Of course, all businesses strive to keep existing customers returning for more. However, there is more to it than just simply offering better products at better prices. 

So, what is customer retention? Our guide will address this common question in more detail.

What Is Customer Retention? How To Measure It


To keep it simple, customer retention measures how many customers return to your service or product over time. 

The metric indicates your ability to keep current customers from turning to other competitors and motivate them to use your products repeatedly. This, in turn, will contribute to your business’ sustainable growth in the long run. 

Before measuring, though, you must understand these two influencing factors: product usage intervals and critical events.

Critical events: 

The term refers to an action or event your user performs (in the scope of the product) to signal they are retained. To identify a critical event, ask yourself these questions: 

  • What action/event do you want or need the users to do with the products? 
  • Which KPIs do you use for business growth? What user actions can you connect to them?
  • (If there are different products) What success criteria are assigned to each of them? 

Take a hotel chain, for instance: booking rooms or making reservations are considered “critical events.” The company can only keep growing if users keep booking constantly. Prospects who merely browse the recommended rooms on the mobile app do not contribute to the hotel’s success at all due to the lack of critical events. 

Product usage intervals:

Your business must also determine how often the user uses this product; after all, it is only possible to calculate customer retention when critical events can be observed over a certain period. 

To pinpoint the usage interval, make sure to: 

  • Identify how many users perform the critical events more than once during a particular period. Our recommended time period for analysis is 60 days, as usage intervals typically do not extend beyond a month. 
  • Measure how many hours/days/weeks it takes them to return and repeat these critical events. 
  • Identify the interval where 80% of your users repeat these critical events. And that is the product’s usage interval. 

What’s the reason behind all these extra steps? Simple: products are not built similarly. 

Some are meant for daily usage (e.g., casual gaming or social networking platforms). Meanwhile, others can be used much less frequently - like grocery delivery or tax preparation apps. Understanding their usage intervals gives you more accurate insights into how well your business is performing. 

Key Metrics of Customer Retention

1. Monthly Customer Churn Rate

Churn rate is the percentage of customers who stop doing business with your company. (Image source: Wiki). 

Monthly Customer Churn Rate, sometimes called Monthly Customer Attrition Rate, refers to the percentage of customers who stop doing business with your company within a single month.

The formula for the Monthly Churn Rate:

Number of customers lost in the month / Number of customers at the beginning of the month) * 100

Suppose you started the month with 1,000 customers and lost 20 by the end. In that case, your Monthly Churn Rate would be:

(20 / 1,000) * 100 = 2%.

To clarify, the churn rate alone does not indicate much about your performance; after all, every customer has both bad and good months. Nevertheless, the retention trend will become much more apparent once you observe it over longer periods, such as 5-6 months or even the entire year. 

2. Customer Lifetime Value (CLTV)

Also referred to as Customer Lifetime Worth, CLTV demonstrates the total net profit a business can expect to generate from an individual customer throughout their entire relationship with the company. Specifically, it takes into account not just the initial purchase value but also repeat purchases, loyalty, and the duration of the customer relationship.

CLTV can be calculated in various ways, but a common formula is:

(Average Customer Value per Purchase) * (Average Purchase Frequency) * (Average Customer Lifespan) - (Customer Acquisition Cost).

Below is an example of an e-commerce store selling clothes: 

  • Average Customer Value per Purchase: $50 (considering the average order value)
  • Average Purchase Frequency: 4 times per year
  • Average Customer Lifespan: 5 years (based on customer retention data)
  • Customer Acquisition Cost: $20 (including marketing and promotional expenses)

Plugging these numbers into the formula, and we have: 

CLTV = ($50/purchase) * (4 purchases/year) * (5 years) - $20 (acquisition cost) = $200 * 5 - $20= $980.

The number indicates that, on average, a customer of this clothing store can be expected to generate $980 in profit over their 5-year relationship with the store, considering their average purchase value, frequency, and the cost of acquiring them as a customer.

3. Cumulative Cohort Revenue

The formula is fairly straightforward (Image source: Medium). 

Cumulative Cohort Revenue (CCR) tracks the total revenue generated by a specific group of customers (cohort) over time. With this metric, your business can gauge the long-term value of different customer segments, as well as the effectiveness of your customer acquisition and retention strategies.

The calculation is fairly straightforward: you simply need to add the revenue generated by a cohort in each period (month, quarter, etc.) since its acquisition.

Let’s say a cohort generated $1,000 in revenue in month 1, $1,500 in month 2, and $2,000 in month 3. Its CCR after month 3 (the first quarter of the year) would be $1,000 + $1,500 + $2,000 = $4,500.

If $1,500 were spent on the cohort in month 1, the CCR ratio would be 3x ($4,500: $1,500 = 3). Long story short, the company is earning 3x on its original investment within 3 months. 

4. Daily, Weekly, or Monthly Active Users

Behavioral and engagement analytics also indicate your current customer retention: you will be briefed on users who are currently active or have not yet unsubscribed. Depending on the nature of the product, pay  more attention to at least one of these three metrics: 

  • Daily Active Users (or DAU)
  • Weekly Active Users (or WAU)
  • Monthly Active Users (or MAU)

Is the product heavily reliant on daily usage (e.g., workflow organizers, messaging apps, etc.)? Then, daily activity stats should be your main focus. But if infrequent check-ins are the product’s central value, keep a close eye on MAU and WAU instead. 

And remember that users do not just randomly decide to turn their back on your app; the churn often follows a preceding, gradual decline in activities. Hence, we suggest setting activity milestones for the users; if they fail to reach them, think of ways to re-engage those users before it is too late. 

How To Improve Customer Retention

Find Weaknesses Based On Customers’ Feedback

Customer’s honest feedback provides unfiltered insights into customer pain points and expectations - a goldmine of valuable guidance for future improvement. It is a wise move to address these weaknesses as early as possible before they lead to widespread dissatisfaction (and, eventually, customer churn). 

Ways to collect feedback:

  • Multiple channels: Utilize surveys, email feedback forms, in-app feedback options, social media listening, and even direct conversations with customer service representatives. 

StringeeX is one of the best solutions for this, given how all customer data across multiple communication channels can be stored and tracked from one single platform. 

  • Open-ended questions: Encourage detailed responses by asking open-ended questions that go beyond simple satisfaction ratings.
  • Incentivize participation: Consider offering incentives like discounts or rewards to encourage customers to share their feedback.

Segment Customers

You can group your customers into different segments (Image source: Flickr).

Dividing customers into different groups helps you tailor your outreach and support to each segment’s preferences. With the messages and promotions becoming more focused and targeted, you can avoid bombarding customers with irrelevant information - which, in turn, improves engagement and reduces unsubscribes.

Some common segmentation criteria:

  • Demographics: Age, location, income
  • Behavior: Purchase history, frequency, channel usage
  • Needs and preferences: Feedback, engagement level, desired features
  • Value: Lifetime value, profitability, churn risk

You can start small with a few key segments first, then expand into more groups once the customer base grows. Most importantly, ensure you have enough data and resources to cater to each segment effectively.

Be Personal With Customer Support

Personalized interactions give customers a strong sense of being valued and understood, which certainly benefits their emotional connection to your brand. Plus, existing issues can be addressed faster and more effectively this way, preventing your customers from seeking alternatives elsewhere. 

  • Always encourage genuine conversations and show empathy for customer frustrations.
  • Do not just follow rigid scripts. Adapt your approach based on individual needs or personal stories the customers share with you.
  • If possible, predict potential issues to offer solutions before they escalate.

Utilize Referral Programs

Referral programs can be a powerful weapon (Image source: Flickr). 

We see no reason not to incentivize existing satisfied customers to recommend your product or service to their network. You can acquire new customers, boost sales, and strengthen loyalty better this way, ultimately improving customer retention during the process.

  • Focus on high-value, loyal customers who are likely to be enthusiastic advocates.
  • Align your referral program with your overall marketing strategy for a unified brand experience.
  • Clearly communicate the program's benefits and encourage participation through various channels.
  • Most importantly, make it easy to participate! Simplify the process with clear instructions and user-friendly sharing options. Seamless tracking mechanisms are also highly recommended here. 

You can also explore other tips and tricks here. 


What is customer retention? 

Understanding the concept is one thing, and measuring it effectively for future improvement is another. 

My team has introduced four common and simple metrics to assess your company’s retention strategies; write to us if you still have more questions.