Two main activities help increase your revenue:
- Getting new customers and
- Keeping those customers happy so they stay with you and buy more.
Did you know that 44% of businesses aren’t calculating how many customers stay with them over a period of time (known as customer retention rates)? And Customer Gauge’s December 2023 article says those businesses are “missing a huge opportunity.”
Business owners, managers, or your accounting team study many numbers. Revenues, gross profit, the direct cost to get those sales, your overhead expenses, and your net profit are a few financial markers.
You probably understand the importance of your financial reports. But don’t be a part of those 44% of businesses that neglect to track customer retention percentages.
If you aren’t a numbers person, this may seem like A LOT of data. Aren’t your financials enough to give you a good representation of your business? Yes, and no.
Your financials tell you the results of your activities, but knowing stats about your customers’ loyalty gives you a deeper picture of what’s happening.
Consider these facts reported by HubSpot:
- Customer acquisition is expensive. It can cost up to five times more than keeping your existing customers happy.
- The chance of selling to a new customer is between 5% and 20%.
- That percentage jumps to 60-70% for existing customers.
- “Customer-centric companies are 60% more profitable than companies that aren’t.”
- When introducing a new product (or service), 50% of current customers are more likely to try it, and 31% are “more likely to spend more on their average order value.”
Businesses that focus solely on acquiring more and more customers often struggle.
A focused effort to keep current customers happy can result in more revenues and profits for your business.
Formula to calculate customer retention
If you don’t already know your customer loyalty numbers, you need three numbers.
- The number of your customers at the Start (S) of a given period. Let’s say you want to measure your customer retention for this (or last) year’s first quarter. Your starting point is January 1.
- The number of NEW (N) customers you added during this period.
- The number of customers at the End (E) of the given period. In this case, that’s the number of customers as of March 31st.
Here’s the formula with numbers as examples:
(E-N) divided by S times 100 = Your Customer Retention Rate Percentage
So if you started with 110 customers (S), added 15 new customers (N), and ended with 90 customers (E), your formula looks like this:
90 (E) -15 (N) = 75 divided by 110 (S) = .68 x 100 = 68%
You subtract your new customers because you want to know how many of your CURRENT customers stay with you. So, take your ending number, subtract your new customers, and divide that by your starting number.
Another example: (E-N)/S x 100 = Customer Retention Rate
You started with 190 (S) customers. You added 30 (N) new customers. You ended with 200 (E) customers.
200 (E) – 30 (N) = 170 divided by 190 (S) = .89 x 100 = 89%
If that made your eyes roll because you already have so many responsibilities to juggle, I can help. Book a Zoom call with me. I’ll share a spreadsheet with you so you can plug in your numbers. I’ll learn more about your business and customers, and you’ll leave knowing more information.
If nothing else, leave knowing this…
Your current customers can have a significant impact on your revenues and your bottom line. They can be a vital source of ongoing income. Tap into easier sales with simple strategies.
I’ll discuss what to do with this information in future posts.