Updated: Apr 11
Everything you need to know about retention (and how to have it, of course!) and customer retention rate before applying retention strategies, all in one place!
When we start a business, all we care about and are focused on is getting people to use our service or product. The process begins with acquiring new customers, and after a while, we have a database of customers. However, sometimes things don’t work out as planned and users or customers keep churning from our service, so we end up spending fortunes on getting new customers to know us.
Well, here comes the concept of “retention”. Customer retention refers to the ability of a company or a product to retain its customers or users over some specified time period. High customer retention means customers of the product or business tend to return to and continue to use it. This doesn’t mean that all our efforts should be focused on getting retention, but let’s face it, a lot of it should be.
Retention strategies can be applied only after you know about your customer retention rate and decide which strategy might work best for your case.
There are three ways to calculate customer retention rate brought to you by Hengam:
1. Classic retention
We set a time as the basis of our calculations and we call it “Day 0” — usually the first day of the month. The most important thing about classic retention is that it is calculated independently for each day.
We know that we have gained a specific number of new users on our basis day; and for each day after that, the classic retention can be calculated in the following form:
Note that the two individuals who came back on Day 2 could be all, some, or none of the three that came back on Day 1.
This measurement is very easy to calculate and understand; however, it is very time-sensitive and can change due to external factors. If you’re going to launch a one-day campaign and want to measure the stickiness of the users acquired through that campaign, classic retention is what you should use.
If you want to look at overall day-to-day retention rather than retention of a specific day, then average several days together to minimize the daily noise. For example, averaging the last 15 Mondays will give you the average behavior of new users who first use the app on a Sunday. Alternatively, averaging every day in a month would give you the average retention rate of new users who first used the app that month.
2. Range retention
To calculate this metric, we need to set a time period as the basis. The most common calculations are weekly (7-day basis) and monthly (30-day basis).
Range retention is not as time-sensitive as classic retention, but it is also not as specific as that. Range retention is good for figuring out the weekly or monthly trends, but it doesn’t indicate if changes happened in the beginning or at the end of the time period. It is better to use this approach to monitor the health of your business at a high level over periods.
3. Rolling or return retention
If you just want to know how many customers you’ve successfully built a long-term relationship with, rolling retention will give you the answer. Rolling retention reflects the stickiness of your app in one metric.
It doesn’t matter if a user comes back one time or 100 times after the day you’ve selected. At the same time, if you select Day 7 as the day to measure against, it doesn’t matter if the user comes back on Day 7 or Day 700. Also, if you find that you have a low Day 30 rolling retention and high sessions per user, it could mean your app is grabbing user interest at first but struggling to keep it after a month of use.
How to have retention
Up until here, we discussed what retention means and how the customer retention rate is calculated. Now, we are going to tell you more about what to do if your retention is low!
It is crystal clear that it’s more probable to sell to an existing customer. If we take into account the costs of acquiring a new user, we can also see that selling to current customers is also more profitable. Considering what was mentioned, if users churn from your business, your chances of selling and making profits are lowered. We also need to understand the fact that downloading the app (or signing up for our service) is just the first step; as long as they have not used it, we have not converted them to our customers. So, we need to figure out “when” and “where” they can be converted.
One of the best ways to convert users into customers, or just convince them to use our apps, is by means of push notification. We can remind them that they have a shopping cart that they have not finished paying for or they have not opened our app in a while.