Why Is Customer Retention Important?

Customer retention is one of the most integral customer engagement metrics. It drives business growth by enabling marketers to keep customer acquisition costs in check, strengthen profitability, and, ultimately, drive long-term loyalty. Here's how.

Brands that invest in customer retention can benefit by…

#1: Reducing customer acquisition costs

Acquiring new customers is expensive, and it's only getting more costly. Brands may have to spend up to hundreds of dollars just to reach and attract a single new user, depending on their industry,—not only that, these growing customer acquisition costs (CAC) have jumped by 60% in recent years.

The good news is that when brands get customer retention right, they can shave costs from their customer acquisition spend. That's because when retention goes up, customer lifetime value (LTV) also goes up. And a high ratio of LTV:CAC is a signal of brand health. Experts recommend aiming for a sweet spot of a 3:1 ratio of LTV:CAC to see the strongest financial results.

#2: Increasing profits

Researchers have quantified the value of retention, and found that brands that are able to improve their engagement efforts to hang on to just 5% more customers will enjoy a powerful increase in profitability of anywhere from 25% to 95%.

#3: Delivering long-term loyalty

It's no secret that driving customer loyalty is important. But did you know that most companies are sustained by following a principle known as the 80/20 rule? That is that about 20% of customers (the most loyal ones) generate about 80% of a brand's business. For some brands with an even more loyal cohort of followers, this ratio can be as high as 90/10.

2022 Global Customer Engagement Review

Customer engagement is the secret weapon that differentiates exceptional, enduring companies. But what makes for great customer engagement practices that deliver an impact?

We surveyed marketing executives from across industries and the globe to determine what sets the standard for excellence for customer engagement. Find out what steps leading brands are taking to drive activation, monetization, and retention.

Learn more

How to Measure Customer Retention

Retention can be measured by tallying up all of the people who initially engage with your brand and then keeping track of those that stick around—or are retained—over time. Here's one common formula for determining customer retention (though there are others):

Keep in mind that customer retention may be defined differently depending on your businesses. As you set about determining your internal parameters for customer retention, ask yourself: What is the action you want your customers to keep on taking over time—initiating app sessions, making purchases, or completing some other activity?

How Can You Increase Customer Retention?

It all starts with having the right data, and, increasingly, that data needs to be real time and from first-party sources. Next, you need to leverage that data to segment your audience and personalize your messages at key moments across the customer lifecycle.

A cross-channel customer engagement strategy is proven to lift 30-day retention by 58%.

Download our Modern Customer Retention Guide for six additional retention strategies that help brands increase engagement. Plus, find out 10 types of campaigns to launch ASAP to drive retention and other KPIs.