How To Calculate Retention Rate: A Beginner’s Guide

How to Calculate Retention Rate: A Beginner’s Guide

If you want to evaluate how effective your customer service program is, simply take a look at your customer retention rate.

To put it simply, the definition of retention is keeping your customers. More broadly, it includes the actions brands take to reduce customer churn.

The retention rate meaning, therefore, is a measure of the effectiveness of those actions. Calculating your retention rate is the quickest, simplest and most accurate way to track how healthy your current customer base is, and it’s a good way to predict future growth.

But why should you learn how to calculate customer retention rate when there’s a whole world of new potential customers out there waiting for your next brilliant advertising campaign?

For starters, it’s on average 7x less expensive to keep your existing customers than it is to find, nurture and convert new ones. Plus, loyal customers are worth up to 10x the value of their first purchase.

What’s more, the percentage of customer acquisition is low, only around 5%-20%, whereas the likelihood of converting an existing customer into a repeat customer is much higher at 60%-70%. Not only are strategies focusing on retention efficient, a 5% improvement in retention can lead to an increase in profits of 25%-95%.

How To Calculate Retention Rate

How to Calculate Customer Retention Rate

Now on to how to calculate retention rate. Jeff Haden, a business and investing specialist, recommends the following customer retention rate formula as an easy way to accurately calculate your unique customer retention rate. If you’re not a numbers person, it’s not too complicated. You just need to locate a few key data points and plug ’em into the customer retention formula.

Here’s how to calculate retention rate Jeff’s way…

Retention Rate = ((CE‐CN)/CS)) x 100

C= number of customers at end of period

C= number of new customers acquired during period

CS = number of customers at start of period

Here’s a retention rate calculation example:

You started the (week/month/year/other period you choose) with 200 customers.

You lost 20 customers, but you gained 40 customers. At the end of the period you have 220 customers.

Now here’s how to calculate retention rate in this case in 3 steps.

  1. 220 ‐ 40 = 180
  2. 180/200 = 0.9
  3. 0.9 x 100 = 90 (This step is just making it a percentage.)

Your retention rate for the period was 90%.

Note that customer retention rate is the inverse of attrition (or churn) rate. A 90% retention rate would mean a 10% attrition rate.

It’s worth mentioning that some people, especially those within B2B SaaS companies, find it more helpful to calculate dollar retention rate (DRR), which looks at the dollars that renew as opposed to the customers who renew.

Case Study

Discover Zurich's personalised customer retention strategy

How do we calculate DRR?

According to Revenue Wire, DRR can be calculated as follows:

[DDR] is best calculated on a cohort basis, with each month or year representing a new customer cohort. For example, if a group of your customers renew their subscription, but downgrade from a $100 per month package to a $50 per month package, the revenue generated by this group of subscribers will decrease dramatically, despite customer retention remaining consistent.

To expand on this further, a company achieving a 90% CRR may have 50% of their customers’ downgrade from a $100 subscription to a $50 subscription at their renewal date. After which, half the customers remain at the original value (45%) while the other half are now only producing half of the value (22.5%), making the company’s NDR a mere 67.5%.

What’s a Good Retention Rate?

Digital Personalization

Now that you know how to calculate customer retention rate, how do you know when you’ve got a strong one? The rule of thumb says that a customer retention rate above 85% is acceptable while retaining 90% is solidly healthy and stable.

It’s especially critical to calculate retention rate so you have a benchmark to compare against.

Post on

Post on X

In terms of dollar retention rate, it can vary by industry. For B2B SaaS enterprises seeking venture capitalist support, for example, a DRR of 110% per year is a good target.

But one of the most important steps is simply figuring out your internal benchmark. It’s important to calculate your retention rate so you know if you’re gaining or losing ground. What’s a good retention rate? In some ways, it’s a significant increase from your retention rate for the previous period.

What To Do After Calculating Retention Rate

If after calculating your retention rate, you don’t like what you see, fear not. Improving a poor retention rate isn’t as complicated as you may think.

Like most relationships, preserving a positive relationship comes down to communication. Are you communicating clearly, personally and in an engaging way? Do you meet and exceed customer expectations?

Here’s one example of going above and beyond when it comes to customer retention. See how Vodafone helped VeryMe Rewards members understand the value of their loyalty program. The personalised data, from the customer’s first name to the number of treats they enjoyed on #FeelGoodFriday, takes things up a notch.

It’s meaningful and fun interactions like these that let you surprise and delight your customers, and that paves the way for reduced churn and better brand loyalty.

We wrote a whole blog post on tips for improving retention: 6 Little Changes That Will Make a Big Difference in Your Churn Rate. You can click the link for the full article, but here’s a quick rundown:

  • Understand that customer happiness starts from within. Happy employees usually mean happy customers.
  • Transparency is king! Communicate clearly and frequently when internal changes might affect external operations.
  • Personalised communication can be your strongest ally in creating loyal customers.
  • Keep an eye on how your competitors are innovating and what new perks they’re offering consumers.
  • Never stop adding value to your brand and to every touchpoint with consumers — even customer service.
  • Customers are going to leave — it happens — but ask them why before they go so you can improve going forward.

Interested in optimising your customer retention strategy? Find tips for driving engagement, reducing churn at key points in the customer lifecycle and more in our Download Centre.

You can also learn how to reduce churn by industry. We have retention use cases for insurance, banking, telecommunications, hospitality and more. Get in touch and we’ll show you how Personalised Video can help your business.

Schedule a Call

Explore More Content

Generic selectors
Exact matches only
Search in title
Search in content
Post Type Selectors
post

Explore More Content

Subscribe to Our Newsletter

Email * Enter Email

Related Articles

Why Loyalty Programmes Need To Be Personalised

Why Loyalty Programmes Need To Be Personalised

These days, it’s commonplace to make a purchase at a shop, cafe or online store and get asked to join its loyalty program. Many times, these programs are enticing. Getting perks for simply continuing your spending habits seems like a no-brainer and is probably why U.S. consumers hold more than 3.8 billion memberships in these kinds of programs. At the same time, companies are more than well-aware of all the benefits they get from implementing loyalty programs. After all, what’s better than having customers that wholly trust and recommend your brand? And this is true beyond retail. Think of hotel loyalty programs or rewards credit cards.

Read More
Corporate video production is a powerful way to ramp up marketing, engagement, and branding. Learn more!

How To Scale Your Content With Corporate Video Production

If you’ve opened any website or social media app in the past few years, you’ve witnessed firsthand that corporate video is bigger than ever. From humorous mascots on TikTok (we see you, Duolingo) to educational YouTube docuseries to flashy product announcements, companies big and small are leaning on video to engage with their audiences. Let’s look at what corporate video production is, why it’s so important for brands, and how to get started producing video content for your company. What Is Corporate Video Production? Corporate video production refers to the process of creating videos for a company, whether for internal or external use. There are different ways to produce corporate videos, from hiring a video agency to using an in-house animator to leveraging AI to create video content even if you don’t have animation skills or a big budget. We’ll get into a few of these options below, but first,

Read More
Do You Need a Video Production Company To Create Quality Video Content?

Do You Need a Video Production Company To Create Quality Videos?

These days, businesses of all sizes are making video part of their core marketing strategy. Video marketing content is a great way to connect with your audience and attract new customers. But do you need a professional video production company to accomplish that? High-quality marketing videos can help grow brand awareness, boost engagement, and ultimately build your business online. You might not be Hollywood, but you understand that your audience values top-notch video content. Videos with great production value, like the one below from HubSpot, are an eye-catching way to make a great impression with your brand. So is a video production agency the key to creating effective videos? Do you need to hire a production team from Los Angeles or New York to get a solid return on your investment? Let’s talk about it. First, though, let’s dig a little deeper into why video content is so important. Why

Read More

Request a Call

Leave your details below, and we’ll be in touch to show you what Personalised and Interactive Video can do for you.