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What is Retention Rate?

What is Retention Rate?

Many businesses measure  growth by the number of new customers acquired. But in some industries, increasing customer retention is more important. If a customer buys the same product regularly or different products irregularly, you have retained the customer.

There is no way to run a thriving business without retaining customers. High churn rates will drag your company down no matter how you slice it. Instead of solely focusing on acquiring new customers that might churn weeks later, spend time and effort retaining the customers you already have.

Retention rate measures the number of customers retained over a given period. But keep in mind there’s more to customer retention rate than that. You also need to account for the newly acquired customers to obtain the most accurate data. However, if you try to just offset churn by acquiring new customers, you will wind up ignoring flaws in your business.

Calculating Retention Rate

To calculate your retention rate, you’ll first want to choose the time frame you want to examine. Businesses primarily evaluate retention rates on a weekly, monthly, quarterly, or annual basis. You also need to collect three pieces of information:

  1. The number of customers at the start 
  2. The number of customers at the end 
  3. The number of new customers acquired 

For a subscription-based business, the easiest way to calculate retention rate is by dividing active users that continue their subscriptions by the total number of active users in a period. 

The number of active users renewed divided by the total active users at the start of a period = retention rate.

Example: If your business starts the month with 100 customers and loses twenty of them, your retention rate is 80%. 

Why is Customer Retention Important?

There’s a pretty simple financial reason why customer retention is so necessary: Retaining your existing customers is much less costly than trying to gain new ones. Acquiring a new customer is five to 25 times more expensive than keeping an existing one. Also, most businesses make sales between 5% and 20% for prospects, but that number jumps to 60% to 70%for existing customers. With so much to benefit from high customer retention, it’s essential to understand your retention rate to know where you stand and if you need to make changes to keep more of your customers. 

Churn Rate vs. Retention Rate 

Customer churn rate is the opposite of customer retention rate. For example, if your retention rate is 80 percent, then your churn rate is 20%. 

The easiest way to identify your churn rate: 

  1. take the number of churned customers in a given period, 
  2. divide that number by the total number of customers at the start of that period
  3. multiply that number by 100

Churn rate formula: Churned customers / Original number of customers x 100

Customer churn looks different for every business. For some, it’s when a customer doesn’t renew their subscription. For others, it’s when a customer doesn’t purchase again. Companies have to choose which types of customers they will count as having churned. It helps to use multiple retention metrics for building a more accurate understanding of why customers churn.

Retention Strategies

Customer retention practices focus on repeat purchases and strive to make each customer more profitable. They also benefit customers since most retention strategies involve improving the buying experience. So, the business gets more value from customers, and the customers get more value from the business.

It’s extremely beneficial to develop a solid customer retention strategy for your business. For example, if you increase your customer retention by just 5%, it results in a profit increase of 25% to 95%, with 65% of a company's revenues coming from returning customers. Calculating your company's retention rate will show you how well you’re capitalizing on this power. 

Improving Retention Rate

Once you obtain your retention rate, you may think, is this good or bad? Unfortunately, that’s a tricky question to answer. Most industries' customer retention rate is below 20 percent. However, e-commerce and SaaS industries have a customer retention rate of around 35%. 

The best practice is to just focus on improving your retention rate. There are endless reasons why customers churn. A retention analysis will help you understand the who, what, where, when, and why’s for customer churn. When you have an idea of why customers leave, you can implement strategies to keep more of them. Here are some things to consider when putting together a strategy to improve your retention rate: 

Smooth Processes

Let’s face it: We’re pretty spoiled with today’s advanced technology. We expect an easy and smooth process for all of our online activities, including making a purchase. Walk yourself through your entire buying process, from landing on the site, to purchasing, to the after-sale process. 

Ensure you make it super easy for your customers to avoid frustrating them where they may churn. For instance, does your system save information so your customers could just log in and hit a couple of buttons to complete a purchase without always having to enter payment and contact information? 

Think about Amazon. Amazon makes it (almost dangerously) easy to make a purchase. A few clicks, and you can be the owner of nearly anything you want. Whatever you can do to make the buying experience as painless as possible, do it. Your customers will thank you in the form of repeat orders.

Customer Service and Support 

Your customer support team should have a customer-first attitude and approach. Do what’s needed to make the customer happy and satisfied. Provide friendly, personalized service with empathy, and care. Remember, your customer support team may be the only human interaction your customers get with your organization, so they need to be awesome. Smoosh them to get them to love your brand. 

A poor experience with a service rep could cause your customer to decide not to do business with your company. On the other hand, an excellent experience with the service rep could build a strong relationship with your customer, so they become loyal to your brand. Loyal customers will also tell others about their love for your business, bringing you great warm leads in the form of referrals. Also, 70% of Americans are willing to spend 13% more with companies that provide excellent customer service.

Create a Loyalty Program

Customer loyalty programs are a fantastic way to keep your customers coming back for more. By rewarding them for purchasing often, they’re more likely to stick around to reap the benefits. It also makes them feel like they’re part of an exclusive club which makes them feel special, an ego booster. 

Loyalty programs and rewards look different for every business. Strategize what would work best for your organization and what would be most appealing to your customer base. Then, it’s crucial to promote the loyalty program to your customers to achieve your goal of high customer retention. 


It’s   critical to understand and get to know who your customers are, what they like, don’t like, and their buying habits. When you know your customers better, you’re able to send personalized promotions to draw them back in to purchase more and more often. Of course, everybody loves an attractive offer, but the likelihood they will take advantage of it is greater when you personalize the offers. 


How will you know what your customers think about your organization and their buying experience if you don’t ask? By sending surveys, you can get the feedback you need to know where your business is falling short. Things slip through the cracks all the time when someone isn’t keeping a close eye on it. 

Understanding what your customers think and feel about their experience with your brand, you can be proactive and make the necessary changes to reach your goal of total customer satisfaction and increase your retention rate. 

To Summarize

Retention rate is critical for an organization's success, but it’s often overlooked. Any company that wants to thrive and succeed must keep a close eye on its customer retention rate. Unfortunately, many businesses fail shortly from not prioritizing customer retention or putting in the necessary time and effort to optimize it. 

In business, customers are your biggest asset. Your lifeline. They should get the proper personalized care and nurturing to develop strong relationships and build a following of loyal customers who will become your brand advocates. 

No, the customer isn’t always right. But should be treated as such. Your support team should receive the proper training to provide exceptional service that makes your customers feel warm and fuzzy and want to be loyal customers for life. 

Every business needs an awesome customer service team that provides first-class, personalized, and friendly service to its customers to retain them. Contact Awesome CX today to get started building your exceptional customer service team! 



Customer Retention 101: Grow Your Business by Selling More to Current Customers | Shopify

Churn Rate vs. Retention Rate Comparison Guide |

The Economics of E-Loyalty | Harvard Business School