Customer Retention Measurement: 10 Key Metrics to Track

Customer Retention Measurement: 10 Key Metrics to Track

In 2021, brands are prioritizing customer retention. And in order to know how well your business is doing at maintaining customers, you must measure your success with customer retention metrics and key performance indicators (KPIs). These measurements track how successful your business is at retaining your customers and their spending dollars.

For example, your organization must look at customer retention metrics like customer lifetime value and churn rate. Customer retention measurements also give your company insights into how well you are able to continue to meet a customer’s needs over time and turn that into continued business.

In this blog, we’ll explain how to calculate customer retention, what other metrics to evaluate alongside it and how to use those insights to maximize the retention rate of your brand. However, before you evaluate your customer retention rate, it’s important to clarify how your company defines customer retention in its particular line of business.

Customer Retention: Definition

According to crazyegg.com, the company co-founded by digital marketing guru Neil Patel, “The customer retention definition in marketing is the process of engaging existing customers to continue buying products or services from your business.

But, your criteria for retaining those customers will vary based on your company’s industry or vertical. A travel company will need to measure their customer retention long-term because on average people fly only once a year. At the same time, if a quick serve restaurant (QSR) were to only measure their retention yearly, they would miss a number of important trends and opportunities. While some eCommerce brands even measure their customer retention daily to catch any and all fluctuations.


Customer Retention and Loyalty

Customer retention and customer loyalty are linked—customer retention metrics can be used to measure customer loyalty—but they do not mean exactly the same thing.

Customer loyalty refers to a customer who continues to buy from a particular brand, company or business. Beyond that, loyal customers may also amplify word of mouth, be more receptive to other products and services from the same company, be more forgiving of any issues or problems they may encounter with a company and be more likely to provide feedback and reviews. They are not actively looking for the same product or service elsewhere and are less receptive to marketing from competitors.

Customer retention is a more general term that refers to a business’ ability to turn new customers into repeat customers.


Why Is Customer Retention So Important?

Customer retention is vital to your company’s success. For starters, it is cheaper to cultivate loyalty than to acquire new customers. According to Harvard Business Review, attracting new customers will cost your company five to 25 times more than keeping an existing customer. And loyal customers are likely to be better for your bottom line as well. Inc reports that current customers spend 67% more on average than those who are new to your business.

Your customer retention rate measures what percentage of your existing customers are continuing to do business with you over a given period of time. It is one of the most important metrics to determine customer loyalty and should be a KPI of whether your loyalty marketing strategies are working. Your customer retention rate is the opposite of your churn rate, which measures how many of your customers left for another competitor—or stopped purchasing all together—over the same time period.

10 Key Customer Retention Metrics You Should Be Tracking

1. Customer Retention Rate

Customer retention rate is the most straightforward metric for understanding your customer loyalty and how much repeat business you are generating. There are several other metrics that can be tracked along with it to give you a deeper understanding of how your brand or business is performing.

How To Calculate Customer Retention Rate


Customer Retention Rate Formula:

Customer Retention Rate = ((NCE - NEW) / NCS)) X 100.

The formula for customer retention calculation is reflected as a percentage, and is calculated for a specific time period, such as by week, month or year.

  • NCE = Number of Customers at End of Time Period
  • NEW = Number of New Customers Acquired During Time Period
  • NCS = Number of Customers at Start of Time Period


2. Churn Rate

As mentioned above, churn rate measures what percentage of your customers have stopped doing business with you over a given period of time. Some churn is normal for any company, but if your churn rate is above 5%-7%, it’s time to examine what’s impacting your customer satisfaction.

Customer Churn Rate

Customer churn rate measures the rate at which customers stop buying your products or services. This can take the form of a customer opting out of or ending a subscription, or otherwise discontinuing to engage with your company.

How To Calculate Customer Churn Rate

Churn Rate Formula:

Churn Rate = Number of Churned Customers / Number of Total Customers … Or is it?

Churn is a hotly debated topic in marketing and data science, so it actually has several formulas, the simplest of which is the one shown above. But as many experts point out, this formula lets your growth, or new customer acquisitions, skew your churn rate. So several organizations have developed alternatives—for example, Hubspot recommends eliminating newly acquired customers before you calculate to avoid this issue:

Churn Rate = (NCES - NCEE) / NCES

  • NCES = Number of Existing Customers at Start of Time Period
  • NCEE = Number of Existing Customers at End of Time Period

To browse several other churn formulas, including a predictive churn formula from Shopify, check out this post.


Revenue Churn Rate

Revenue churn rate refers to the percentage of revenue your business has lost from existing customers in a given period of time. There are a number of customer behaviors that can lead to revenue churn, including cancelling an order, downgrading a subscription or plan, or completely cutting ties with your business.

How To Calculate Revenue Churn Rate

Monthly Revenue Churn Rate = [(MRR at Start of Month - MRR at End of Month) - MRR in Upgrades during Month] / MRR at Start of Month

Revenue churn rate should be calculated in monthly intervals. If this formula leaves you with a negative percentage, that mains your revenue gains from existing customers outweigh any revenue losses. This calculation should not include revenue from new customers.

  • MRR = Monthly Recurring Revenue
  • MRR in Upgrades = Revenue accrued from upselling or cross-selling to existing customers

3. Existing Customer Revenue Growth Rate

In essence, this metric looks at how much revenue you are generating from your customer success, retention and loyalty efforts. If your loyalty marketing team is able to upsell, cross-sell, increase purchase frequency and so on, this rate will continue to climb. If not, your numbers will flatten or fall.

How To Calculate Existing Customer Revenue Growth Rate

Existing Customer Revenue Growth Rate Formula:

Monthly Revenue Growth Rate = (MRRE - MRRS) / MRRS

This metric is typically measured monthly. To calculate it, you’ll need to find out your monthly recurring revenue amount (MRR), then plug it into the formula. Once again, because you’re measuring customer retention, you should calculate MRR numbers from existing customers only, and exclude any revenue generated by new customers.

  • MRRS = MRR at Start of Month from Existing Customers
  • MRRE = MRR at End of Month from Existing Customers


4. Net Incremental Revenue

Net Incremental Revenue (NIR) measures the change in net revenue earned by the company after running a promotional offer campaign, while also taking into consideration the cost associated with the offer.

NIR helps tie marketing to the larger business objectives and goals, the most common being increased revenue. NIR is an important measurement because it provides a clear picture of revenue minus expenses, helps executives understand the impact of a program and proves marketing ROI.

How to Calculate NIR:

Total Net Revenue = Qualifying Revenue – Incentive Costs

  • Incentive Costs = Dollar value of Rewards granted
  • Incentive Costs: 100 Reward Points = $1

Net Revenue per Customer = Total Net Revenue ÷ Number of Customers

This is calculated for test and control separately.

NIR per Customer = Net Revenue per Customer from Test – Net Revenue per Customer from Control

Total NIR = NIR per Customer x # Test Customers

Efficiency = Total NIR ÷ Incentive Costs



5. Repeat Purchase Ratio

Also known as Loyal Customer Rate, RPR measures what percentage of your customers return to make purchases in a given period of time. This metric can be a strong indicator of customer loyalty, but customers’ individual behaviors can also skew it. Take the example of a clothing retailer, where some customers may only make one or two large purchases a year based on seasons or sales, while other customers may make smaller purchases every month in an effort to stay on trend. Ideally, your digital team should be tracking purchasing frequency for each individual consumer in addition to looking at the overall rate of repeat purchases.

How To Calculate Repeat Purchase Ratio

Repeat Purchase Ratio Formula:

Repeat Purchase Ratio = NRC / NTC

This simple formula can be calculated by week, month, year or any other time period you choose.

  • NRC = Number of Returning Customers in Time Period
  • NTC = Number of Total Customers in Time Period


6. Daily, Weekly, and Monthly Active Users (DAU, WAU, MAU)

Disengagement is usually a key predictor of churn, so you want to make sure your users stay engaged with your website and mobile app. This is where behavioral analytics comes into play. Start by setting activity benchmarks for your users, and monitor whether they meet them. If they don’t, begin immediate re-engagement efforts.

7. Customer Lifetime Value (CLV)


Customer lifetime value (CLV) refers to the amount of revenue generated by a single customer. Marketers should consistently track this metric, though the period of time will be based on your individual company’s offerings. Your company should aim for a CLV that increases or remains steady; if the CLV is diminishing, this means your customers are low-value or that you are losing customers at an increasing rate.

How To Calculate Customer Lifetime Value

Customer Lifetime Value Formula:

Customer Lifetime Value = [Gross Annual Sales/Total Number of Unique Customers for the Year] x [Average Lifespan of Customers]

Dividing your company’s gross annual sales by the total number of unique customers for the year will provide you with the average amount you can expect from a customer over the course of a year. Multiply this amount by the average lifespan of a customer based on data about how long a customer typically stays with your business in terms of years.

8. Product Return Rate

Product return rate is the percentage of your total units sold that have been sent back to you. This metric is only applicable to your business if you sell a tangible product. If you do sell a product, you should aim to have a product return rate that is as close to zero as possible. However, rates are typically much higher: the average return rate for purchases made at brick-and-mortar retailers is 8-10%; it’s 20% for e-commerce purchases, 30% for e-commerce purchases made during the holidays and 50% for “expensive” products, according to data collected by Shopify.

How To Calculate Product Return Rate

Product Return Rate Formula:

Product Return Rate = Number of Units Sold That Were Later Returned / Total Number of Units Sold

Your timeframe for calculating this rate will depend on your sales volume, but this general formula will apply.


9. Net Promoter Score

Net Promoter Score (NPS) is a customer satisfaction metric that measures how likely your customers are to recommend your company to others. This score indicates a customer’s general satisfaction and loyalty to your brand.

A high NPS can’t guarantee customer retention and growth, but it can help identify the brand evangelists that are most likely to drive referrals. A low NPS is indicative of low customer satisfaction and may indicate that some sort of intervention is necessary to turn things around.

How To Calculate Net Promoter Score

Net Promoter Score Formula:

Net Promoter Score = % of Promoters - % of Detractors


To calculate this score, you will need to ask your customers how likely they are to recommend your product or service to a friend or colleague on a scale of 0 to 10. Those who respond with a 9 or 10 are considered to be promoters; those who respond with a 6 or below are considered detractors.

10. Loyal Customer Rate

Loyal customer rate refers to the number of customers who have made a repeat purchase with your company within a given time range. You should aim for a high loyal customer rate, as loyal customers are the most valuable customers to your business. Not only are they more likely to make repeat purchases, but they are also the most likely to drive referrals.

How To Calculate Loyal Customer Rate

Loyal Customer Rate Formula: Loyal Customer Rate = Number of Repeat Customers / Total Customers

To find this rate, you will need to first know your total number of customers over a given timeframe (month, quarter, year, etc.). This number should include new and existing customers. To find the number of repeat customers, add the total number of existing customers who made additional purchases and the number of new customers who made multiple purchases. Plug this total in as the number of repeat customers.


Loyalty Program Customer Retention Metrics

Loyalty programs provide unique opportunities to utilize customer retention metrics to measure customer loyalty. A successful customer loyalty program retains customers through enticing incentives to make additional purchases. If your customer loyalty program is not performing well, this is an indicator of poor customer loyalty.

To determine how well your loyalty program is working, consider using the following metrics.


Participation Rate

Participation rate refers to the percentage of your customers who are actively enrolled in your loyalty program. To calculate the participation rate, simply divide the number of customers enrolled in your loyalty program by your total number of customers.

Redemption Rate

Redemption rate is a measurement of the percentage of your loyalty program participants that are redeeming the perks that are offered or earned through the program. The redemption rate is a strong indicator of the success of your loyalty program.

To calculate the redemption rate, divide the number of perks redeemed by the number of perks issued.

Active Engagement Rate

Active engagement rate refers to the percentage of your total customers who are engaging with your loyalty program (i.e. they are redeeming the perks earned or offered to them through the program). To calculate active engagement rate, divide the number of customers who are engaging with your loyalty program by your total number of customers.


How to calculate customer retention rate (formula list)

Most of the metrics in the section above have simple formulas for customer retention rate calculation. One of them is much more contested, with different formulas favored by different marketers and companies.

Customer Retention Rate Formula: Customer Retention Rate = ((NCE - NEW) / NCS)) X 100.

This formula is reflected as a percentage, and is calculated for a specific time period, such as by week, month or year.

NCE = Number of Customers at End of Time Period

NEW = Number of New Customers Acquired During Time Period

NCS = Number of Customers at Start of Time Period

Churn Rate = Number of Churned Customers / Number of Total Customers … Or is it?

Churn is a hotly debated topic in marketing and data science, so it actually has several formulas, the simplest of which is the one shown above. But as many experts point out, this formula lets your growth, or new customer acquisitions, skew your churn rate. So several organizations have developed alternatives—for example, Hubspot recommends eliminating newly acquired customers before you calculate to avoid this issue:

Churn Rate = (NCES - NCEE) / NCES

  • NCES = Number of Existing Customers at Start of Time Period
  • NCEE = Number of Existing Customers at End of Time Period

Monthly Revenue Churn Rate = [(MRR at Start of Month - MRR at End of Month) - MRR in Upgrades during Month] / MRR at Start of Month


Revenue churn rate should be calculated in monthly intervals. If this formula leaves you with a negative percentage, that mains your revenue gains from existing customers outweigh any revenue losses. This calculation should not include revenue from new customers.

  • MRR = Monthly Recurring Revenue
  • MRR in Upgrades = Revenue accrued from upselling or cross-selling to existing customers
  • Existing Customer Revenue Growth Rate Formula: Monthly Revenue Growth Rate = (MRRE - MRRS) / MRRS

This metric is typically measured monthly. To calculate it, you’ll need to find out your monthly recurring revenue amount (MRR), then plug it into the formula. Once again, because you’re measuring customer retention, you should calculate MRR numbers from existing customers only, and exclude any revenue generated by new customers.

  • MRRS = MRR at Start of Month from Existing Customers
  • MRRE = MRR at End of Month from Existing Customers

Repeat Purchase Ratio Formula: Repeat Purchase Ratio = NRC / NTC

This simple formula can be calculated by week, month, year or any other time period you choose.

  • NRC = Number of Returning Customers in Time Period
  • NTC = Number of Total Customers in Time Period

Customer Lifetime Value Formula:

Customer Lifetime Value = [Gross Annual Sales/Total Number of Unique Customers for the Year] x [Average Lifespan of Customers]

Dividing your company’s gross annual sales by the total number of unique customers for the year will provide you with the average amount you can expect from a customer over the course of a year. Multiply this amount by the average lifespan of a customer based on data about how long a customer typically stays with your business in terms of years.

Product Return Rate Formula: Product Return Rate = Number of Units Sold That Were Later Returned / Total Number of Units Sold

Your timeframe for calculating this rate will depend on your sales volume, but this general formula will apply.

Net Promoter Score Formula: Net Promoter Score = % of Promoters - % of Detractors


To calculate this score, you will need to ask your customers how likely they are to recommend your product or service to a friend or colleague on a scale of 0 to 10. Those who respond with a 9 or 10 are considered to be promoters; those who respond with a 6 or below are considered detractors.

  • Loyal Customer Rate Formula: Loyal Customer Rate = Number of Repeat Customers / Total Customers

To find this rate, you will need to first know your total number of customers over a given timeframe (month, quarter, year, etc.). This number should include new and existing customers. To find the number of repeat customers, add the total number of existing customers who made additional purchases and the number of new customers who made multiple purchases. Plug this total in as the number of repeat customers.


3 most important ways to boost your customer retention rate

Any quick Google search of “improve customer retention rate” will yield dozens of listicles with anywhere from 5-15 suggestions for increasing your retention. But the reality is, focusing on all those tasks at once will spread your team so thin that you may accomplish very little. Instead, try to concentrate your efforts where they are likely to make the most impact.

If your brand is looking to increase its customer retention rates, consider focusing on the following three areas:

1. Understand your churn

Now that you’ve calculated your retention and churn rates, you understand how many of your customers are coming back vs. leaving—but do you understand why? If not, consider sending feedback surveys to churned customers, and A/B test your questions to improve your response rate. A marketing solution that can analyze, and act on, customer behavior is also helpful in this regard, because it can catch early indicators of potential churn and act to re-engage the customer before it happens

2. Improve customer experience

A positive customer experience goes a long way toward retaining customers. Detailed customer feedback should give you some good starting points for what to improve. But if you don’t have any yet, start taking steps to encourage brand loyalty:

  • Provide a seamless customer experience. Make sure ordering your product or service is simple, and that moving from brick and mortar stories to digital experiences is simple and. Update your offer campaigns to give your customers a customer journey that is relevant and provides real value. Because you will also need to:
  • Deliver great customer service. Customers want to be heard. Make sure your team is easily accessible by offering live chat solutions for expediency, but maintain credibility by also offering the peace of mind of a customer service number. Some customers will also use social media for customer service issues, so empower your team to respond quickly to those requests.

3. Deepen customer relationships

We’ve said it before, and we’ll say it again: today’s customers are looking for personal relevance and brand relationships they find valuable. One of the best pathways to delivering that value is a customer loyalty program. Loyalty programs build a continued relationship with your customers, with repeat purchases earning them repeat rewards. This helps to keep your customer retention rate steady, and can even increase it.

According to Patel, a loyalty program can lead as much as 54% of your customer base to do more business with you. And if you can add 1:1 relevancy to your loyalty program, you’ll engage and improve customer experience even further.

Discover the “why” behind your customer retention rate

Customer retention rate is an important metric for evaluating the success of your overall loyalty marketing strategy, but to get the full picture, you need visibility into why your customers are choosing to return—or not. By getting a deeper understanding of their motivations and preferences, you’ll be able to create customer relationships that last.

To learn more about fostering customer loyalty, check out our white paper, “How to Uplevel Your Customer Loyalty Program.” You can also contact us to see how Formation can help improve your marketing results.

Read more about customer retention:

7 Strategies for Customer Retention That Really Work


Get the 5 steps to strengthen your customer loyalty program through experimentation and measuring offer success. Read The Ultimate Guide to Measuring Customer Loyalty Offers now.