Enter all but one of the MC, NC, and AC into the calculator to determine the CRC; this calculator can also evaluate any of the variables given the others are known.
Customer Retention Cost Formula
The following formula is used to calculate the customer retention cost:
CRC = (MC - NC) / AC
Variables:
- CRC is the customer retention cost
- MC is the total marketing cost
- NC is the number of new customers acquired
- AC is the number of customers at the beginning of the period
To calculate the customer retention cost, subtract the number of new customers acquired from the total marketing cost. Then, divide the result by the number of customers at the beginning of the period.
What is a Customer Retention Cost?
Customer Retention Cost (CRC) is a metric used by businesses to measure the total amount of resources, both financial and non-financial, that are spent to retain an existing customer. This includes costs associated with marketing and advertising efforts aimed at existing customers, customer service and support, loyalty and rewards programs, and any other activities or initiatives designed to keep customers engaged and satisfied. The goal of calculating CRC is to understand how much a company is investing to maintain its current customer base, and to assess the effectiveness of its customer retention strategies. A lower CRC is generally more desirable, as it indicates that a company is able to retain customers more efficiently. However, it’s also important to balance this with the value that retained customers bring to the business, as investing in customer retention can lead to increased customer lifetime value and profitability.
How to Calculate Customer Retention Cost?
The following steps outline how to calculate the Customer Retention Cost:
- First, determine the total cost of customer retention activities ($).
- Next, determine the number of customers retained.
- Next, gather the formula from above = CRC = TCCR / NCR.
- Finally, calculate the Customer Retention Cost.
- After inserting the variables and calculating the result, analyze the cost and determine its effectiveness.
Example Problem :
Use the following variables as an example problem to test your knowledge.
total cost of customer retention activities ($) = 5000
number of customers retained = 100
