Essential Customer Retention Metrics & How to Use Them

September 3, 2021 - 12 minutes read

How to keep your customers happy through the power of data.



In our increasingly competitive digital age, customer loyalty is more important than ever. The more repeat custom you secure, the more your eCommerce or retail business will thrive.

Attracting new customers to your brand actually costs around five times more than keeping existing ones. And a repeat customer’s average order value (AOV) usually rises each time they make a purchase.

Focusing on your business’s customer retention efforts will help you accelerate the growth of your business while boosting your brand reputation (repeat customers usually become advocates or “fans” of your brand).

But how do you boost your customer retention rates? In short, with data. Working with customer retention metrics will give you the insight you need to inspire repeat custom and cement customer loyalty.

Here, we’re going to look at the customer retention metrics that will help you push your business ahead of the pack.


How customer retention metrics will help you improve your business


An analytical approach to your customer retention efforts will give you greater insights into the behaviors of your consumers while uncovering trends or patterns that will help you build trust and loyalty across every channel or touchpoint.

Working with the right customer retention metrics will help you improve your eCommerce or retail business in the following ways:

  • Overall performance: You can use retention data to analyze your repeat customer rates and compare them to the industry average. If your repeat customer rates sink below the industry average, you will be able to make targeted strategies to tackle any loyalty-sapping issues.
  • Trends & opportunities: Keeping a keen eye on the right metrics will empower you to pinpoint possible weaknesses in your processes or service offerings while taking advantage of emerging trends or opportunities that will meet your consumers’ needs head-on.
  • Product personalization: By gaining more insight into the products that your repeat customers buy more frequently, you can make personalization recommendations that will inspire sales. Adding a personal touch to your communications will also increase customer loyalty (which will result in even more repeat sales).
  • Campaign messaging & communications: If you use your customer data to understand your most active customers segments and what they value most, you can develop targeted campaigns with content, messaging, and offers tailored to their needs. Our guide to proper customer segmentation will help you get started.


The customer retention metrics you need to measure for success


Now that you know how valuable customer retention metrics are to your business, let’s explore the ones that will accelerate your growth the most.

Customer churn

Customer churn will form the very foundations of your retention and loyalty efforts, as it offers a clear indication of how many people who have bought something from your store don’t come back again over a certain timeframe.

By measuring this metric regularly, you can see how many consumers have stopped buying from your brand or, if relevant, canceled their subscription.

A high churn rate generally equates to a low retention rate, and if your level of customer churn rises, it’s more than likely that your products or services are failing to meet your customers’ needs.

How to use it

To squeeze maximum value out of this telling customer retention metric, you should set a desired benchmark for the month, quarter, or year (for example, 5 – 8% might be an acceptable rate for your business). Doing so will help you understand if your customer churn is above or below where it needs to be.

Here’s how to calculate your customer churn rate for the year (you can alter this for monthly or quarterly calculations):

Annual Churn Rate = (No. of Customers at Start of Year – No. of Customers at End of Year) / No. of Customers at Start of Year

Repeat purchase ratio (RPR)

Your RPR refers to the percentage of shoppers that have come back to your store to make a repeat purchase over a specific timeframe.

This metric is worth frequent attention, as it’s an excellent indicator of overall customer loyalty and will tell you whether your retention strategies, tactics, or campaigns are working.

How to use it

Here’s a simple formula for calculating your RPR over a desired timeframe:

Repeat Purchase Ratio = No. of Returning Customers / No. of Total Customers

One of the best ways to use your RPR is by drilling down into the segments of your customer base that represent the highest RPR. Doing so will give you a clear insight into the campaign tactics and messaging that resonates with your customers the most, empowering you to develop stronger communications that will ultimately result in more repeat sales across your entire audience.

Product return rate

Products get returned for a number of reasons, but if you discover a spike in product return rates, your customer retention rates will plummet swiftly.

As an industry benchmark, the retailer average return rates for in-store and online retail or eCommerce purchases are around 9% and 20%, respectively. The aim with product return rates is to keep your numbers as close to 0% as possible, but anything around these average industry figures is considered healthy.

How to use it

To use this customer retention metric effectively, you should drill down into return rates for specific products or product categories to see which items people are sending back most frequently.

By doing so periodically, you will gain a direct understanding of any problematic products and take the appropriate course of action to tackle the issue. 

Tip: The product itself could be deemed substandard, or your product page descriptions could be misleading or too vague, causing an influx of returns. 

Here’s how to calculate your product return rates (you can apply this basic formula to specific products and categories):

Product Return Rate = No. of Units Sold That Were Later Returned / Total No. of Units Sold

Net promoter score (NPS)

NPS is a vital customer retention metric that will tell you how consumers really perceive your brand and its product as well as service offerings. Your NPS score lets you know how many people are likely to recommend or promote your business to others.

Here’s how the NPS scoring system works:

You ask people who have bought from you how likely they are to recommend your brand on a scale of 1 to 10. Their responses put them into one of three NPS categories:

  • Promoters (9-10)
  • Passives (7-8)
  • Detractors (0-6)

How to use it:

If you measure your NPS score regularly, you can evaluate the areas of your business that need improvement and develop targeted strategies to improve your customer experience (CX) offerings or communications.

For more context on your NPS score, you can reach out to your passives and detractors and incentivize them to offer their feedback, thoughts, and opinions on how you can improve your products, services, or approach.

Here’s how to calculate your NPS score:

Take the percentage of the customers that fall into the “promoter” category (9 – 10) and subtract that number from the “detractors” (0 – 6) to get your definitive NPS score.

Loyal customer rate

As you will know by now, customer loyalty and customer retention are linked. The more customer loyalty you inspire, the more customers you will retain.

The loyal customer rate metric is useful, as it will show you how many people have made additional or multiple purchases over a set period. Measuring your loyal customer rate often will help you track the progress of your ongoing retention-based strategies and efforts.

How to use it

To calculate your loyal customer rate with accuracy and benchmark the ongoing success of your strategies, you will need to account for both the customers who made an extra purchase and those who made repeat purchases over your desired timeframe.

Here’s the formula that will help you do just that:

Loyal Customer Rate = No. of Repeat Customers / Total Customers

You should use this metric to compare loyalty rates to previous quarters or years and gain a clear understanding of whether your products, services, and campaign strategies are moving in the right direction.

“Always keep your finger on the pulse of customer loyalty, otherwise, your business will get a painful wake-up call.”—Anon business expert

These essential customer retention metrics will give you the depth of insight you need to keep meeting your customers’ needs and encourage more first-time buyers to come back for more. By harnessing the power of customer data consistently, you will push yourself ahead of the pack.

To complement your analytical efforts, you can also use our guide to using data to improve your business for reference. These 10 tips for encouraging customer loyalty will also help you boost your bottom line and improve your brand reputation.