How to Perform Customer Retention Analysis

Customer service representative presenting to other colleagues

Analyzing customer retention is an essential part of any business seeking to optimize revenues and grow. It’s really important to keep customers coming back to your brand because it costs less than to find new ones. 

When we study customer retention, we learn about how customers act and how important they are to the business.

This helps us figure out ways to make customers happy and prevent them from leaving. This article will discuss how to perform customer retention analysis and look at the major aspects that impact retention rates.

Business leader meeting with clients

Define Your Customer Lifecycle

Defining your customer lifecycle is the first step in conducting a customer retention analysis. It involves identifying the different stages that a customer goes through from initial contact to becoming a loyal, repeat customer. 

Understanding the customer lifecycle helps businesses identify critical touchpoints where customers may require additional support or be more likely to churn. Here are some essential points to consider when defining your customer lifecycle:

  1. Awareness: This is the stage where potential customers notice your brand and products/services. This can be through advertising, word-of-mouth, or other marketing efforts.
  1. Consideration: Your potential customers are debating whether to buy from your business or your competitor at this stage. It is crucial to provide them the knowledge they want to make the best decision. This can be customer testimonials, product demonstrations, and reviews. 
  1. Purchase: Your customer makes their purchase at this stage. It’s crucial to ensure your customer’s satisfaction by providing a quick and easy purchasing process. Marketing might involve sending welcome emails, delivering advice on how to use the product, and providing discounts for further purchases. 
  1. Retention: The goal once a customer makes a purchase is to keep them and promote repeat purchases. Continuous communication, such as newsletters, social media updates, and personalized offers, can help keep the customer.
  1. Loyalty: This is the final stage in the customer lifecycle, where customers become loyal advocates for your brand. Loyal customers are more likely to refer others to your brand, leave positive reviews, and provide valuable feedback.
Customer service rep meeting with clients

Segment Your Customers

Customer segmentation is an essential stage in a customer retention analysis. It requires classifying customers according to certain traits including user behavior, purchasing history, and demographics.

Businesses may adjust their retention efforts by segmenting their customer base. While segmenting your consumer base, keep the following in mind:

  1. Demographics: With demographic segmentation, customers are divided into groups according to their age, gender, level of income, and other demographic criteria. Your business may develop specialized marketing campaigns that target various customer groups. This can be achieved by having an in-depth awareness of their unique needs and interests.
  1. Purchase history: Your customers are categorized based on their buying patterns. This comes in the form of frequency, average purchase value, and product type. This kind of segmentation can assist your business to identify their most valued customers and create retention strategies that give these customers the priority.
  1. User behavior: You can create customer groups by product and service engagement. Afterwards, you can segment users based on behavior. Metrics like product usage, engagement, and churn might fall under this. By identifying churn risks, your business can create retention strategies that specifically target high-risk customers.
  1. Geographic location: Grouping your customers according to their geographic locations is known as geographic segmentation. This can assist your business in creating focused marketing campaigns that are particular to the requirements and preferences of customers in various geographic areas.
  1. Psychographic factors: Customer groups are created based on their beliefs, attitudes, and interests through psychographic segmentation. Your business can use this information to know the motives and preferences of various customer groups and create retention strategies that take these aspects into account. 

Analyze Customer Behavior

An evaluation of your customers’ behavior is a necessary first step in any customer retention analysis.

It involves examining customer behavior to identify trends that might help in developing a successful retention strategy for your business. You should take the following into consideration while you analyze your consumers’ behavior: 

  1. Usage patterns: Analyzing user patterns requires looking at how customers utilize your products or services. This can contain statistics on usage patterns, amount of time spent using the product, and the feature or functionality most frequently used. Your business can discover areas where customers might need extra assistance or training by analyzing usage patterns, and these areas can then be the focus of retention strategies.
  1. Engagement: Engagement involves examining how customers interact with your brand outside of product usage, such as through social media or email. This can include metrics such as open and click-through rates, social media engagement, and response rates to customer surveys. Analyzing engagement can help businesses identify areas where they can improve communication and develop retention strategies that prioritize customer engagement.
  1. Churn: Churn involves examining how many customers leave your business over a specific period. Analyzing churn can help businesses identify potential churn risks and develop retention strategies that target at-risk customers. This can include offering incentives to keep customers, improving customer service, and providing additional support or training.
  1. Feedback: Feedback requires assessing customer feedback through surveys, reviews, and other feedback channels. Your business may find opportunities for product or service improvement by analyzing customer feedback. They can also create retention strategies that put the needs of their customers first.
  1. Purchasing behavior: Examining your customers’ buying behavior requires looking at factors including the typical order amount, frequency of purchases, and timing of transactions. Your business may uncover potential upsell and cross-sell opportunities and create retention strategies that would encourage repeat purchases by analyzing their buying behavior.
Customer celebrating satisfaction win

Monitor Customer Satisfaction

Tracking your customers’ satisfaction is a part of your analysis of customer retention. It includes regularly assessing how satisfied your consumers are with your products or services and identifying potential improvement areas. You should consider the following factors while you monitor your customers’ satisfaction rate:

  1. Surveys: You may fill Surveys through email, social media, or other channels. They would inquire about how your consumers use your products or services, how well your company treats them, and how happy they are with your business. By examining the survey results and developing retention tactics, your business can identify areas where its product or service can be improved. 
  1. Customer service: Customer service monitoring is an important part of keeping track of your customers’ satisfaction. This includes monitoring how well and quickly you respond to inquiries and problems from your customers.
  1. Net Promoter Score (NPS): The Net Promoter Score evaluates how likely your customers are to suggest your business to others. It uses a scale of 0 to 10 and requires asking clients to assess how likely they are to refer to your business. Analyzing NPS data can help businesses identify potential brand advocates and develop retention strategies that encourage positive word-of-mouth.
  1. Social media monitoring: Monitoring social media is another effective method for monitoring customer satisfaction. This involves tracking mentions of the brand on social media platforms and analyzing sentiment data to identify areas where customers may be dissatisfied or require additional support. Social media monitoring can help businesses identify potential issues before they escalate and develop retention strategies that prioritize customer engagement and satisfaction.

Calculate Your Customer Retention Rate

Customer retention analysis must include the calculation of your customer retention rate. It requires calculating the percentage of customers who continue to be active users throughout a certain time frame. These are some crucial aspects to keep in mind when calculating your customer retention rate:

  1. Determine the period: Determining the time for your measures is the first step in estimating your customer retention rate. Depending on the goals and objectives of your business, this may happen monthly, quarterly, or annually.
  1. Define active users: Now you need to define what creates an active user.  Depending on your business and the product or service you provide, this might change. For instance, a social networking platform may define an active user as someone who checks in at least once every two weeks, while a subscription service would define an active user as someone who makes a purchase every quarter.
  1. Count the number of active users: Count the number of active users at the beginning of each period and the number of active users at the end of each period once you have identified what makes an active user.
  1. Calculate retention rate: Divide the number of active users at the end of the period by the number of active users at the beginning of the period, then multiply the result by 100 to get the customer retention rate. Here is an equation to help you:

Customer Retention Rate = (Number of active users at the end of the period / Number of active users at the beginning of the period) x 100

Female customer service rep speaking with client

Focus on Customer Lifetime Value

Customer retention analysis must focus especially on the customer lifetime value. The entire amount of money that a customer is expected to bring in throughout the duration of their connection with your business is referred to as customer lifetime value. Consider the following important aspects while concentrating on your customer lifetime value:

  1. Understand CLV: Understanding what customer lifetime value is and how it is determined would be your first step. The average revenue per customer is multiplied by the typical customer lifetime with your company to determine your customer lifetime value.  This can enable your business to identify the most valuable customers and prioritize retention plans that maximize your customers’ lifetime value.
  1. Segment customers: Segment consumers depending on their worth to the company once you have an understanding on your customers’ lifetime value. Your business could use this information to determine which customers are the most valuable and rank your retention strategies effectively. Low-value customers will need less resource-intensive retention strategies, but high-value customers could need more individualized ones.
  1. Develop retention strategies: Create retention strategies that prioritizes maximizing your customers’ lifetime value after segmenting your customer base. This involves providing tailored incentives, enhancing customer support, or creating new products or services that cater to your high-value customers.

Implement a Customer Retention Strategy

The use of customer retention strategies must be considered when doing customer retention analysis. These steps are meant to maintain your company’s current customers and increase their lifetime value. You should take the following into account while building your customer retention strategies: 

  1. Develop a retention plan: Building a customer retention strategy. This should contain a thorough understanding of your customers’ needs, preferences, and actions, as well as a list of the previous retention strategies.
  1. Provide excellent customer service: Providing outstanding customer service is one of the best ways to keep your customers. This might involve providing individualized support, immediately responding to your customers’ questions, and effectively and rapidly handling your customers’ complaints.
  1. Offer incentives: Another successful retention strategy is providing incentives to your customers. Discounts, loyalty programs, and referral bonuses are a few options. The goals of incentives should be to promote repeat business and should be adapted to the requirements and wants of your various customer segments.


Your business needs to do customer retention research if it wants to keep its current customers. Your business may find techniques to keep its customers interested and devoted for a long time by analyzing its customer behavior, experience, and lifetime value.

You should know your customers’ requirements and preferences besides being willing to invest in customer-focused marketing and customer service initiatives to implement effective customer retention strategies. This will help your business grow, boost sales, and develop strong bonds with its customers.

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By Alex Vetter

Alex Vetter is the product marketing manager at DYL. With a Masters from College de Paris, he runs the marketing department and helps with product management at DYL.