The customer lifetime value metric is important because it shows insight into individual customer spending patterns. High CLV is an indicator of product-market fit, brand loyalty and recurring revenue from existing customers. Low CLV indicates the opposite.
How to calculate your Customer Lifetime Value rate:
Customer lifetime value = (average purchase value * average number of purchases) * average customer lifespan
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