[Community] Part 1: How Loyal is Your Online Community?
According to research from Bain and Company, increasing customer retention rates by 5 percent increases profits by 25 percent to 95 percent. To build a sustainable community, you need to reduce your churn rate. This is measured by calculating your customer or member retention rate, an important part of increasing your community size.
How to calculate your member retention rate
Your member retention rate is a simple equation that calculates the number of users you keep within a set time period. One thing must be clarified, this does not include new member registrants.
You will need three data points to calculate Member Retention Rate.
- Number of customers at beginning of date range. – A
- The number of members you have remaining at the end of a date range – B
- The number of new members registered or acquired during same date range – C
As a community manager, what you are interested in knowing is the number of members that you keep at the end of a certain time period. This does not include the number of new members acquired in the same period. So you would calculate that by:
B – C
In order to get the Member Retention Rate, you would need to calculate:
Member Retention Rate = ((B – C)/A)*100
This metric is powerful and can be a great comparison to other ratios such as:
- total visitor traffic,
- conversion rate,
- churn rate
- and more importantly, cost of acquiring new members.
It’s a fact that acquiring new members is more expensive than retaining them. So, to keep growing as a community, you need to replace every user that leaves along with finding new members. So, by tracking and increasing the rate, you actually are saving money by reducing your customer cost of acquisition.
As a metric, it also helps you understand community loyalty and how good you’re doing as a community manager. Ideally we would like to reach 100%, however, a good benchmark would be to maintain a rate of 90% and above.
Member retention should be the second most important goal next to acquisition. By reducing churn, you add incremental revenue to the bottom-line. The best strategy in increasing retention is through providing a great community experience, connecting and rewarding your most loyal customers and building a community.