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Here’s Something You Didn’t Know;
The Average Customer Retention Rate By Industry!

Indhuja Lal

Indhuja Lal

8 min read

Customer Churn feels like a heartburn, it’s nasty and painful and sometimes it is a fatal heart attack in disguise. Churn is something that the companies and businesses all over the world have ever been running away from and for the right reasons too I should say. Acquiring new customers is five times more costly than retaining your current customers.

Imagine that you are in the hotel business. According to AHLA (American Hotel & Lodging Association), there are 50000+ properties in the United States that offer similar services. A tourist lands in the country and how much of a chance do you think you stand to be chosen by that particular tourist?

Simply increasing the traffic to your showroom or website wouldn’t do the trick anymore. Everybody likes to check out the new face in the block but that doesn’t mean everybody is going to go along with them. You need to give your customers something to stay around. Now for that, you need to have a strong game plan in your bag that will include amazingly performing products and a remarkable Customer Loyalty Program.

Happy Customers! Happy Business!!

“To get them hooked and booked for life, you must consistently feed them – value!” 

You will have to spend a lot of money, effort, and creativity to grab that tourist’s attention and to drive the desire to choose you. Obviously, the process is bearing and painful. Once they are there you get to offer them the best experience they ever could have had and it should be carried out in such a way that the next time they are visiting they are going to make a booking at your hotel. Once you have turned them into a loyal customer, whichever country they go in, they are going to type your hotel’s name into the search box. You have successfully built a faith in them about you. Do not let this get to your head, coz just one instance of bad experience is enough to make them switch to others.  And surely you want to avoid that at all costs? That is what customer retention is all about.

Retain Your Customers, Whatever The Cost May!

To take a realistic path, I should tell you that 100% customer retention rate is far from being a reality. At one point or another, every company has to feel it, but the good news is that you have the possibility to be not burned by it. Take the hypothetical situation as you, a hotel owner once more. Imagine your hotel is situated somewhere exotic, like Bora Bora Islands. Your expected guests would be in general, young couples considering the location. Sometimes many people from other streaks of life would also stay there out of curiosity or for the exclusive experience it offers. People who are not very fond of marine adventures are not going to come and stay at your place again.

It is not about anything you did. Sometimes you fail to cater to their needs. When your hotel fails to have rooms with excellent views or not enough water sports, the customers are not going to come back to you. It wouldn’t matter even if you have spent millions to decorate your rooms with all the nice things. In other words, you have to understand your customers and by that I mean, who they are and what they need. You can uphold success in business only if you are wise enough to attract and retain the right customers for you.

Now that you have an idea about what is customer retention and how important it is to carry on programs which are just apt for that, let’s get into the customer retention rate that you should target. Customer retention rate differs for different businesses according to the industry they are working and the size of your company. You cannot possibly compare the customer retention rate held as a benchmark for a music app company to a company that sells hair care products. Consistent high customer retention rates are expected to bring in high profits.

Replacing the churned customers with new ones doesn’t make economic sense though it is an accepted practice. If you continue to do what an average company does, you will have to be content with mediocre results. If you want to make your mark and be set apart in your industry, you need to up your game with these customer retention tips. 

“Create wow moments for your prospects and watch you online sentiment increase.” 

Aim High! How High? What’s The Average Customer Retention Rate By Industry?

This is the part where I give you the numbers that you should be shooting for. The benchmark that you should try and go past vigorously depends mostly on the industry you are in.  In many industries, the average customer retention rate of the top five companies stands around 94%. Whereas in the Insurance industry, the average customer retention rate is only 84%. This 10% difference itself between the top companies and the norm implies a huge loss of potential revenue. Reducing customer churn as little as 2 percent a year can cut costs up to 10 percent. With the highest customer acquisition costs than any other industry, the Insurance industry has to be daring enough to go beyond average retention programmes if they want to minimize the damages caused by customer churn.

The question is, do you dare to adopt a new paradigm in order to surpass the norm and become the best?

When the customers tell you they are satisfied you should keep in mind that it is not a promise that they are going to stay with you. Mere satisfaction of your customer is not enough to surpass the average customer retention rate in any industry and the same goes for insurance companies too.

“Did the user who left after performing any action, come back to perform another action?” If the answer is yes, then the user has been retained. If the answer is no, then, unfortunately, that customer has churned.

A retention rate is the percentage of customers who are still with the company after a specified time period. It asks, in essence, “Did a user perform any action, leave, and then come back and perform another action?” If yes, the user has been retained. If not, they’ve churned. Here the “action” is very loosely defined, it could be purchases made, signups or shares.

When you are putting a benchmark you should define it against what you are comparing. You could have two benchmarks in this scenario. One is against yourselves and the second one is against your competitors in the same industry.

You could carry out retention analysis where you measure your performance weekly or monthly against the benchmark set against yourselves. And if you find that, it is going down, your product team could take necessary actions to bring it back up. Your feedback surveys should help you to watch these trends up-close and catch it before it has gathered enough power to hurt the business. This doesn’t mean that if the rates are going up you can just stay and relax. The situation warrants a need to isolate the associated feature changes, campaigns or other steps taken by you, that has led to the rates going higher and then you should capitalize on them.

“Capitalize on charm by continually captivating your customer.” 

Back to the numbers before I annoy you too much with the words.

For many industries, the average customer retention rate for two months is below 20 percent. Whereas it is over 25 percent for the products in the media. For the e-commerce and SaaS industries, a little over 35 percent of average customer retention data is considered to be elite enough.

Want to calculate the Customer Retention Rate(CRR) for your company??

CRR = [E-N /S ] X 100

Where E denotes the number of customers at the end of the period. N denotes the number of customers you acquired during the period and S stands for the number of customers at the start of the period.

Voila! There you have it! As simple as that.

You want an example to get a clearer idea? Alright.

Let’s say you had 100 customers at the start of the two-month period you are tracking(S). During that period, you lost 11 customers, but you managed to gain 40 (N), customers. This means at the end of the period you have your existing 121 customers and (40-11) 39 other customers. Putting these numbers into the formula, you have :

CRR    = [(139-40)/111] X 100

CRR    = 89.2%

This means that the customer retention rate for this particular period is 89.2%.

The most ideal average customer rate by any industry should be 100%. This means you didn’t lose even a single customer. However, this is not a number that you can set as a benchmark.

“Sometimes the best discoveries are the result of simple observations” 

Clearing Up Some Confusion!

Customer churn is inversely proportional to customer retention. As the rate of customer churn increases in your company the rate of customer retention decreases. If I tell you the customer churn for ABC Company is really high, it is because the customer retention rate for the same company is very low.

That said, the more specialized the service your company provides, the lower the number of new customers you can expect since the choices you give the target audience is very less. And for such companies and firms that excel in specialized services and products, the average customer retention rate should be higher than the other in the same industry be it what may. Customer retention is truly the backbone of your company since the sustainability of your entity is predominantly on your customers staying loyal.  For that, you need to invest a good amount of money, effort and time to implement a devout and effective customer retention program in your company that is appropriate for you. And by that it means, the program should take in the size, objectives, and specialization of your company.

“Get your customers involved in your business. Make them your partners and they'll never leave you.” 

Customer Retention Programs

Elevating the customer experience is your best option to retain the customers. It is the customer’s’ perception of your business entity. These perceptions affect their feelings towards you and drive them towards brand loyalty.  While at it, why don’t you check out these customer retention strategies from the world’s best brands? And for your customers to develop satisfaction with you and your products, you need to be able to create and deliver a very personalized experience.

And how would you do that? You create extensive and intricate customer profiles that record information about each of them. Your Customer Loyalty Programs cannot succeed without these data at hand. From discounts to personalized emails, the opportunities are everywhere for you to jump in and exploit. Spoil your customers with attention and care but be careful enough not to smother them in love.  

Referrals are a significant strategy used to ensure consistently high customer loyalty and thereby keeps the average customer retention rate higher. It is a very economical and effective choice since referred customers boast having the lowest acquisition costs yet generates an average of five times more revenue than the other customers does. They also have a 92% retention rate where the customers from other marketing sources only have 76%.

Panicking never helps and it’s the same with your business. You are expected to compare yourself with your competitors. If you are a start-up and you are comparing yourself with a giant MNC, already established in your industry, you are going to worry yourself to death! While choosing to whom you are going to compare the average customer retention rate with, consider the size, the specialization, the reach of the company. Pick your competitor reasonably and many a time your customers can do that well than you. Be ready to be surprised, the competitor you consider might not make it to the list. Create an astounding customer feedback survey and collect this information. You could, by all means, add a few questions about your competitor and their products. This would help you a lot when you want to match up your game with them.

You are going to lose a few customers, no matter what you do or how much you try. The ideal 0% churn would not happen. That being said, you can’t let a lower than average customer retention rate by your industry to go by without being called out. You have to go back and isolate the causes that led to the numbers. Strengthen brand loyalty. I admit that it is a lot of work and also time-consuming. But the statistics show that retention strategies pay off in the long run. After all, acknowledging and improving your customer retention rates will only make better tomorrows!

Indhuja Lal
Indhuja Lal

Product Marketer at SurveySparrow

A dilettante bohemian soul mesmerized with the magic of words, sworn to be unpredictable, and spellbound with the simplicity of humanity...

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