What is the impact of retention rates over time in the customer lifetime value calculation?
Even at a relatively high retention rates, because of the compounding effect – where the brand keeps losing customers from a reducing customer pool – even with relatively high levels of loyalty, there are very few customers left after 10 years and even after just five years.
As shown in the following table, with a retention rate of 70% or less, a brand will have a very small percentage of long-term retained customers at the end of 10 years. And as you can see from the table, even after five years it takes a 90% retention rate to hold at lest half your customers over that period. The declining cumulative customer retention rates shown in this table highlights the importance of new customer acquisition and efforts to keep customers longer, in order to enhance customer lifetime value.
Cumulative retention rates in graph form
Information from the above table has been graphs below. The two black lines represent to the percent in the 20% overall retention rate. Perhaps it is somewhat surprising to see how quickly the overall customer base will fall, particularly at retention rate of 70% or less
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