Glossary
What is customer retention?
Customer retention is the share of customers who return to a business over a given period, and it is usually far cheaper to improve than customer acquisition.
For most small businesses, a small improvement in retention outperforms a large improvement in acquisition, because a retained customer costs nothing to reach and has already decided they like the product. A loyalty programme is one of the few retention levers available to a business without a marketing team, because it works passively once it is set up.
Why does retention matter more than acquisition for a local business?
Because reaching an existing customer costs nothing and targets someone who has already chosen you, while acquisition means paying to reach strangers, most of whom will never visit. The asymmetry is structural rather than a marketing slogan.
This does not make acquisition pointless: a business with no new customers shrinks regardless. It means the retention side is usually the unmanaged one, and therefore where the cheap gains are.
How is retention measured?
Count the customers active in the previous period who are still active in this one, and divide by the first number. Run it monthly rather than annually, because monthly is early enough to notice a change and act on it.
The measurement requires a customer list, which is why most local businesses have never calculated it. This is the practical argument for digital loyalty over paper: the list is the product, and the stamp mechanic is what persuades customers to join it.
What improves retention?
Three things, in order of effect: giving customers a reason to return that they can see, noticing when a regular stops coming, and reaching that person while the habit is still recoverable. A loyalty programme is a mechanism for all three, which is why it outperforms a discount of the same value.
See also
- Churn: Churn is the rate at which customers stop returning, and in a local business it is usually silent: customers rarely announce they have left, they simply stop appearing.
- Retention rate: Retention rate is the proportion of customers from one period who return in the next, and even a small increase compounds substantially over a year.
- Lapsed customer: A lapsed customer is someone who used to visit regularly but has not returned within an expected window, commonly 45 days for a café (the Loonine default, adjustable from 1 to 365 days in the app), or two visit cycles for an appointment business.
- Cohort analysis: Cohort analysis groups customers by when they first bought and tracks each group forward, which separates a retention problem from a recruitment one in a way a single overall figure cannot.
Further reading
How to measure repeat customer rate (and what to do with it)
The formula for repeat customer rate, the window to measure it over, what a good figure looks like by industry, and the two numbers that are more useful.
How to switch loyalty platforms without losing your customers
Changing loyalty platform means re-enrolling everyone, because wallet cards cannot be transferred. Here is the migration plan that keeps your regulars and their balances.