The customer retention formula is a potent tool to compute and evaluate how well a business has successfully built relationships with its customers and is retaining its existing customers back for repeat purchases. The CRR gives the percentage of existing customers who are loyal and repeat buyers to the business within a specific period of time.
The below formula can be used to calculate the Customer Retention Rate (CRR):
CRR = [Number of customers (end of period)- Number of customers acquisition (during the period)] / Number of customers (beginning of the period) X 100
Begin by subtracting the number of customers acquired from the number of total customers at the end of the period. Then, divide that number by the number of customers since the beginning of the period and multiply by 100.
Below is an example of a worked-out customer retention rate:
Number of customers since the beginning of the period (for a period of 6 months) = 10,000 customers
Number of customers acquired during the six months = 2,000 customers
Total number of customers by the end of the period = 6,000 customers
Applying the customer retention formula as below:
CRR = [No. of customers (end of period)- No. of customers acquisition (during the period)] / No. of customers (beginning of the period) X 100
CRR = (EP - DP)/BP x 100
CRR = 6,000-2,000/10,000 X 100
CRR= 4,000/10,000 X 100
CRR = 40%
Hence, the calculation shows that the CRR (Customer Retention Rate) is 40%.