How to Calculate Retention Rate

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Overview

Retention rate calculations provide useful insights into how loyal your customer base is and where you may need to improve upon to increase purchase behavior. Retention rate goes beyond finding out who your recent customers are; rather, it takes into account purchases over a set window of time to gauge long-term customer behavior.

Calculate Retention Rate

There are three steps you must take to calculate retention rate.

  1. Create a segment of customers who purchased last year AND within the last 6 months
  2. Create a segment of customers who purchased from your store last year
  3. Calculate

Note that you can craft your own custom timeframe if the one above does not work for your business model. For example, if you are a subscription business, you can cater to this timeline in a way that makes the most sense for your customer’s purchasing timelines.

Step 1: Create Your First Segment

The first step in calculating retention rate is to find the number of customers who purchased from your store last year (between 365 to 730 days ago) who have also purchased recently — in this case, within the last 6 months (182 days). These are repeat customers from the past year.

These customers not only repeatedly purchased, but did so over a long period of time. If you do not add the last six month condition to your segment, you risk including customers who made a second purchase immediately after the first, and who then never returned to your store. You can customize your timeframe as you choose, but keep in mind that using monthly time spans allows you to gain a better understanding of customer loyalty over time.

An example of this segment is shown below.

retention_segment_1.png

Step 2: Create Your Second Segment

The second segment you will create includes only customers who purchased last year (between 365-730 days ago). This removes the condition including those who returned to purchase within the last 6 months, so you can see the overall purchasers from last year.

An example of this segment is shown below.

retention_segment_2.png

Step 3: Calculate

Now that you have your two segments prepared, you can begin to calculate your retention rate. Below is the formula for retention rate:

RR1.png

For example, if your first segment (of those who purchased last year and in the last six months) has 2,500 profiles included, and the number of profiles who purchased last year in total was 10,000. Your equation would be the following:

RR2.png

Next Steps

A high retention rate allows you to increase your return on investment (ROI) and lower your churn risk over time. With better retention thereby comes accelerated growth. So, after you calculate your customer retention rate, you will want to compare yours to industry benchmarks to see how you compare. According to Omniconvert, the average retention rate for e-commerce is around 30%. However, this will vary depending on your industry, product, and your customers' typical buying cycle.

Below are best practices to improve your customer retention rate.

  • Segment for Additional Targeting
    Segments are incredibly powerful tools to make sure that you target the right people with applicable content that strikes their interest. For information on how to advance your segmentation efforts check out the following resources:
  • Integrate Klaviyo with Your Social Media Strategy
    Social media and owned channels in Klaviyo are both useful tools to engage customers— so why not combine the two? Integrate social with Klaviyo to expand your horizons with regard to ad targeting and generating an audience on various channels. For more information, see Integrate Owned Marketing with your Facebook Advertising Strategy.
  • Use Profile Properties to the Fullest
    Profile properties enable you to gain even more detailed information about your subscribers by asking them for these details directly. You can learn anything from what their current home city is to their favorite color or food item. To learn more about how to collect, organize, and use properties, head to our Guide to Profile Properties.

    To learn how to collect properties via forms, head to our article on The Signup Form Builder. Moreover, get creative with forms. Try having a form appear when a customers’ expected date of next order approaches, or by location as seasons change or events occur in their area. Test out new ideas for retaining customers over time.

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