Formula to Calculate Retention Rate
Determine your Customer Retention Rate (CRR) accurately.
Understanding the Retention Rate Formula
Customer Retention Rate (CRR) is a critical metric for any business, indicating the percentage of customers a company has retained over a specific period. It removes the noise of new customer acquisition to focus specifically on loyalty.
Where:
- E = Number of customers at the end of the period.
- N = Number of new customers acquired during the period.
- S = Number of customers at the start of the period.
Example Calculation
Let's say you run a subscription service. Here is a realistic scenario:
| Variable | Value | Description |
|---|---|---|
| Start (S) | 200 | You started the month with 200 subscribers. |
| End (E) | 220 | You ended the month with 220 subscribers. |
| New (N) | 40 | You gained 40 new subscribers during the month. |
Step 1: Subtract new customers from ending customers: 220 – 40 = 180.
Step 2: Divide by starting customers: 180 / 200 = 0.9.
Step 3: Multiply by 100: 0.9 × 100 = 90% Retention Rate.
Why Retention Rate Matters
Calculating your retention rate is vital because acquiring a new customer can cost 5 to 25 times more than retaining an existing one. A high retention rate generally indicates:
- High customer satisfaction and loyalty.
- Efficient customer service.
- Strong product-market fit.
Conversely, a low retention rate is an early warning sign of "Churn," meaning customers are leaving faster than you can replace them sustainably.
How to Interpret Your Results
While benchmarks vary by industry, a retention rate close to 100% is ideal. For SaaS companies, a retention rate above 35% is often considered good, while enterprise services often aim for 90%+. If your calculation yields a negative number or a number over 100%, re-check your input data for accuracy.