Retention rate

What is Retention Rate?

Retention rate is the percentage of customers who stick around over a specific period.

It tells you:

• How many customers stay loyal
• How well you’re maintaining relationships
• The effectiveness of your customer success efforts
• The health of your business

👆 By the way, an interesting fact: Studies show that increasing customer retention by just 5% can boost profits by 25% to 95%! That’s because retained customers tend to spend more and cost less to serve.

Retention Rate vs. Churn Rate

These metrics are like two sides of the same coin! 🪙

Retention Rate

• Measures who stays

Churn Rate

• Measures who leaves

By the way, they always add up to 100% – if your retention rate is 75%, your churn rate is 25%!

Why is Retention Rate Important?

Here’s why it matters:

Cost Efficiency 💰

• Acquiring new customers costs 5-25x more than retaining existing ones
• Retained customers often need less support
• They’re more likely to recommend your business

Revenue Growth 📈

• Loyal customers typically spend more
• They’re more likely to try new products
• They’re less price-sensitive

Business Health Indicator 🏥

• Shows customer satisfaction levels
• Predicts future revenue
• Helps identify potential problems early

Investment Appeal 💎

• High retention rates attract investors
• Shows business sustainability
• Indicates market fit

How to Calculate Retention Rate

The Formula

Retention Rate = ((EC – NC) / SC) × 100

Where:

EC = Ending number of customers

NC = New customers acquired

SC = Starting number of customers

Let’s say you’re calculating monthly retention for your subscription service:

Starting customers (SC) = 1,000

New customers (NC) = 200

Ending customers (EC) = 900

Step 1: EC – NC = 900 – 200 = 700 (retained customers)

Step 2: 700 / 1,000 = 0.7

Step 3: 0.7 × 100 = 70% retention rate

Pro Tips for Measuring Retention: 🎯

• Choose a consistent time period (monthly, quarterly, annually)
• Track trends over time
• Segment by customer types
• Consider customer value, not just numbers

Look at both short and long-term retention

Remember: A “good” retention rate varies by industry:

• SaaS companies often aim for 95%+ monthly retention
• Retail might be happy with 35% annual retention
• Mobile apps might see 25% monthly retention as successful