Retention Rate

What is retention rate?

Retention rate is a product metric that refers to the percentage of customers who continue to subscribe or pay for the product within a given period of time. This tends to be a useful metric for companies with subscription-based products or services, like SaaS, or products that require users to make continuous purchases over time. 

Many companies use retention rate as a key measurement to determine their success. This metric is important to organizations because:

• Returning customers are more likely to purchase additional products and generate more profit. According to retentionscience.com an increase in retention rate of 5% can increase profits by 25% to 95%.
• Returning customers validate the need for your product or service
• Retaining customers doesn't cost nearly as much as it does to acquire new ones
  

How to calculate retention rate

One of the key elements of calculating retention rate is the period of time you are measuring. Most companies calculate retention rates annually or every 12 months. So now that we set our definition of the time we are measuring, let's talk about the other variables needed to calculate retention rate:

• CE (Customers End): Customers you had at the end of the measurement period
• CN (Customers New): New customers you had during the measurement period
• CS (Customers Start): Customers you had at the beginning of the measurement period

Let's say for example:

• CE: You ended the year with 1,025 customers
• CN: You converted 120 new customers during the year
• CS: You had 1,100 customers at the start of the year