Customer Retention: Defined

When you buy something through one of the links on our site, we may earn an affiliate commission.

Customer retention refers to the ability of a company or product to retain its customers over a specified period. High customer retention means customers of the product or business tend to return to, continue to buy or in some way not defect to another product or business, or to non-use entirely. It's a key aspect of marketing strategy, as it often costs less to retain existing customers than to acquire new ones.

Customer retention starts with the first contact an organization has with a customer and continues throughout the entire lifetime of the relationship. It's a key element in a company's growth strategy. A company's ability to attract and retain new customers, is not only related to its product or services, but strongly related to the way it services its existing customers and the reputation it creates within and across the marketplace.

Importance of Customer Retention

Customer retention is crucial to any business for several reasons. One of the most significant is that it's much more cost-effective to retain existing customers than it is to acquire new ones. Customer acquisition can cost five times more than retaining an existing customer. Furthermore, repeat customers spend, on average, 67% more than new customers.

Another reason why customer retention is important is that it leads to customer loyalty. Loyal customers not only spend more with a company, but they also refer additional customers to the company. They can become advocates for the business, which can lead to increased brand awareness and recognition.

Customer Lifetime Value (CLV)

Customer Lifetime Value (CLV) is a prediction of the net profit attributed to the entire future relationship with a customer. The prediction model can have varying levels of sophistication and accuracy, ranging from a crude heuristic to the use of complex predictive analytics techniques.

CLV is an important metric because it represents an upper limit on spending to acquire new customers and to retain existing customers. For this reason, it's an important element in calculating payback of advertising spent in marketing mix modeling.

Customer Churn Rate

Customer churn rate, also known as customer attrition, refers to the rate at which customers stop doing business with an entity. It's usually expressed as a percentage. For example, if a company started the quarter with 100 customers and ended the quarter with 90, its churn rate would be 10%.

Churn rate is a critical metric because it directly impacts customer lifetime value. A high churn rate could be indicative of customer dissatisfaction, cheaper and/or better offers from the competition, more successful sales and/or marketing by the competition, or reasons having to do with the customer life cycle.

Strategies for Customer Retention

There are several strategies that businesses can employ to increase their customer retention rates. These strategies can be broadly categorized into customer service strategies, product quality strategies, and customer engagement strategies.

It's important to note that these strategies are not mutually exclusive. A business can and should use a combination of these strategies to retain its customers. The key is to understand the needs and wants of the customers and to meet or exceed those expectations.

Customer Service Strategies

Providing excellent customer service is a key strategy for retaining customers. This can include providing prompt and accurate responses to customer inquiries, resolving issues quickly, and treating customers with respect. Businesses that provide excellent customer service can build strong relationships with their customers, leading to increased loyalty and retention.

Another customer service strategy is to provide ongoing support and training to customers. This can help customers get the most out of the products or services they have purchased, increasing their satisfaction and likelihood of remaining a customer.

Product Quality Strategies

Ensuring the quality of the products or services offered is another key strategy for customer retention. If customers are satisfied with the quality of the products or services they have purchased, they are more likely to continue doing business with the company.

Product quality strategies can include implementing strict quality control processes, regularly reviewing and improving products or services, and listening to customer feedback to make improvements.

Customer Engagement Strategies

Engaging customers is another effective strategy for customer retention. This can include regularly communicating with customers through email newsletters, social media, and other channels. Businesses can also engage customers by offering loyalty programs, special promotions, and other incentives to encourage repeat business.

Another customer engagement strategy is to create a community around the brand. This can be done through social media, online forums, and other platforms. By creating a community, businesses can foster a sense of belonging among their customers, increasing their loyalty and likelihood of remaining a customer.

Measuring Customer Retention

There are several ways to measure customer retention, each with its own strengths and weaknesses. Some of the most common methods include tracking repeat purchases, measuring customer churn rate, and calculating customer lifetime value.

It's important to note that no single method can provide a complete picture of customer retention. Therefore, businesses should use a combination of these methods to get a more accurate understanding of their customer retention rates.

Tracking Repeat Purchases

One of the simplest ways to measure customer retention is to track repeat purchases. This can be done by analyzing sales data to see how many customers make more than one purchase over a given period. This method is straightforward and easy to implement, but it may not provide a complete picture of customer retention as it doesn't take into account customers who may be satisfied but haven't made a repeat purchase within the tracking period.

Another way to track repeat purchases is to use a customer relationship management (CRM) system. CRM systems can track all interactions with customers, including purchases, and can provide a more comprehensive view of customer behavior.

Measuring Customer Churn Rate

Another way to measure customer retention is to calculate the customer churn rate. This is done by dividing the number of customers who left during a given period by the total number of customers at the start of the period. This method is more complex than tracking repeat purchases, but it can provide a more accurate picture of customer retention.

However, churn rate can be influenced by factors outside of a company's control, such as economic conditions or changes in consumer behavior. Therefore, it's important to consider these factors when interpreting churn rate data.

Calculating Customer Lifetime Value

Customer lifetime value (CLV) is a measure of the total revenue a business can reasonably expect from a single customer account. It considers a customer's revenue value and compares that number to the company's predicted customer lifespan. Businesses use this metric to identify significant customer segments that are the most valuable to the company.

Calculating CLV can be complex, as it requires predicting future behavior, but it can provide a more accurate picture of customer retention than simpler methods. However, like churn rate, CLV can be influenced by factors outside of a company's control, so it should be used in conjunction with other measures.

Improving Customer Retention

Improving customer retention requires a comprehensive, company-wide effort. It involves not only improving the quality of products and services and providing excellent customer service, but also engaging customers and building strong relationships with them.

It's important to remember that customer retention is not a one-time effort, but a continuous process. Businesses need to constantly monitor their customer retention rates and make adjustments as necessary to ensure they are retaining as many customers as possible.

Improving Customer Service

Improving customer service is one of the most effective ways to improve customer retention. This can involve training staff to provide better service, implementing new customer service technologies, and improving customer service processes.

For example, a company could implement a new customer service software that allows for better tracking of customer interactions. This could help the company identify areas where customer service could be improved and provide more personalized service to customers.

Improving Product Quality

Improving the quality of products or services can also lead to improved customer retention. This can involve improving the product design, implementing stricter quality control processes, or improving the delivery of services.

For example, a company could invest in new manufacturing technologies that allow for better quality control. This could lead to fewer product defects and higher customer satisfaction, which could in turn lead to higher customer retention rates.

Engaging Customers

Engaging customers is another effective way to improve customer retention. This can involve creating a community around the brand, regularly communicating with customers, and offering loyalty programs and other incentives.

For example, a company could create a customer loyalty program that rewards customers for repeat purchases. This could encourage customers to continue doing business with the company, leading to higher customer retention rates.


Customer retention is a key aspect of marketing strategy and a critical factor in the long-term success of a business. By understanding the importance of customer retention, implementing effective strategies, and continuously monitoring and improving customer retention rates, businesses can increase their profitability and ensure their long-term success.

While the process of improving customer retention can be complex and challenging, the benefits of a high customer retention rate are well worth the effort. Not only can it lead to increased profitability, but it can also help a business build a strong reputation and establish a loyal customer base.

About the author

Hi, I'm Justin and I write Brand Credential.

I started Brand Credential as a resource to help share expertise from my 10-year brand building journey.

I currently serve as the VP of Marketing for a tech company where I oversee all go-to-market functions. Throughout my career I've helped companies scale revenue to millions of dollars, helped executives build personal brands, and created hundreds of pieces of content since starting to write online in 2012. Thank you for reading and feel free to connect with me on LinkedIn.

More From Brand Credential:

How to Build Your Brand at WorkHow to Build Your Brand at Work

Discover the secrets to building a powerful personal brand at work and stand out from the crowd.

Creating an Effective Email Marketing Strategy PlanCreating an Effective Email Marketing Strategy Plan

Learn how to create a powerful email marketing strategy plan that will skyrocket your business growth.

The Ultimate Guide to Dermatology MarketingThe Ultimate Guide to Dermatology Marketing

Discover the best strategies and tactics for marketing your dermatology practice with our comprehensive Ultimate Guide to Dermatology Marketing.

How to Improve Your Marketing Skills: A Step-by-Step GuideHow to Improve Your Marketing Skills: A Step-by-Step Guide

Unlock the secrets to becoming a marketing maestro with our comprehensive step-by-step guide! From mastering social media strategies to harnessing the power of data analytics, discover the proven techniques that will take your marketing skills to the next level.

Marketing Funnel: DefinedMarketing Funnel: Defined

Discover the power of the marketing funnel and how it can revolutionize your business strategy.

The Effective Marketing Strategy of IKEAThe Effective Marketing Strategy of IKEA

Discover how IKEA's innovative marketing strategy has made it a global household name.