The retention rate indicates the percentage of people who remain as the company’s customer base after a defined period of time. As the key performance indicator (KPI) of online marketing, the retention rate is reflected as a key figure for assessing the success of the company or a website. In German, the measure is also used as a customer retention rate. The retention rate is based on a calculation based on collected tracking data.
Which criteria are relevant for the retention rate?
The interaction of active customers at the current time in relation to the customers of a previous time provides the basis for determining the retention rate in online marketing. It should be noted that the customer retention rate can only be determined on the basis of existing data. A specific period is decisive for the calculation. Typical is, for example, observation over a year.
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What are active customers?
It is important to determine which factors should be included in the definition of active customers. It does not have to be the purchase of a product that is relevant here. It is also interesting to consider customers who have had contact with the company. For example, this can be done via customer service. Customers who read the newsletter or visit the company’s website are also relevant. Here too, the retention rate can build on and provide helpful information about brand loyalty. The advantage here: If different criteria are included in the calculation of the retention rate, different cohorts can be formed. The retention rate is thus visible to individual customer groups and their targeted optimization is possible. The success of previous marketing measures can be assessed efficiently.
How is the retention rate recorded?
The retention rate can be calculated using a simple formula. It is important to first deduct the number of new customers from the number of current customers.
The retention rate is the quotient of the current customer base minus the new customers and the customer base at the point in time of departure.
This value shows what percentage of the customers stayed at the end of a defined period, for example within a year, compared to the starting point. The customer retention rate, therefore, indicates the percentage of corporate customers who have not left within the period.
The Importance of Cohort Analysis
The retention rate is analyzed by looking at the so-called cohorts. A cohort brings together people who share a certain event, for example, the purchase of a product. These groups can then be compared. The cohorts are formed on the basis of data that results from tracking the user processes on the website. It is a survey within a specific period of time, for example, a year, which entails corresponding measures.
Usability of the Website for Effective Customer Loyalty
The technical prerequisite for an appropriate retention rate is the user-friendliness of the website: Usability means that customers can access the content conveniently from all devices. Technical errors reduce the retention rate.
It is also essential to continuously update the content: A company’s online presence thrives on regular feeding with current and relevant content. Likewise, it is important to constantly check the existing internal links for their functionality.
How can the User-retention Rate be Optimized?
The most fundamental goal of customer loyalty is to achieve brand loyalty. Knowing information about customer loyalty to the company requires constant observation and optimization of the retention rate. In the area of marketing, various methods are available to influence customer behavior in current and future ways.
Newsletter marketing is an important instrument for customer loyalty. Thanks to newsletters, customers stay connected to the company with up-to-date information, facts worth knowing, and exciting topics.
Complaint management is also a powerful tool. Customers want prompt processing and attention to their concerns and suggestions. It is important to distinguish whether a rational problem, such as a defective product, is the cause of the complaint or whether the complaint results from an emotional motivation. Complaint management plays a major role in marketing and customer loyalty. Here brand loyalty can be strengthened enormously.
It is also worth keeping an eye on how competitive the price of products or services is and whether promises can be implemented in reality.
Technical Measures to Improve the Retention Rate
The technical measures focus on working on your own website.
- The W3C requirements for standards-compliant websites must be taken into account.
- The web site has to be worked correctly in different devices and browser variants especially in terms of responsiveness.
- All forms on the website and the display for mobile devices must be guaranteed.
- Customers usually do not forgive technical errors in these areas, and they also deter potential new customers.
But the constant updating of the website is also relevant. It must be kept up to date in terms of content and therefore regularly provided with new content. Likewise, outdated content has to be deleted and a small or larger redesign has to be carried out from time to time. Last but not least, it is important to continuously check whether all linked websites still exist, because broken links are bad for the usability of the entire page.
Customer Loyalty through Brand Loyalty
Brand loyalty could be described as the freestyle of customer loyalty. It can be divided into three areas or dimensions:
The current customer behavior The behavior planned by the customer The attitude of the customer.
The key point of brand loyalty is customer awareness. So he does not choose a product or service because he is comfortable or does it out of habit. Rather, his choice of product or service occurs consciously and intentionally. So he chose a brand in the past and has come to the conclusion that he wants to continue to do so, even if he has to accept surcharges. This is possible if not only the product and/or service is approved, but the company’s dealings with the customer have a positive effect on their attitude. So it’s about the big picture, which is another reason for professional complaint management. The customer identifies with a product, with a brand, if he can stand behind the entire corporate philosophy.
Customer Loyalty versus Churn Rate
The retention rate is always to be interpreted in comparison with the customer churn rate, also called the churn rate. However, specifying the reasons for the migration is a challenge for online marketing: Because customers rarely communicate the background of their decision. At this point, it is helpful to check whether poor complaint management is responsible for emigration.
How do you Improve the Retention Rate?
As with all KPIs, the retention rate must also be optimized. No matter which time period is chosen, various measures can lead to customer loyalty to the company. A frequently used procedure to keep one-time buyers is the use of newsletters. The needs of the user can be derived from his previous customer journey.
Positive Effects of the Retention Rate
Even for companies that can look back on a customer retention rate of 90 percent, the customer base is halved in an interval of five years by around 50 percent. When you consider that preventing customer churn by as little as five percent can make up to 85 percent of the difference in sales, it becomes clear how important customer retention is. Another point: 72 percent of those who consume brands are not so loyal. For them, branded products are interchangeable, which is also due to the similar communication of advertising for comparable products. This in turn speaks for a particular focus on customer brand loyalty.
An analysis of the retention rate only works if the churn rate is also taken into account. Achieving brand loyalty can be seen as the culmination of customer loyalty.
How to Calculate User Retention Rate
In order to compare the retention rate values, it is important to determine which time interval is used for the company. Information on return rates, repurchase rates, or marketing cycles is useful for this.
For a very simple example, we take a period of 12 months. The question for our retention rate is: What is the proportion of users who are still users in a year.
To do this, we need to know 2 values: how many active customers did the company have 1 year ago and how many of them are currently. The definition of what an active customer is must be decided on a case-by-case basis. Let us assume that the following data are available:
Active customers 1 year ago – aK1: 3,000
Today’s active customers – aK2: 2,500
Retention Rate = active customers today / active customers 1 year ago
For the example this means: Retention Rate = aK2 / aK1 = 83.3%
The retention rate is currently around 83.3%. A picture of how the customer retention rate is developing emerges over several periods. If you also have documentation of marketing measures or website adjustments, influencing factors can be determined.
What is the importance of User-retention Rate for SEO and CRO?
A high user-retention is meant that Brand Awareness, Brand Search Demand, and Historical Search Data for Brands along with Direct Traffic will be increased. For a Search Engine, if the content source is an authoritative brand or web entity, it means that the content source can have higher ranks because they satisfy the users. User-retention is also a positive signal for Conversion Rate Optimization. Thanks to the high user-retention rate, the newly published contents, services, and functions or products can convince the user easier, customers know the colors and working principles of the brand and give the purchase order easier.
User Retention is an important term for Holistic SEO. We will continue to improve our guidelines to help Holistic SEOs across the globe.
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