Retention Rate

Definition

Retention rate measures the percentage of customers who remain customers over a specific period. Formula: Retention Rate = [(Customers at End − New Customers Acquired) ÷ Customers at Start] × 100. If you start January with 500 customers, acquire 100 new ones, and end with 550 customers (50 churned), retention = [(550 − 100) ÷ 500] × 100 = 90%. Retention is critical because: acquiring new customers costs 5-25x more than retaining existing ones, increasing retention by 5% can increase profits 25-95%, loyal customers spend more over time, and retained customers provide referrals and positive reviews. Subscription businesses obsess over retention because it directly determines Customer Lifetime Value and company valuation. Monthly retention rates of 95%+ are excellent for SaaS, 90-95% is good, 85-90% is acceptable, below 85% indicates problems. Different industries have different benchmarks: media/entertainment 71%, IT/software 82%, telecom 78%.