Determining the ‘right’ customer retention rate isn’t about chasing an arbitrary number. It’s about understanding what’s achievable and impactful for your specific business, and then consistently working towards improvement. While industry benchmarks offer guidance, focusing solely on those can be misleading. We’ve seen too many Australian SMEs get bogged down comparing themselves to global giants with vastly different operating models.

Instead, we recommend a tiered approach. Good retention, the level most businesses currently sit at, is around 80-85%. This means losing 15-20% of customers annually. Acceptable, but not ideal. Excellent retention – the target we believe Australian businesses should strive for in the coming years – sits between 85-95%. Achieving this requires a deliberate focus on customer experience and loyalty programs. World-class retention, exceeding 95%, is rare and usually reserved for businesses with incredibly strong brand affinity or subscription-based models.

Here are a few key insights to consider as you refine your retention strategy:

• Customer Lifetime Value (CLTV): Understand how much revenue a customer generates over their entire relationship with you. This informs how much you can *profitably* invest in retention efforts. A higher CLTV justifies more substantial retention spending.
• Cohort Analysis: Don’t look at retention as a single, overall percentage. Segment your customers into groups (cohorts) based on acquisition date or other characteristics. This reveals patterns and identifies areas for improvement. For example, are customers acquired through Facebook ads less loyal than those from Google search?
• Churn Prediction: Proactively identify customers at risk of leaving. Look for changes in behaviour – decreased engagement, fewer purchases, negative feedback. Targeted interventions can often prevent churn before it happens.
• The Power of Personalisation: Generic marketing is less effective than ever. Tailor your communications and offers to individual customer preferences and needs. This demonstrates you value them as individuals, not just transactions.

The competitive landscape is only intensifying. In 2026 and beyond, simply acquiring new customers won’t be enough for sustainable growth. Focusing on keeping the customers you already have – and increasing their loyalty – will be a critical differentiator for Australian SMEs. Start by calculating your current retention rate, then identify one area for improvement based on the insights above. A small, focused effort can yield significant results.