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Customer Retention Cost: How to Reduce CRC and Drive Growth

30 November, 2023 3 min read
Customer Retention Cost: How to Reduce CRC and Drive Growth

Every company appreciates it when clients engage in repeat buying. This indicates that customers are satisfied with the provided products and services. The most favorable aspect is that returning patrons indicate your brand will enjoy a strong market standing.

These customers will recommend the brand to others and always give great reviews, which will eventually add up to your growth. That is why business owners try to keep their users glued and spend significant customer retention costs to achieve desired business growth.

In an industry where everyone talks about fetching new customers, a successful business owner equally emphasizes retention. They know that the already existing customers are easy to keep glued, and the revenue push they give is significant. It happens because they will make purchases without hesitation, as they already know your products or services.

Hence, businesses even spend considerable amounts of money on customer retention. To understand the concept, let us dig deeper and discuss what CRC is and how it impacts organizational growth.

What is Customer Retention

Customer retention is when your customer makes recurring purchases. Once you have acquired a customer and that customer who makes the first purchase becomes your loyal customer, it is called customer retention. The customer does not have to buy the same product again and again. The whole idea is to make multiple purchases regularly.

It is a win-win situation for everyone involved, as the customer also enjoys a smooth buying experience and unique offers kept for loyal consumers. As per an analysis, a 5% increase in customer retention results in a 25% to 30% rise in the overall profit. It is significant to note here that the retention rate gets calculated over a fixed period.

What is Customer Retention Cost?

By now, you know what customer retention is. It is significant to note here that the company must have worked hard to retain these consumers. They might have offered some referral bonuses or offers that require capital. It is what we call the customer retention cost. It is the amount of money that an organization spends on retaining its existing customers. It generally includes:

  • Referral bonus or offer cost
  • Promotional cost of referral programs
  • Email you sent to stay connected on their special days.

Anything you do to ensure your customer sticks with you falls under the customer retention cost.

Importance of Calculating Customer Retention Cost

Recurring purchases bring profits and revenue growth to the business. However, if you keep spending significant money on retention, it won't be a profitable deal. Hence, knowing how much you spend on customer retention and keeping this cost in check is essential to enjoying significant revenue growth.

Some other reasons to calculate customer retention cost:

  • You will get an idea about your expenditures. It will help you in budget planning.
  • Knowing your CRC lets you quickly calculate the ROI (Return on Investment) and determine if you are making a fruitful effort by retaining your existing customers.
  • It can help you identify the actual customer's lifetime value. With this information, you can plan more informed customer retention strategies to create a lifetime bond with your existing customers.

How to calculate CRC?

The simple formula to calculate the customer retention cost is:

CRC = Total Annual Cost of customer success and retention teams and initiatives / Number of active customers

Using this formula, you can find out the average cost you spend per customer. Get the total amount you spent over some time on customer success and retention teams and initiatives. Divide this amount by the total number of customers you retained till the end of that period.

Tips to reduce your customer retention cost

  • Talk to your customers and try to understand their requirements
  • Do not keep offering discounts that wouldn't interest them. It will be useless to you or them, but a sheer waste of resources
  • Another tip to reduce customer retention costs is to make gestures that involve little investment! You do not necessarily have to give offers. Sending emails or messages on their birthdays and anniversaries will help
  • Create a solid social media presence. Even if you do not spend on the paid ads, your profiles will keep you in the eye of your customers. It will reduce their chances of switching to another brand.

Customer is the king and the foundation of your business success. Every business must focus on acquiring new customers and retaining the existing ones. Plan effective strategies, implement them effectively, and keep studying their results to ensure everything works according to your expectations.

However, if you see gaps, keep upgrading your strategies to ensure your customers stick with you and you experience exponential business growth.


Author profile image
Shivam Kharwal

Shivam Kharwal is the Content Head at ZapScale. He has over 5 years of experience in building brand identity and online presence through the creation and distribution of multimedia content online.

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