Six Sigma and KPI’s: Your Customer Retention Rate

When operating a business, there are a few key metrics you must keep a close eye on. While knowing how expensive your business is to operate is a priority, customer retention is equally important. Customers are the backbone of your business’ success. Whether you sell a product, offer a service, or perform research and development, you depend on customers wanting to buy from you. Yet, how exactly do you consider your customer base? In this article, we will go into detail about your customer retention rate, what it is, and how to use it!

What is Your Customer Retention Rate?

For Six Sigma professionals, we recommend using your customer retention rate when analyzing your customer base. This calculation not only sees how many customers you keep over a period but also how valuable they are. Furthermore, it considers the extent of customers you keep after the acquisition. Of course, gaining new customers is always the main objective. Yet, if you’re constantly losing customers after only a few payment cycles, you could be wasting more money than you’re earning.

Keeping existing customers will always be less expensive than acquiring new ones. As a result, it’s your goal to keep your current customer base happy and buying your products or services frequently. However, this is easier said than done. For most organizations, loyalty programs and reward schemes are put into place. Basically, “the more you shop with us, the more perks and bonuses you will receive”. Think airline frequent flyer programs or cash back options with credit cards.

How Do You Calculate Your Customer Retention Rate?

Additionally, calculating your customer retention rate depends on a few variables. First, you must calculate the number of customers you have at the beginning of a designated period. Then, you must divide that by the number of customers who remain with you in the same period. However, these figures depend heavily on where your data comes from.

For most organizations, customer relationship management software is used to see what customers are actively purchasing products and which are not. However, not everyone uses a CRM system. If your organization doesn’t, your next best option for data collection is customer feedback surveys. You can instruct your Six Sigma Green Belts to create, distribute, and collect these surveys from customers. Afterward, you’ll need to organize and analyze the data. Are customers happy with your product? How likely will they stay? These questions are tailored to your company and reflect very specific customer bases.

How to Use Your Data

Of course, data is only good if you can use it. When calculating your customer retention rate, compare yourself to others within your industry. This will directly show how “average” your rate is. If you want to improve your customer retention, there are specific Six Sigma tools you can use to do so. However, the most noticeable is the Kaizen method. Kaizen works from within your organization to improve operations, product quality, staff loyalty, and ultimately customer satisfaction. This five-step tool has helped hundreds of companies increase their customer retention by simply fixing minor process from within the organization. If you want to improve your customer retention rate, contact us today to enroll in our Six Sigma courses!