Retention Rate: A Complete Glossary Guide

Retention Rate

Knowing the Retention Rate is crucial to any business that wants to keep customers satisfied and coming back. In this glossary-style guide, you will learn what the Retention Rate is, why it is important, and how to calculate it using real-life, easy examples.

What Is Retention Rate?

The Retention Rate is an easy-to-understand metric of how many customers remain loyal over time. It shows the percentage of users who remain active or keep purchasing after a certain period. A high retention rate suggests that customers either like what you have to offer or that the service is dependent on repeat buying (such as a subscription service)! 

For example, if 100 people signed up this month and 60 people are still using it the following month, your Retention Rate is 60%.

Why Retention Rate Matters

There are many good reasons to have a strong Retention Rate:

• Lower Costs: Retaining an existing customer is less expensive than finding a new customer.
• Consistent Growth: Customers that return regularly provide consistent growth to a business, especially when they are getting the value that they expect.
• Customer Satisfaction: A high Retention Rate often means a high level of satisfaction with your product or service.

A business can increase profits by 25% – 95%, just by increasing its Retention Rate by 5%.

Customer Retention Rate Explained

Customer Retention Rate refers to how good a company keeps its customers. The best way to consider it is:

A 50% Customer Retention Rate means that half of your customers stayed with you over a certain time frame.

Companies want to increase their Customer Retention Rate by:

• Providing useful support.
• Providing good content and 
• providing experiences that engage.

Retention Rate Formula

The Retention Rate Formula is simple:

Retention Rate = ((CE – CN) ÷ CS) × 100

Where:

CE = number of customers at the end of the period

CN = number of new customers during the period

CS = number of customers at the start of the period

This Retention Rate Formula produces a simple percentage that describes how many customers are retained.

How to Calculate Retention Rate – Step by Step

This section explains how to determine the Retention Rate using our Retention Rate Formula.

For example:

• Starting with 200 customers (CS = 200).
• Over the month, we gained 50 customers (CN = 50).
• We end with 180 customers (CE = 180).

1. Next, we take our ending count and subtract the new customers: 180 – 50 = 130.
2. Next, we divide by the starting count: 130 ÷ 200 = 0.65.
3. Now multiply by 100 into a percentage; 0.65 x 100 = 65%.

Therefore, Retention Rate = 65%.

Calculate Retention Rate for Different Periods

You can track the Retention Rate for any period.

• Monthly: Check how many returning users there are this month.
• Quarterly: Check retention for three months.
• Annually: Look at what percentage of customers stay the entire year.

For instance, if your subscription service starts in September with 1000 users and adds 200 over the entire year, and is down to 900 by the end of December, the Retention Rate is: 

(900 – 200) ÷ 1000 = 0.7 → 70%

That’s a strong customer Retention Rate for the entire year.

What Is Retention Rate in Different Industries?

What is the retention rate? can differ by business type:

• Apps and games: May target a 30-40% monthly retention rate.
• Subscription services: Usually reported at a 60-80% yearly retention rate.
• Retail or e-commerce: May target a 20-30% annual retention rate.

Knowing the retention rate in your area of business improves the way you can set goals.

Tips to Improve Retention Rate

Enhancing the Retention Rate entails improving customer happiness and engagement, which can be achieved by implementing several suggestions:

• Onboarding: Ensure that customers understand your product from the very beginning.
• Keep in touch: Use readily accessible ways to always keep sending value-adding or helpful emails/messages to your customers, without being spammy.
• Invite returns: Give discounts/special offers to repeat purchasing customers, this gives them an incentive to buy again and gets them used to the idea of “what’s in it for me”.
• Ask for feedback: Conduct surveys to find out what customers do or don’t like about your product/service.
• Provide support: Actively fix and solve your customers’ issues in a timely and productive manner.

By properly administering these strategic things, you will likely see retention rates increase positively from your previous experience.

Customer Retention Rate vs. Churn Rate

Retention Rate and Churn Rate are often used in conjunction. They are opposites of one another.

• Retention Rate indicates the percentage of customers who stay.
• Churn Rate indicates the percentage that leave.

If this year you had a Retention Rate of 80%, you had a Churn Rate of 20%.

A Real and Relevant Stat on Retention Rate

Most successful SaaS (Software as a Service) companies’ annual retention rates are over 80%. This equates to 8 out of 10 customers who have sustained themselves for at least a year, showing their satisfaction level and revenue predictability.

Summary of Key Points

So, what is the retention rate? 

• It is the percentage of customers that stick with you over time. Retention Rate Formula is: ((CE – CN) ÷ CS) x 100. How to calculate retention rate: take the ending customer total, subtract new customers from it, divide by the starting customer total, then convert to a percentage. Customer Retention Rate will show you how committed your audience is. 

• Retention rate can be calculated for any period (weekly, monthly, yearly, etc.). 

• To improve the retention rate, identify good support, communication, onboarding, and customer feedback. 

• A healthy retention rate leads directly to better growth and profits.

Final thoughts

Knowing how to calculate the Retention Rate is important because it gives you an understanding of how good you are at retaining customers. Knowing the Retention Rate Formula to calculate retention rate, knowing how to track Customer Retention Rate, and educationally improving Customer Retention Rate using tracking and thoughtful strategies will help you grow and succeed. 

After you finish reading this guide, hold on to it, implement the tips, and watch your Retention Rate go upwards!

FAQs

Q: What is a good Retention Rate for my business?

A: A good Retention Rate depends on your industry. For instance, an app is aiming for 30-40% monthly, while subscription services are aiming for 60-80% yearly, and e-commerce is aiming for 20-30% yearly. Be sure to compare your Retention Rate to your industry benchmarks so you can see where your business fits in.

Q: How often should I calculate my Retention Rate?

A: You should review your Retention Rate at a frequency of monthly, quarterly, and yearly. Monthly to keep an eye on short-term changes, quarterly to see how your performance compares to the previous quarter, and yearly to get the big picture of customer loyalty and how it all impacts your long-term business health.

Q: What are the best ways to improve my Retention Rate quickly?

A: The best ways to improve your Retention Rate quickly rely on various factors: effective onboarding, timely and regularly communicated helpful information, customer rewards and gifts, quick customer service responses, and asking for feedback. These combined actions help to create meaningful trust, increase customer satisfaction, and encourage retention over a longer timeframe.

Q: What is the difference between Retention Rate and Customer Retention Rate?

A: The terms are pretty similar; however, Customer Retention Rate refers mainly to payable customers, while Retention Rate can include any type of user or client, depending on the context. The key difference comes from how it’s applied to a business.

from Apptrove https://apptrove.com/retention-rate-a-complete-glossary-guide/
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