How To Calculate Customer Retention Rate: eCommerce Guide

In a nutshell, the customer retentionStrategies aimed at keeping existing customers engaged and encouraging repeat purchases.retention rateThe percentage of users who continue to use a product or service over a specific period. indicates how loyal your customers are. It takes the number of conversions over a specific time period and calculates the proportion of those customers who are still active now because they made a purchase in your store recently.

What Is The Formula For Calculating Retention Rate?

Although the formula can be modified depending on your business model, the most basic method of calculating eCommerce retention rate is to look at the proportion of customers who shopped a certain amount of time ago and are still considered active now.

The formula involves three variables:

1. Start - Number of customers at the start of a time period
2. End - Number of customers at the end of a time period
3. New - Number of customers acquired during the time period

And the equation looks like this:

(End - New) / Start = Retention Rate

How Do I Determine The Variables Of The Equation?

Determining the exact variables depends on what has transpired within the chosen time period. The data you need is typically available within your website’s content management system. To illustrate, here's a simple example of the calculation of customer retention rate over a year:

Assume you started the year with 2,000 customers and 1,800 of them made a purchase over the course of the year. In addition, you gained 600 new customers within the same year. This means that you have 2,400 active customers at the end of the year. Your customer retention rate would then be calculated as follows:

( 2,400 - 600 ) / 2000

1800/2000 = 0.9

In this example, your customer retention rate is 90%.

How Can I Improve My Customer Retention Rate?

Aside from having amazing products that everyone wants to keep on buying, maintaining a healthy customer retention rate in eCommerce is all about keeping customers happy. To accomplish this, you must use data to determine where a person is in their customer journeyThe complete experience a customer has with a brand, from initial awareness to post-purchase interac... and create marketing messages that encourage them to continue that journey.

With a little help from industry experts, you can easily keep your customers coming back for more. 

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