# What is the customer retention rate and how do I calculate it?

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## What is the customer retention rate and how do I calculate it?

Do you know the customer retention rate or Customer Retention Rate? Modern business economics such as telecommunications, insurance, SaaS, and other subscription-based businesses are very different from businesses operating with traditional business models.

This business only works well when customers live with them for a long time paying recurring fees.

Simply put, customer retention is the key to the survival of modern business.

Well, business today witnesses high customer acquisition costs compared to what is obtained in one sale. This fee can only be recovered if the customer lasted a long time with the business.

In fact, the cost of getting new customers is five times more expensive than maintaining old customers.

Want to know what customer retention is more profound? Here is a complete discussion and how to calculate it correctly.

### What’s a Customer Retention Rate?

Customer retention rate is the percentage of customers who maintained the business for a certain period of time.

In simple terms, the retention rate represents the percentage of loyal customers of the business. Loyal customers are satisfied customers who continue to do business with the company more than one time.

The retention rate is expressed as a percentage of old customers companies that continue to do business with the company. All these customers including:

• Customers who renew their subscriptions in a certain period of time, and
• Customer repeat purchase in a certain period of time.

The goal of the metric is the level of customer retention is to monitor the performance of the business and its ability to attract and retain customers.

### The Importance Of Calculating The Level Of Customer Retention

Retention rate is the opposite of churn rate or churn rate– a metric that calculates how many customers leave Your business in a month.

The second metric is important because it helps to calculate the lifetime value lifetime value (LTV) of Your customers, which, in turn, allows You to determine how viable Your business.

In simple terms, calculate the rate of customer retention is important to:

#### Predicted income

According to the Report of the Adobe Digital Index, in the U.S., 40% of revenue comes from the buyer who returns or recurring. This means that businesses need to obtain five new customers to match the one repeat buyers.

Therefore, the higher the retention rate, the more lifetime value of the customer which implies more revenue for Your business.

#### Analysis of customer service

By tracking the percentage of customers who survive in a certain period of time, You can get a clear picture of how well the performance of the customer service department of Your business and how successful are You in fulfilling the promise made to the customer.

#### Develop strategies for building loyalty and other programs

The retention rate also means that You have a good relationship with the customers which You can use with:

• Upselling, cross-selling, and
• Released referral program and reduce the cost of customer acquisition You.

### How To Calculate Retention Rate: The Rate Of Customer Retention

The calculation of the retention rate of customers is simple. You need to do is use this simple formula:

Retention rate = (Number of customers who continue the business / the Number of customers in the beginning of the period) * 100

The formula of the rate of customer retention is to consider three variables:

• Period of time: This is the period of time in which the retention rate is calculated. Could be days, weeks, months, or years.
• Customers continue to do business: This is the repeat customers who continue to do business with Your company.
• Customers in the beginning of the period: This is the number of total customers at the beginning of the period.

#### Example case

Let us assume a company XYZ has 2000 customers on January 1, 2021. During this year, 200 of the 2000 subscribers this left the company.

• Retention rate for XYZ will be: (1800/2000) * 100 = 90%
• The churn rate of this company is: 10%

### Retention rate and Churn Rate or Retention Rate and Churn Rate

Churn rate and retention rate are the two sides of the same coin. While the churn rate to calculate the number of customers who stop doing business with the company, the retention rate to calculate the number of customers who keep on using the services or doing business with You.

The second metric is correlated upside down. The company with the churn rate is low, by default, will have a high retention rate.

### What Affects the Retention Rate?

The customer will remain with Your company until they find a reason for it. Although the reasons for these vary from one industry to the other industries, the reasons it often times comes from:

• Customer satisfaction: This is a comparison between customer expectations and customer experience. If the experience is higher than the expectations, the customer is more likely to remain with the business.
• Customer success: When customers realize their goals with the help of the offer. In such a case, they tend to persist with the business and use the offer again.
• The dependence of Customers: more and More customers rely on the bid for the tasks they are, the more likely they are to survive with the business.
• Obstacles to Go: If the customer is bound by the agreement, or may lose something, they may find it difficult to go and may decide to persist with the business.
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### How the Retention Rate is Good?

While every business aims for a retention rate of 100%, it is usually not possible to be as perfect as this.

So, what exactly can be considered as a benchmark retention rate?

Well, it varies for every industry. Here are some examples of the level of retention of the annual which is better than a variety of industries which is calculated by Profitwell:

• Retail: 63%
• Banking: 75%
• Telecommunications: 78%
• IT services: 81%
• Insurance: 83%
• Professional Services: 84%
• Media: 84%

However, for SAAS, retention rate is the monthly average is 93-95%, and retention rate of 95-97% is considered good.

For the service subscription box, retention rate is the monthly average is 80-90%, and retention rate above 90% is considered good.

### Conclusion

Calculate the rate of customer retention is important to make sure that Your business has been meeting the needs of loyal customers at Your business. If tinggat retention is low, then You need to figure out a problem that causes it.