It can be easy to look at revenue growth and customer acquisition as the only two metrics that matter when you’re in growth mode (or any mode, if you think about it). And revenue is obviously very important.
But the other metric set I think needs a top seat at the table is your customer retention metrics.
I think of customer retention like an investment account. I want to get amazing returns but those returns won’t mean much if my baseline deposits start dwindling.
Same thing with customer retention. If customer retention starts falling then continued growth will be difficult to sustain.
Through analysis, we know that customer retention is correlated with:
- Future Profit Growth (Gartner, Leading Edge of Chaos Report)
- Brand Perception (AllBusiness.com)
- Increased Lifetime Value of a Customer (Gartner, Leading Edge of Chaos Report)
Many executives talk about things like the NPS (Net Promoter Score) as indicator of customer satisfaction and retention but that doesn’t go far enough.
With advances in CRM systems, it’s easier than ever to understand real retention rates. And these can be tied back to customer satisfaction, service levels, customer value and other data for a holistic look at the business.
Some industries, like consumer goods, might find it more difficult to calculate customer retention. However, loyalty program tracking and other research can help businesses understand retention rates in those industries where it’s not easy to track a repeat purchase (like soft drinks) or where the buying cycle is very long (like buying a washing machine).
No matter the business size, from start-up to multinational, customer retention is arguably one of the top key indicators on the health of a business and its profitability. It’s something that should also be in a business health summary or presentation because retention has been shown to have such a big impact on a business over the long term.