How To Measure Customer Retention

When developing business relationships it's important to know how to measure customer retention. Customer retention is a businesses only true measure of relationship value. First …

What is customer retention? Retention is a factor of recency and frequency. It demonstrates loyalty through action, instead of misleading factors like awareness and brand recognition.

I will go as far to say that awareness and brand recognition is useless when you know how to measure customer retention the right way. This is because customer retention demonstrates factors of customer loyalty and satisfaction.

Customer retention is about repeat purchases, so when developing business relationships, focus first on establishing trust and credibility. Instead of getting a customer to make a sale, get a sale to make a customer.

Many sales people make the mistakes of just trying to make sales, they move from one prospect to another trying to sign up as many as possible. If only they learned how to develop business relationships, then to use factors of retention to grow their accounts and overall customer base.

A customer's most important purchase, as a factor on how to measure customer retention, is their second and third sale. This means they are satisfied with the initial purchase and have moved toward a relationship with your solution.

Remember, customers buy solutions, not companies. Your current relationship influence future purchase, but it's also important to measure customer retention on a one-to-one basis to identify trends and market indicators.

Various other factors to consider when measuring customer retention are time between purchase, average transaction value, customer lifetime value, frequency of purchase, and transaction recency. Each of these metrics will tell you different things about your relationship with a customer and your ability to retain them.

In this article, I've covered just the basics. For a more in-depth look at measuring customer retention read, "How To Measure Customer Satisfaction And Relationship Value" (Applying Strategic Relations subscription required.)

A basic rule of thumb is that "customers who buy more frequently are more likely to continue to buy" -- however, don't rest of this as an absolute truth, you still need to reaffirm the relationship with solid proof to retain a customer over time. This is why the right measures of customer retention are important to your organizations bottom-line.

Posted by Justin Hitt at January 31, 2007 12:36 PM  Subscribe in a reader


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