A tool designed to quantify customer loyalty over a specific timeframe, it analyzes the percentage of customers a business manages to keep. For example, if a company starts with 100 customers, gains 20 new ones, and ends the period with 90, the calculation focuses on the initial 100, determining the percentage retained despite any new acquisitions. This result provides insight into the effectiveness of customer-focused strategies.
This metric is significant because acquiring new customers typically costs more than retaining existing ones. Higher retention generally correlates with increased profitability, improved customer lifetime value, and stronger brand advocacy. Businesses across various sectors have long recognized its importance, tracking this data to gauge the success of their relationship-building efforts and identify areas for improvement.
