We are living in a fast-paced world where businesses are not only chasing growth aggressively but there’s a real race against time too. A majority of modern startups spend beyond limits for acquiring customers – largely because they do not focus on customer retention.
As a new customer costs 5x more than retaining one, it’s quite evident retention is now more crucial than ever. And it’s only going to be more expensive with the competition boosting up every day. Businesses now need to follow holistic customer retention strategies for their sustainable future.
When it comes to assessing the retention rate, the overall average doesn’t help much. So it’s vital to explore customer retention benchmarks by industry and then plan the strategy further.
Consumers today have thousands of options. Whether it’s about shopping online, investing their money, consuming content or any other use case – just offering superior digital products or services to customers isn’t enough. Organizations are expected to build and maintain relationships through delightful experiences.
The story isn’t any different in the B2B space either – over 77% of B2B revenue comes from existing customers. Not to forget, these businesses usually put in a lot of effort into retaining their customers. However, the trend is shifting towards a more personalized experience and now is the key to B2B retention.
So how to ensure improved customer retention figures? What are the Industry-wise customer retention benchmarks of 2022? What should businesses do to build loyalty? This blog answers all the questions with in-depth insights.
What is Customer Retention and How to Measure it?
In simple terms, customer retention rate refers to the percentage of customers a business successfully retains over a given period of time. Suppose a business begins the year with 1000 customers, and at the end of the year – 600 of them remain, the retention rate becomes 60% for that year. Additionally, the customers that get acquired later on will have a separate time period. So the acquisition of new customers shouldn’t be confused with covering customer churn. If in the considered example, a business acquires 500 customers later on – that doesn’t increase the calculated retention rate.
Customer retention is one of the most crucial metrics that every business needs to track in order to improve and grow – not only from a product standpoint but also for marketing strategy and customer service efforts.
How to Measure Customer Retention?
Here’s the step-by-step approach to calculating customer retention rate:
- Define the time period for which the retention rate is to be measured - (t)
- State the number of existing customers at the beginning of that time period - (Ci)
- State the number of existing customers at the end of the considered time period - (Ce)
- Identify the number of new customers acquired within the time frame - (N)
Customer Retention Rate for the time period t, (CRR) = [(Ce-N)/Ci] x 100
Key Metrics Surrounding Customer Retention
Although customer retention is a powerful metric defining the trajectory of businesses, it’s still a fairly high-level view. A number of other metrics related to customer retention need to be taken into account for planning the next steps.
#1 Churn Rate
Customer churn rate is basically the opposite of retention rate. Suppose out of 1000 customers, if you lose 300, your customer churn rate is 30% whereas the retention rate is 70%. The customers lost within the considered time period are also referred to as churned customers, and here’s the formula to calculate the churn rate:
Customer Churn Rate (CCR) =
(Churned customers/Total customers at the start of timeframe) x100
Now even the churn rate has a limitation to it and doesn’t necessarily reflect the complete story of a business. For instance, some customers cancel their monthly subscriptions to video streaming services but renew them after a few months – which makes the equation a little confusing and results – not so effective. The upcoming metrics would help clear this.
#2 Revenue Churn
The Monthly Recurring Revenue (MRR) a business drops over a considered time period, is the revenue churn. What it conveys is the exact impact of customer churn on your business. The metric can be calculated as:
Revenue Churn = (MRR lost within the time period/ MRR at the start of the time period) x 100
In the case of a categorized pricing model, this metric is immensely useful to stakeholders. Suppose a business is losing customers but it isn’t affecting the revenue much, then they don’t really need to pivot from their existing business and marketing strategy.
On the other hand, if a business is losing a few customers but most of them are subscribed to a high-tier package and the revenue drop is significant, then they need to work on a few things.
#3 Repeat Purchase Rate
The customers who buy a company’s products or services again after the first successful purchase are referred to as repeat or return customers.
Repeat Purchase Rate (RPR) = (Return customers/Total customers)
This metric is significantly more useful in e-commerce businesses rather than in other subscription-based ones. Additionally, companies also decide their own definition of loyal customers, for example – some e-commerce businesses consider the customers purchasing twice or more from their platform, as loyal customers.
#4 Customer Lifetime Value
LTV is the most common term discussed in quarterly business meetings because of the metric’s immense significance in growth and sustainability. Customer Lifetime Value - CLV or LTV is the profit an average customer adds to the business over the course of the entire lifecycle. Now, different types of businesses have their own considerations for calculating profits and hence, LTV. However, the most basic calculation of the metric can be performed as follows:
LTV = (Average order size x Repeat purchase rate) – Customer acquisition cost
Customer Lifetime value is the key metric for businesses to determine if they need to put more fuel in their marketing efforts. Not to forget – customer loyalty programs and other retention strategies are planned based on the current and target LTV.
Industry-Wise Customer Retention Benchmarks 2022
In order to scale a business, focusing on retention as a key area is imperative. Consumers today seek satisfaction and convenience more than anything else. Businesses need to cater to these needs in such a way that it becomes too convenient for their customers and they don’t think about switching to a competitor.
No doubt every industry has its own unique ways to retain customers, and hence it’s important to evaluate industry-wise customer retention benchmarks to have a clear picture.
1. Media - 84%
The media industry is all about trust and traction. It carries the highest customer retention rate due to multiple reasons – the offerings are relevant to the masses, big budgets, relentless promotions and long-term partnerships. This space is very broad, from news channels to television and video streaming services, everything comes under media. A fascinating example is Amazon Prime Video, which performs fine at 69% of customer retention rate.
2. Professional Services - 84%
Another industry which is largely driven by trust is professional services. Customized and knowledge-based services like lawyers, advertising consultants, architects, accountants, financial advisers, engineers, consultants and more are included in this space. These are areas of relationships, for instance – people try to visit the same physician for years, and the concept of ‘family doctors’ is still practised popularly. The case for lawyers, architects, and marketing consultancy isn’t any different. And that is the primary reason for the joint-highest customer retention rate.
3. IT Services - 81%
Client satisfaction, huge ROI and prompt services are the biggest factors why the IT services industry has a significantly great CRR. Businesses in this sector deeply focus on client success and results come out pretty fast. Whether it is software development or maintenance, the service providers have a firm dependence on their reputation for building reliable systems. India is the world’s biggest exporter of IT services and some of the biggest IT firms in the world are based out of the country.
4. Insurance - 83%
Insurance is an industry with one-time purchase products. Trust is probably the biggest factor driving revenue and growth for insurance companies. Consumers buy insurance policies keeping in mind long-term benefits and if companies fail to serve them when in need, there’s also a big risk of customer churn. Word of mouth and social reputation matter the most in this space, and it’s critical that businesses meet customers’ expectations to retain more and build brand credibility.
5. Software/SaaS - 86%
The software industry, especially SaaS has boomed like no other in the last 5 years. No doubt the pandemic made the demand for digital solutions go sky high. Whether it’s the B2C or B2B industry - software applications have helped mankind in every dimension of life, and it’s evolving faster than ever. 80% of businesses are using one or more SaaS solutions to streamline their business processes and this trend is only going upwards.
Social proof, efficiency, ROI, ease of access, economical solutions, streamlined business processes, and numerous other factors contribute to the high retention rate of the SaaS and software industry today. Customer experience and customer service are crucial too. SaaS solutions are fairly new to the world and companies need to form a quality collection of resources for guiding prospects/customers.
6. E-commerce - 38%
If there’s one industry that has seen relentless competition over the last decade, it’s e-commerce. Whether it’s accessibility, pricing, discounts, user experience or others – e-commerce businesses are trying everything to retain their customers. However, this industry has seen massive growth in user engagement through gamification, and companies leveraging gamified experiences have generated prolific ROI in retention.
7. Fintech - 78%
Online payment apps, investment and trading platforms, cryptocurrency apps, lending, crowdfunding and other fintech solutions have been the highlight of the last five years. Making it easy for users to handle their personal finances and perform transactions, enterprises in this industry have maintained a good retention rate of 78%. As compared to banking and insurance, the customer churn rate of fintech has been considerably higher, the reason being – a lack of guidance. Especially in the trading and investing space – companies are trying to crack user retention with engaging experiences.
How to Improve Customer Retention?
The key to boosting customer retention is understanding user behaviour and acting accordingly. Modern consumers expect a lot of things from brands like personalized experiences, end-to-end support, easy user journeys, rewards and more. To build a powerful relationship with customers, businesses need to strategize their efforts. Here are some of the most effective strategies that can help boost customer retention.
1. Easily Accessible Support
Quality customer service is not a nice-to-have aspect anymore, it has become a necessity. Customers want prompt support when they are stuck at anything, and seek support in an effortless manner. Brands need to ensure their support teams are accessible through all platforms. Additionally, the key to retaining even frustrated customers is by patiently listening to them and solving their problems effectively.
2. Consistent Guidance
Consumer behaviour has evolved in a way no one anticipated. Users now don’t want to contact the support team for guidance but seek resources and content for the same. Sharing valuable information for audiences is one of the most effective marketing and retention strategies in 2022, which can boost inbound leads too. The top brands around the world are leveraging valuable and action-oriented content for building brand authority and retaining their customers.
Gone are the days when targeting the masses was the aim. Offering personalized experiences to customers is crucial to nurture their relationship with them. Whether it is onboarding emails or periodic nudges, everything needs to be tailored to target customers’ preferences. Around 80% of customers are more likely to engage with a business if provided with a personalized experience.
4. Incentives & Loyalty Programs
Who doesn’t love rewards and freebies? Discount coupons aren’t enough, brands need to add rewards, customer loyalty points and more incentives to their platforms. Customer satisfaction is a hard nut to crack, but with exciting and luring rewards – things become a tad bit easier. Not to forget – rewards, discounts and offers incredibly help in marketing efforts. In today’s social media-driven era, it’s one of the most effective ways to retain customers. Loyalty programs are getting all the hype these days and the ROI is totally worth it. Personalized rewards for loyal customers who consistently spend time on certain business platforms are helping brands convert more power users.
5. Gamified Engagement
If there’s one strategy that has proven to be incredibly productive for attracting, engaging and retaining customers – it’s gamification. Game-like experiences like spin the wheel, user streaks, loyalty programs, referrals, quizzes and more engagement campaigns help brands retain customers on their platforms for longer and hence convert more to boost their revenue. Moreover, gamified user journeys also solve the problem of unguided onboarding and enable a quality engagement experience for users from the very first time they arrive on a platform.
How Can CustomerGlu Help Businesses Boost Customer Retention?
Gamification is empowering digital platforms to amplify their user engagement impeccably. The best thing is – brands don’t need to put a plethora of effort and resources into it, as CustomerGlu makes it incredibly easy to build gamified experiences and make customers stick to a platform.
With an intuitive low-code gamified UX builder, businesses from all categories can effortlessly integrate game-like campaigns to drive acquisition, boost engagement and ultimately level-up user retention. From alluring games to product streaks, challenges, quizzes, referrals, loyalty programs, and more – the platform offers a full suite of solutions that assure a delightful user experience.