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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.
- Create a segment of customers who purchased last year AND within the last 6 months
- Create a segment of customers who purchased from your store last year
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.
1. Create a segment of customers who purchased from your store last year (between 365 to 730 days ago) who have also purchased recently (e.g., in the last 6 months). These are repeat customers from the past year. An example of this segment is shown below.
These customers not only repeatedly purchased, but did so over a long period of time. If you do not add the last 6-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.
2. 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.
3. Now that you have your two segments prepared, you can begin to calculate your retention rate. Use the formula below for retention rate:
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: