What is customer retention? Meaning, and the retention rate formula

Customer retention, in one sentence

Customer retention is keeping the customers you already have. For a business that charges every month, it's the share of your paying customers who are still paying a month, a quarter or a year later.

It's the other side of churn. Churn counts the people who left, and retention counts the people who stayed.

The retention rate formula

Customer retention rate = (customers at the end of the period − new customers during it) ÷ customers at the start × 100.

A worked example. You started the quarter with 120 paying customers. During the quarter 30 new customers signed up, and you ended it with 135.

• Take away the new ones: 135 − 30 = 105. These are the customers from the start who are still here.
• Divide by where you started: 105 ÷ 120 = 0.875.
• Your retention rate for the quarter is 87.5%.

New customers come out of the count because the question is how well you keep the people you already had. Left in, a good month of sign-ups would hide the customers who quietly left. The retention rate calculator does this for you from the same three numbers.

Retention and churn

Over the same period, measured the same way, retention and churn add up to 100%. Keep 87.5% and you lost 12.5%. Some people find one number easier to talk about than the other, but they say the same thing.

What keeps customers around

Retention is mostly decided early. People who get to the point of your product in their first days tend to stay, and people who never get there tend to drift off without ever saying why. Most of what helps is keeping in touch at a few moments:

• The day after sign-up. A plain email from you asking what they hoped the product would do. The answers are worth more than any dashboard. See activation emails.
• When they go quiet. A short note when somebody who used to log in stops, with one easy next step. See re-engagement emails.
• When a card fails. Plenty of customers are lost to an expired card rather than a decision. Email the same day. See the failed payment email template.
• When you ship something. A short update on what changed, so people who are paying can see the product moving. See product update emails.

Kicklace sends these from what each customer actually did, written in your voice, and nothing goes out until you switch it on. There's a demo you can try without signing up.

FAQ

What is a good customer retention rate?

There isn't one number that fits everybody, because it depends on what you sell, what it costs and who buys it. The most useful comparison is with yourself: this quarter against last, or this year's customers against last year's.

Is retention rate the same as renewal rate?

Close, but not quite. A renewal rate counts how many contracts or annual plans renewed when they came up. Retention counts everybody still paying, whenever they signed up.

Should I measure retention monthly or yearly?

A small subscription business usually looks at it monthly, because a change shows up sooner. Use the same period every time, or the numbers won't compare.

What is customer retention in simple terms?

Keeping the customers you have, rather than only finding new ones.