1.Customer retention :
What it measures: It signifies the fraction of customer that remained with a specific company to the
number at risk. The retention rate can be calculated weekly, monthly or annually. The formula of this
metric is (Number of retained customer/ customers at risk) x 100.
It is one of the most important metrics for expanding business. It screens the ability of a company to
attract and retain customers by keeping them happy. It measures the effectiveness of its’ customer
service and the loyalty of the customers. The higher the retention rate is, the lesser the bad word of
mouth is there about the brand. For example, after its inception in 1938, the old spice campaign was
very popular with men. However, as time and fashion changed, Old Spice failed to keep its customers.
They noticed that their number of customers were drastically dropping and were failing to improve this
situation until they launched the campaign. Old Spice carefully analyzed the number of their customers,
benchmarked their performance and identified where there is a need to increase customer retention
rate to make a comeback in the market and sky rocket its sales growth.
Reason for choosing this metric: Most companies do not fully understand the true advantage of this
metric and are always busy getting new customers where as a small 5% increase in customer retention
can lead to a 75% increase in profits. Also it is five times more expensive to achieve a new customer
than to retain old customer. It is crucial to count the number of customers effectively before building
and managing relationship with them.
1. The challenges with this metric are that all products have a life time, technology changes,
customers will move on where the latest buzz is happening. Thus, eventually customer retention
rate goes down.
2. Sometimes companies themselves do not put enough effort to maintain long term relationship
witheir customers and retention rate falls. For instance, after the Old Spice campaign