PMs & Metrics: Retention Price

Throughout our final put up of the PMs & Metrics sequence, we coated the main points of the conversion fee. In at present’s put up, we’ll be going over one other essential metric that PMs must be acquainted with – the shopper retention fee.

The client retention fee measures the proportion of shoppers which have continued to make use of your product over a time period. There are two key phrases right here to pay further consideration to – “continued to make use of” and “time period.” Let’s break them down additional.

“Continued to make use of” refers to prospects which were utilizing your product, and doesn’t embody model new prospects. Preserve this in thoughts as a result of we’ll be seeing this idea once more after we focus on the components to calculate retention fee.

“Time period” signifies that retention fee could be calculated weekly, month-to-month, or yearly. It’s essential to determine what time period a given retention fee refers to since that fee could be completely different primarily based on the time of yr, time of month, and many others.

Buyer retention is a crucial metric to measure as a result of good buyer retention denotes a very good product and good buyer help. It makes a whole lot of intuitive sense to make sure that your current prospects proceed to make use of your services or products. Listed below are a number of extra the explanation why buyer retention is so essential:

  • A 5% enhance in buyer retention can enhance profitability by 75% (Bain & Co)
  • It’s 5-7 instances dearer to search out new prospects than it’s to maintain a present buyer (Consumer Heartbeat)
  • 80% of income comes from 20% of present prospects (Gartner Group)

Briefly, having a excessive retention fee is a massively environment friendly and helpful technique to develop the enterprise. Measuring the shopper retention fee helps benchmark your efficiency and lets you determine and repair areas of enchancment.

To measure the retention fee, confer with the next components:

(All prospects at finish of time period – New prospects acquired throughout time period)/All prospects at first of time period

As an example, let’s say we began with 100 customers at first of the month. Through the month, 20 customers left and 10 new customers joined, which suggests there are 90 customers on the finish of the month. We plug this into the retention fee components: (90-10)/100 = .80 – so our retention fee is 80%.

What retention fee ought to product managers intention for? Much like the dialog fee, the retention fee in query varies relying on the business. There are two motion objects product managers can take when taking a look at retention fee – they need to be monitoring enhancements over a time period, and they need to be figuring out and prioritizing options and enhancements if the retention fee has been declining.

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One other helpful advantage of realizing the retention fee is that the flip facet additionally provides the attrition fee – the speed at which customers go away throughout a given time period.

To shut, we’ve coated two essential key efficiency indicators (KPIs) that must be a part of any product supervisor’s device – the conversion fee and the retention fee. I’ve talked about earlier than that as knowledge turns into simpler to assemble and all-the-more essential in choice making, PMs ought to continually pay attention to learn how to make data-backed selections.

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