Skip to Main Content

Customer Retention in Cannabis Retail

What is your store or brand’s customer retention rate? Is it higher or lower than the market’s average? Headset’s report will show you how to uncover these answers, as well as how to make improvements to customer retention.

What is Customer Retention and Why Does it Matter?

Customer retention rate (CRR) is a measure of the proportion of customers that a company retains over a given time. Customer churn or customer attrition are similar but are opposite measures of how many customers are lost over time.

Any business in the cannabis industry should be concerned about its customer retention rate for one huge reason: it costs significantly more to acquire a new customer than to retain an existing one. Whether through marketing campaigns, providing samples, staffing vendor days, or industry events, it takes money to get your product in front of new customers for the first time. The same goes for cannabis retailers, especially in urban environments with many nearby shops for customers to choose from. When the competition is fierce, it takes more effort and cost to stand out and attract new customers.

On the other hand, satisfied and loyal customers will not only keep coming back to your store or products, they can also become the most valuable members of your marketing team. Even in the oldest recreational markets, the cannabis industry is still new. There are customers making their first ever purchase decisions every day, and the suggestion of a certain product, brand or store from a trusted friend or family member is as good as it gets in terms of free marketing.

How to Calculate Customer Retention Rate

To determine customer retention rate, you will first need to choose a time frame for your calculation. Common time frames to evaluate customer retention include annually, bi-annually, quarterly, monthly, and weekly. Longer time frames will often make the most sense for cannabis businesses.

Here is the equation to calculate a simple rate of customer retention:

Customer Retention Rate = [E-N)/B] * 100

The three variables for the equation are:
E = the number of customers at the end of the period
N = the number of new customers gained within the period
B = the number of customers at the beginning of the period

It is important to subtract the number of new customers (N) from the number of total customers at the end of the chosen period (E), because they would otherwise artificially inflate your retention rate. For example, if you started with 100 customers (B), lost 10, but gained 20 (N) new customers, and simply looked at the total number of customers at the beginning and end of the time period, you would calculate a retention rate of 110%!

How to Improve Customer Retention

Determining how to improve your business’ customer retention metrics can be overwhelming. However, it’s best to break down your strategy into manageable components. Think of what makes you personally return to a favourite retailer or repurchase from a brand you love. It’s probably some combination of the following principles:

  • Customer Satisfaction: A satisfied customer should be your absolute minimum goal, as it simply means the customer had a successful experience interacting with your business. For retailers, this means that your customer was able to find the right product, enjoyed good customer service from your staff, and went on their way.
  • Customer Delight: In a competitive landscape, simply satisfying your customers is not enough to guarantee retention. You and your team should be working to make every customer’s experience with your business a joy. This is an area to get creative, but the classics always apply: focusing on fantastic customer service and a beautiful retail environment are great first steps.
  • Value: No matter how lovely a shopping experience or product is, all your hard work will go down the drain if the price isn’t right. Use market data to make sure your products are priced competitively. But don’t forget that value is perceived by the customer, and many will be willing to pay more for the right experience.
  • Encourage Commitment: Provide incentives for your customers to return. For retailers, the most common example is the use of loyalty programs. Encourage your staff to sign up as many customers as possible, so that you can entice them back to your store with promotions and marketing campaigns. For brands, the potential landscape of ideas is wide open. One particularly successful example of this principle in action is the trend away from the more universal 510 threaded cartridges, and towards proprietary formats in the Vapor Pen category.

Create a Plan

After calculating your Customer Retention Rate, it’s important to compare your total to market averages so that, if necessary, you can work on a plan to improve customer retention for your store or brand.

  • Although some brands operate within categories with relatively low customer retention rates, there are some notable brands who have significantly higher retention than other brands within the category. This demonstrates that monitoring and improving customer retention can pay off.
Tags: Cannabis Industry (183), Cannabis Marketing (39), Cannabis Retail (394), CRR (1), customer retention rate (1), Headset (41)