Retention rate
In short
Retention rate is the percentage of customers a company keeps over a set period, such as a month or a year. It is the opposite of churn rate: if retention is 90%, churn over the same period is 10%.
Retention matters because keeping a customer usually costs less than winning a new one. In subscription businesses, steady retention lets revenue compound, while weak retention forces the team to keep refilling a leaky bucket.
How to calculate it
A common customer retention formula is: (customers at end of period minus new customers added in the period) divided by customers at start of period, times 100.
For example, say a team starts a quarter with 200 customers, adds 30, and ends with 210. It kept 180 of its original 200, so retention is 90%.
Types of retention
- Logo retention: The share of customers kept, regardless of size.
- Gross revenue retention: The share of starting recurring revenue kept, excluding expansion.
- Net revenue retention: Revenue kept plus expansion, minus losses. It can exceed 100%.
How to improve it
Fix onboarding
Customers who reach first value quickly are more likely to stay. Track time to first value.
Watch early warning signs
Falling usage, unresolved tickets, and champion departures often come before cancellation.
Assign ownership
Customer success or account managers should own health checks and renewals.
Ask why customers leave
Exit feedback shows whether the cause is product, price, fit, or service.
Tighten targeting
Customers outside your ideal customer profile often churn first, so fix retention partly at the top of the funnel.
Common mistakes
- Using one blended number: Segment by plan, size, and cohort to see where losses occur.
- Measuring too late: Annual figures hide early drop-off, so also review monthly or cohort data.
- Ignoring expansion: Retaining customers is good, growing them is better.
- Mixing definitions: Agree internally on whether you mean customers or revenue.
Retention rate FAQs
What is retention rate?
Retention rate is the percentage of customers a company keeps over a given period, such as a quarter or a year. It is the inverse of churn: a 90% retention rate means 10% of customers were lost.
How do you calculate retention rate?
Subtract new customers added during the period from the customers at the end, divide by the customers at the start, and multiply by 100. This shows what share of the original customers stayed.
What is the difference between retention rate and churn rate?
They measure the same thing from opposite sides. Retention rate shows the share of customers kept, while churn rate shows the share lost. Over the same period and definition, the two add up to 100%.
How can you improve customer retention rate?
Improve onboarding, monitor usage and health signals, assign clear ownership of renewals, gather exit feedback, and target customers that fit your ideal customer profile. Segmenting results shows where to focus first.
