Customer Retention Rate

Quick definition

Customer retention rate is the percentage of customers at the start of a period who are still customers at its end.

Formula

Retention Rate = (Customers at End − New Customers) ÷ Customers at Start × 100

Formula variables

Customers at End: Customers at the end of the period.
New Customers: Customers acquired during the period, removed so only existing customers are counted.
Customers at Start: Customers at the start of the period.

Worked example

Customers at start: 1,000
Customers at end: 1,050
New customers in period: 150

(1,050 − 150) ÷ 1,000 × 100

Result: 90%

900 of the original 1,000 customers were still customers at the end. The figures are illustrative.

How definitions differ

Cohort retention: Follows a group of customers acquired in the same period and reports the share still active in each later period.
Revenue retention: Measures retained revenue rather than customers, so it can differ a lot from customer retention. Expansion and contraction affect it.
What 'retained' means: Retention may mean an active subscription, a purchase within a time window or product activity. The definition determines the result.

How to interpret it

Retention shows how well a business keeps the customers it has. It is closely tied to lifetime value: small changes in retention compound over time.

Retention and churn are two views of the same behaviour. They add up to 100% only when both use the same period, population, definition and cohort treatment; many implementations do not.

When it is useful

Tracking how well customers are kept month to month.
Comparing cohorts by acquisition channel or plan.
Estimating customer lifetime.

Limitations

The result depends on the definition of an active customer.
Overall rates hide differences between cohorts.
Different formulas give different values from the same data.

Common mistakes

Leaving new customers in the end count.
Treating retention as 100% minus churn when definitions differ.
Mixing periods of different length.