Calculating the value of customers

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The monetary value of a customer relationship is important in understanding how much you might choose to spend on acquiring a customer or how much you might choose to invest in a customer acquisition strategy over time.

82% of companies agree that retention is cheaper than acquisition and some three-quarters of consumers say they prefer brands that offer them rewards for their loyalty.

Just over half of customers claim that they stay loyal to those brands that relate most closely to them and 65% of most brands’ business comes from existing customers so it comes as no surprise that working out what those customers cost you to acquire and what it takes to retain them should be an important focus of what your organization does. All of this is encapsulated in the Customer Lifetime Value or CLV concept.

Focus on the two segments in orange and blue for your ‘best’ customers

What is the average customer retention rate?

Customer Retention Rate (CRR) by Industry is variable, in Retail this tends to be around 63%, in Banking, 75% and in Telecom 78%.

However, churn (customer switching) is becoming increasingly commonplace in the telecom and banking sectors due to the more open approaches to doing business and the advocacy for consumers through initiatives like “open banking” and “number portability”.

In the perfect world, you would see 100% customer retention, where the products and services that you offer are uniquely distinguishable from those of others, such that they are considered indispensable and non-displaceable by competing brands. Where monopolies exist or where the difference between your brand and the next best competitor is massive, you may find that close to 100% retention is achievable. Retention above 90% is exceptional and retention above 75% is considered very good. Retention below 25% is not very good verging on bad or terrible.

It is important to measure retention nonetheless because the longer you can retain the customer the cheaper the acquisition costs and the higher the customer’s lifetime value.

Retention translates to customer loyalty and should be a Key Performance Indicator that determines whether your products and customer loyalty strategies are effective.

So just how would you calculate your customer retention rate?

Start with counting the total number of customers you have at the end of a time period (month, quarter, or year) – the Pretectum CMDM can be an aide in doing this. Next, subtract the number of new customers you acquired in the same period, here too, you could use the Pretectum CMDM to do this. Next, divide the remaining number by the number of customers you had at the start of the period.

Customer Loyalty

Customer loyalty is influenced by many factors, it has been found that the most loyal customers associate positive experiences they have with the brand or company with sustained and recurrent purchases. They may also be observed to have higher conversions (visits that result in a sale) and higher overall spending (higher event value).

Keeping customers happy and inducing them to return for more is vital to the success of any business. So, higher profitability often begins with existing customers. Repeat customers not only spend more money on a more frequent basis, but they also assist to increase the number of new consumers that come through your doors through recommendations and brand promotion. As a result, it is critical to maintaining a high customer retention rate (CRR).

Pretectum believes that one of the best ways to promote a high CRR and establish the highest possible CLV is through interaction personalization and a closely curated relationship with the customer.

This means knowing who your customers are, what their preferences are and conveying to them a disposition of caring and genuine knowledge about them and their circumstances and relationship with your brand or business. This relationship-building is best achieved through appropriately comprehensive and correct customer master data.

Contact Pretectum today to find out how you can make your customer master data the best it possibly can be.