Customer retention refers to the ability of a company to prevent its customers from switching to a competitor by keeping them engaged and satisfied. Retention can be quantified as a measure of how well a company is able to retain its customer base over time. Retention is considered to be the opposite of customer churn.
A company must understand the needs and wants of their customers and strive to meet or exceed them. That’s a broad statement but can include providing excellent customer service, delivering innovative product features, or continuously improving the user experience.
Companies that are able to retain their customers can generate a stable and predictable revenue stream from repeat buyers, which can be more cost-effective than acquiring new customers. An effective retention strategy can significantly reduce sales & marketing expenses and in effect, improve customer acquisition costs (CAC).
Customer retention is most often measured by calculating Net Dollar Retention.