Retention and Churn Rate
Retention: Measuring Customer Loyalty and 𝗟𝗶𝗳𝗲𝘁𝗶𝗺𝗲
“Retention” refers to how long a group continues a behavior (e.g. product use) over a certain period of time.
That is, it shows how many customers continue to use the service for a given period of time. A high retention rate indicates that the business is successfully managing customer loyalty.
Example Scenario: Active Retention Rate Analysis
Let’s say 200 new customers sign up in July. At the end of the same month, the total number of customers is 1200. At the end of August, the number of active customers was 800. Let’s calculate the retention rate using this data.
Data:
🟣July Number of New Customers: 200
🟣July Total Number of Customers: 1200
🟣Number of Active Customers at the End of August: 800
Retention Rate Calculation:
Retention Rate = ((800–200) / 1200) * 100 = (600 / 1200) * 100 = 50%
In this case, 50% of the customers signed up in July were still active at the end of August.
☂️Attention☂️
A higher retention rate indicates that the business is managing its customer base more effectively and increasing loyalty.
I am leaving a video about measuring retention below.
Churn Rate: This rate shows the proportion of customers who leave the business or cancel the service in a given period.
For example, it indicates how many customers leave or unsubscribe in a month. It is desirable to have a low churn rate because this means that customer churn is minimized and the business manages customer loyalty well.
Example Scenario: Churn Rate Calculation
Let’s consider an e-commerce business. In May, the business had a total of 1500 customers. In June, 100 customers were lost. Let’s determine the rate of customer churn between these two months by calculating the churn rate.
Data:
🟣Total Number of Customers at Startup (May): 1500
🟣Number of Lost Customers (June): 100
Churn Rate Calculation:
Churn Rate = (100 / 1500) * 100 = 6.67%
In this case, the business, which initially had 1500 customers in May, lost a total of 100 customers in June. The calculated churn rate is 6.67%.
☂️Attention☂️
Churn rate shows as a percentage how many customers the business has lost in a given period. A low churn rate means better customer loyalty, while a high churn rate can indicate increased customer churn.
If we know the churn rate, we know the retention rate.
I am leaving a video about measuring churn rate below.
In this article, I discussed the concepts and formulas of Retention and Churn Rate.
I hope this has been a useful content for you. 🌞
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