Determining the ‘right’ customer retention rate isn’t about chasing an arbitrary number. It’s about understanding what’s achievable and impactful for your business, and what the market expects. While a universally ‘good’ rate doesn’t exist, we can provide realistic benchmarks for Australian SMEs to aim for as competition intensifies.

Generally, a good customer retention rate falls between 80% and 90%. However, this varies significantly by industry. Subscription-based businesses, for example, naturally aim for higher rates – closer to 90% or even above – as recurring revenue is their lifeblood. For businesses with less frequent purchases, like retail, 80% is a solid target. We’re seeing a trend towards increased customer expectations, meaning simply ‘good’ isn’t enough anymore. Businesses need to actively work towards being exceptional.

Here are a few key insights to consider when setting your retention goals:

• Industry Benchmarks: Don’t compare yourself to businesses outside your sector. Research average retention rates within your specific industry in Australia. Industry associations are a great resource for this.
• Customer Lifetime Value (CLTV): Understand how much revenue a customer generates over their entire relationship with your business. Higher CLTV justifies greater investment in retention efforts.
• Acquisition Cost: Acquiring new customers is typically more expensive than retaining existing ones. Factor this into your calculations. If acquisition costs are rising, retention becomes even more critical.
• Cohort Analysis: Group customers based on when they first purchased (e.g., all customers acquired in January). Tracking retention within these cohorts reveals patterns and helps you identify what’s working – and what isn’t.

Looking ahead, we anticipate customer loyalty will be harder to earn. Increased choice and readily available information mean customers are less forgiving of poor experiences. Focusing on proactive customer service, personalised communication, and building genuine relationships will be paramount. Businesses that prioritise these areas will likely see retention rates above the average, giving them a significant competitive advantage.

To improve your retention, start by calculating your current rate. Then, analyse your customer journey to pinpoint friction points. Finally, implement targeted strategies to address these issues and foster stronger customer connections. A small improvement in retention can have a substantial impact on your bottom line.