What is retention rate?

‘Retention rate’ refers to the percentage of customers you’ve kept over a period of time. This might be a month, a quarter or a year. Retention rate is the opposite of your customer attrition, or churn rate.

There are three things you need to know to work out your retention rate:

  1. How many customers you have at the start of the period you’re measuring.

  2. How many customers you have at the end of that period.

  3. How many new customers you’ve gained during that period.  

To calculate your retention rate, use this equation:

((customers at end of the period - new customers) ÷ customers at start of the period) × 100

As an example, let’s say you have:

  • 500 customers at the start of the month

  • 530 customers at the end of the month

  • 75 new customers gained during the month

((530 customers at end of the month - 75 new customers) ÷ 500 customers at the start of the month) × 100

= (455 ÷ 500) × 100

= 0.91 × 100

=91  

In this example, 455 of your original 500 customers, or 91% of them, are still using your product or service. Most businesses aim for a retention rate of 90% or higher.

Retention rate is a good way to measure how satisfied your customers are. This is important because loyal customers create more money for your business. Also, getting new customers costs a lot more than keeping existing ones. It pays to keep an eye on your customer retention rate – happy customers means better business.  

 

Related terms:
How to calculate gross profit

Related Xero feature:
Get a complete snapshot of your contacts and relationship history

Related Small Business Guide:
How to build real customer loyalty

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What is retention rate?

‘Retention rate’ refers to the percentage of customers you’ve kept over a period of time. This might be a month, a quarter or a year. Retention rate is the opposite of your customer attrition, or churn rate.

There are three things you need to know to work out your retention rate:

  1. How many customers you have at the start of the period you’re measuring.

  2. How many customers you have at the end of that period.

  3. How many new customers you’ve gained during that period.  

To calculate your retention rate, use this equation:

((customers at end of the period - new customers) ÷ customers at start of the period) × 100

As an example, let’s say you have:

  • 500 customers at the start of the month

  • 530 customers at the end of the month

  • 75 new customers gained during the month

((530 customers at end of the month - 75 new customers) ÷ 500 customers at the start of the month) × 100

= (455 ÷ 500) × 100

= 0.91 × 100

=91  

In this example, 455 of your original 500 customers, or 91% of them, are still using your product or service. Most businesses aim for a retention rate of 90% or higher.

Retention rate is a good way to measure how satisfied your customers are. This is important because loyal customers create more money for your business. Also, getting new customers costs a lot more than keeping existing ones. It pays to keep an eye on your customer retention rate – happy customers means better business.  

 

Related terms:
How to calculate gross profit

Related Xero feature:
Get a complete snapshot of your contacts and relationship history

Related Small Business Guide:
How to build real customer loyalty

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