What is Retention Rate? Definition, Formula & Customer Retention Rate Calculator

Calculating retention rate is essential for understanding how well you keep customers over time. This blog breaks down the formula, provides a handy customer retention rate calculator to simplify the process, and shares actionable insights to help you improve your customer retention strategies.

What is Customer Retention Rate?

Customer retention rate is the percentage of customers a company keeps over a set period, excluding new acquisitions. It shows how well a business retains customers as it consistently provides value and builds long-term relationships. A high rate of retention indicates satisfied, loyal customers, whereas a low rate can signal potential problems.

Retention rate is vital because it ties directly to customer loyalty and profitability. Loyal customers make repeat purchases and often promote your brand. This reduces marketing costs and fuels growth. Focusing on customer retention offers several strategic advantages that can significantly impact your business’s success. Consider these key benefits:

• Cost-efficiency: Retaining customers is cheaper than acquiring new ones.
• Increased profitability: Loyal customers tend to spend more over time.
• Word-of-mouth marketing: Satisfied customers can become brand advocates, referring others.
• Predictable revenue: A high rate of retention ensures a steady revenue stream.
• Higher customer lifetime value (CLV): The longer customers stick around, the more valuable they become to your business. 

For various industries, retention rate reveals how successful a brand is in maintaining engagement. For example, e-commerce businesses focus on repeat buyers, while subscription-based services, like streaming platforms, prioritize customer renewals. Retailers rely on customer loyalty to maintain steady revenue streams over time.

Retention Rate Calculator

If you’re wondering how to measure retention, we made it easy for you. Simply use our customer retention rate calculator below by filling out the necessary fields and you can calculate your rate quickly and easily.

Retention Rate Calculator

How many customers have you retained over the period in question?

Select a time period Last 1 Month

• Last 1 Months
• Last 3 Months
• Last 6 Months
• Last 9 Months

Number of customers at the end of the period

Number of customers acquired during
the period

Number of customers at the start of
the period

Calculate

Current Period

Annualized

Customer Growth

-7,810

-31,240

Growth Rate

10%

Customer Churn

7,932

31,728

Churn Rate

88.13%

Retention Rate

11.87%

Dollar Retention Rate Calculator

What is the financial value of your retained customers?

Average Sale Amount per Customer at the start of the period

Average Sale Amount per Customer at the end of the period

Profit Margin Percentage

Calculate

Current Period

Annualized

Net Revenue Retained

-7,810

-31,240

Net Profit Retained

7,932

31,728

Now that you have your retention rate, let’s take a closer look at how to calculate it manually with the formula.

Customer Retention Rate Formula

Calculating customer retention rate is straightforward and gives a clear picture of your brand’s ability to maintain its customer base. Here’s the formula:

Customer Retention Rate = ((E-N)/S) x 100

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.

By plugging in these numbers, you can quickly find out your customer retention rate and understand how effectively you’re keeping your existing customers.

Strategies to Improve Customer Retention Rate

There are several actionable strategies that businesses can adopt to boost their rates of retention. Here are a few:

• Personalized Marketing: Tailor your communication to each customer’s preferences and behavior to increase engagement.
• Exceptional Customer Service: Going the extra mile for your customers can foster long-term loyalty. Think of Zappos’ famous customer support stories that built their reputation.
• Loyalty Programs: Offer incentives to repeat customers through rewards and discounts to make them feel valued. Get inspired by the best customer loyalty program examples from top brands. 
• Proactive Communication: Send follow-up messages, provide updates, and re-engage customers who haven’t interacted with your brand for a while.
• Offer Value Continuously: Ensure customers consistently find value in your product or service through regular updates, offers, or educational content.

Retention Rate vs. Churn Rate

Retention rate and churn rate are closely related metrics but focus on different aspects of customer behavior. The rate of retention measures the percentage of customers who continue to award the company their business compared to the percentage of customers who have churned. Churn rate, the inverse of retention rate, is the percentage of customers who no longer patronize the business. 

Customer retention rate should be a North Star metric — a retention KPI — as it is the basis for the longevity of a sustainable business model.

Oftentimes, the best decisions in business are those that sacrifice profit in the short term but result in long-term gains. The legendary customer service policies at Zappos are a perfect example of short-term losses resulting in long-term customer retention. Their customer retention KPIs are consistently met and exceeded. What’s their secret?

Case Study: How Zappos Maintains Nearly 75% Customer Retention Rate

Zappos has become a gold standard for customer retention due to its unmatched customer service. One well-known story involves a customer, Zaz Lamarr, who called Zappos to return several pairs of shoes her recently deceased mother had purchased. Not only did Zappos offer a full refund, but they also sent a bouquet of flowers to the family to express their condolences.

These acts of kindness build customer loyalty that goes beyond the purchase. Zappos maintains a retention rate of nearly 75%, thanks to their dedication to extraordinary service. Word-of-mouth stories from experiences like these have become an integral part of their brand identity, driving both customer acquisition and retention.

Last Words

Customer retention should be a key focus for any business aiming for sustainable growth. Use our free retention rate calculator to measure your performance. Adopt proven strategies to keep your customers coming back. Businesses like Zappos have shown how powerful retention can be when coupled with great customer service and personalized experiences. Hence, make retention a priority, and watch your business thrive for the long haul.

Boost Your Retention with CleverTap

CleverTap’s automation features allow you to nurture customer relationships without manual effort. From automated re-engagement campaigns to tailored retention workflows, CleverTap helps you stay connected with your customers at every stage of their journey. By using the power of automation, you can improve your retention rate while saving time and resources.

Ready to automate your retention strategy? Book a demo with CleverTap today!

Additional Resource

For an easy way to calculate LTV or CLTV, use our Customer Lifetime Value Calculator.

Learn how to calculate your customer retention rate, month over month. Use our Month over Month Calculator.