Customer Retention Rate: Formula and Improvement Tips for 2025

A business thrives when its customers bring in more customers.

This happens when existing customers have an experience worth talking about — something they mention in conversations, recommend to others, or share online. These positive interactions create a lasting customer experience (CX), fueling referrals and word-of-mouth growth.

But businesses need a strong retention strategy for this customer acquisition flywheel to work — which is why customer retention rate is a key metric. Senior leadership often uses customer retention data to fine-tune growth strategies and make data-driven improvements that keep customers coming back.

The numbers back this up. According to Fred Reichheld of Bain & Company, who created the net promoter score, a 5% increase in customer retention can drive profits up by over 25%. A strong focus on customer retention doesn’t just reduce churn — it also builds loyalty and long-term growth.

We’ll break down what customer retention rate is, why it matters, and what proven methods businesses can use to improve it.

What Is Customer Retention?

Customer retention is a business’s ability to keep its existing customers over time by providing value, exceptional service, and a positive overall experience. It’s not just about preventing churn — it’s also about building relationships that encourage customers to continue choosing your brand. A strong customer retention strategy focuses on:

• Delivering seamless experiences that keep customers engaged
• Encouraging repeat purchases and increasing customer lifetime value (CLV)
• Fostering customer loyalty that turns satisfied buyers into long-term brand advocates

Retained customers are more profitable than new ones. Retained customers spend more money, require fewer marketing dollars to engage, and are more likely to refer others — making customer retention a key driver of sustainable business growth.

Retaining customers isn’t accidental. Businesses must use structured processes and strategies to keep their customers engaged and satisfied. Exceptional CX is at the heart of any successful customer retention plan.

Businesses need the right technology and automation to scale and sustain great CX. Tools like unified customer experience management software and AI-powered personalization ensure that companies can simultaneously deliver tailored interactions to multiple customers, making every engagement feel personal without manual effort.

By leveraging the right technology and CX strategies, businesses can create seamless, high-value experiences that encourage long-term loyalty and reduce churn.

What is customer retention rate?

Customer retention rate is the percentage of customers who continue doing business with your company over a given period. This key metric helps measure customer loyalty and long-term business health. For example, if a business starts with 10 customers and loses one, the customer retention rate would be 90%.

You should analyze customer retention and acquisition separately. Simply adding new customers doesn’t fill the gaps left by churned ones. If you rely on new-customer growth to balance out customer churn, you might overlook deeper retention issues, such as poor CX, lack of engagement, or service gaps.

Tracking customer retention rates gives businesses critical insights into customer satisfaction, customer loyalty, and areas for improvement and helps companies refine their long-term retention strategies.

Customer retention rate calculation: Formula and example

The fundamentals of customer retention are the same for all types of businesses, whether they are Software as a Service company or not.

Suppose a company had 80 customers at the beginning of the month and 100 customers at the end of the month and added 25 customers during the month.

Customer retention rate = [(100 – 25)/80] x 100

= 0.9375 x 100

= 93.75%

The customer retention rate would be 93.75%

Why Customer Retention Is Crucial for CX Teams

Customer retention is directly linked to CX. Keeping your current customers happy and engaged while regularly gathering their feedback allows you to improve your retention rate. When they refer new customers to your business, your customer acquisition cost drops, increasing your return on investment.

Delivering a great CX encourages your customers to trust you, which keeps them from switching to your competitors.

You can use this figure as a benchmark when you’re tracking your customer retention rate. If it drops below the benchmark, it would be a good idea to analyze your strategies to make sure you are providing an exceptional CX.

CX has the potential to influence customer retention rates and plays a central role in creating seamless and personalized interactions that build customer loyalty.

How to Improve Your Customer Retention Rate

Below are several notable strategies organizations can use to increase their customer retention rates.

Deliver personalization at scale

Your business can gain a significant advantage by personalizing its services. According to the Next in Personalization 2021 Report by McKinsey, 71 % of consumers expect companies to deliver personalized interactions.

Your customer relationship management (CRM) platforms can help address this issue. They have the customer data you need to create unique buyer experiences.

You can use CRM software to deliver personalization that goes beyond using customers’ names. For example, this software can trigger an email workflow when a potential buyer visits your pricing page. You can email them discounts or a unique coupon code to convince them to make a purchase.

This type of hyper-personalization is similar to what you can observe in account-based selling, which involves many stakeholders that all have unique customer journeys. This level of personalization directly impacts CX and is a critical component of any effective customer retention strategy.

Provide proactive customer support

Most businesses take a reactive approach to customer support and service. However, if your goal is to reduce or minimize your customer churn rate, a proactive approach is often necessary.

Agents who provide proactive customer care are expected to assist customers before they need to reach out to your business. Predictive analytics that enable agents to deliver this type of care require proper planning and thorough analysis of customer data. This data includes information about customers’ activity on your website, their past purchases, and their social media interactions with your brand.

You should look for signs that your customers are dissatisfied. These include:

• A customer who requests mass data export
• Product analytics that show decreased user activity for a lengthy time period
• A lack of customer responsiveness that lasts for more than three months

It helps if you design systems to deliver priority support that champions customers with a higher lifetime value (LTV). Having a dedicated support person isn’t enough, especially when they work with several companies at a time. You need automated systems that offer prioritized support to high LTV customers.

There are several ways your business can deliver proactive customer support:

• Use AI chat to automate simple issue resolution.
• Be proactive about contacting customers when orders get delayed or transactions get stalled.
• Unify customer communication channels so you can handle multiple customer conversations, keep them in one place, and have the peace of mind to give every discussion the attention it deserves.

Build customer loyalty programs

Loyalty programs offer discounts and rewards to customers who make repeat purchases. Credit card companies’ loyalty programs are the first example that comes to mind. These programs reward customers with points for making purchases with the companies’ credit cards. The customers can redeem those points while shopping.

Points-based rewards systems have traditionally been the foundation of loyalty programs, but these programs are no longer solely focused on transactional benefits. Some of the many perks loyalty programs now provide aren’t directly related to sales transactions. For example, credit card companies offer free access to upscale airport lounges.

French multinational beauty retailer Sephora has an appealing loyalty program, which is called Beauty Insider. It has three tiers: Insider, Very Important Beauty Insider, and Rouge. Each tier offers escalating rewards, such as birthday gifts, early product access, exclusive gifts, event invitations, and discounts. The company gamifies the reward system, which makes it fun and memorable and provides meaningful customer perks.

Use omnichannel communication

Customers can reach out through multiple channels like phone calls, email, social media, live chat, and instant messaging. These interactions are scattered everywhere, which forces your team members to hop from one platform to another to respond. Their responses may not be top-notch because the team is constantly bouncing between several channels and trying to get to conversations as fast as possible.

This situation makes your support agents feel drained and burned out. Nextiva can prevent this from happening and ensure that your CX doesn’t suffer when you’re scaling your customer support. Nextiva brings together all your communication channels, whether they’re internal or external systems.

Its platform centralizes your communications and helps your agents absorb content from all previous customer interactions instead of picking up bits and pieces of conversations that are scattered across various channels. Using Nextiva enables you to deliver consistently high-quality service regardless of the communication channels your customers use.

Best CX Practices for Improving Customer Retention Metrics

Below are some best practices businesses can use to improve their CX and their customer retention metrics.

Train teams on empathy and communication

When you’re competing in this AI-driven world, it’s essential to put yourself in your customers’ shoes. You need to train agents to develop skills like active listening and conflict resolution that make it easier for them to empathize with customers.

It’s easier to do this training in live role-playing sessions. Conduct them weekly to upskill your staff members to improve their emotional intelligence.

Implement continuous feedback loops

One of the best ways to find out what your customers want is to ask them directly. Collecting customer feedback lets you know what to improve and how to improve it. If you listen to your customers, they feel acknowledged, which helps increase their satisfaction and build your brand reputation.

The most common way to collect customer feedback is to use surveys or questionnaires. They provide quantitative data that allows CX professionals to make educated decisions about process modifications. Make a point of constantly collecting and implementing feedback to keep up with customers’ evolving expectations.

Automate routine interactions

Automation may not communicate as effectively as human beings do, but it is able to function 24/7. Using AI-based interactive voice response systems and chatbots gives you unlimited uptime and enables you to provide prompt customer service. AI learns from interactions and helps personalize future ones, increasing customer satisfaction.

Automation gives human agents additional time to focus on the most critical customer needs. It serves agents intelligently by gathering context around ongoing conversations, which supports agents in real time while they manage crucial customer interactions.

Common Mistakes That Hurt Customer Retention

Customer service agents should avoid these common mistakes to prevent negative impacts on customer retention and CLV:

• Delivering poor customer service: Providing unskilled, rude customer service damages your brand reputation and causes a decline in customer retention. Being unresponsive or failing to follow up or to solve customers’ problems breaks their trust and makes them feel bitter.
• Ignoring feedback: Ignoring feedback that could improve your business hurts both you and your customer retention rate. Making your customers feel heard and appreciated is crucial, whether their feedback is positive or negative.
• Failing to engage with customers: Failing to engage with your customers or to communicate regularly with them leaves them feeling disconnected. Customers’ needs evolve, so high levels of customer engagement are key to higher customer retention rates whether your business is well-established or brand-new.
• Focusing solely on acquisition: Ignoring customer retention and focusing entirely on getting new customers inevitably leads to losing your repeat customers. Maintain a balance between your acquisition and retention efforts by investing resources wisely.

Nextiva’s Unified Approach to Improving Retention

Your customer retention rate is an important KPI to track if your company makes retention a top priority. Retaining your customer base opens up cross-selling and upselling opportunities, encourages repeat purchases, and makes customer retention a key to your business’s growth.

Take action now to make sure your organization has a high customer retention rate — even if the steps you take are small ones. Consider deploying a unified CX platform like Nextiva to centralize your customer data. This will help you gain customer insights and use them systematically to improve CX.

Nextiva does the heavy lifting of assessing real-time analytics and predictive insights, which helps agents identify opportunities to improve CX and reduce churn.

Schedule your personalized demo to see how you can improve customer retention with Nextiva.