What is Retention Rate?

Ruben Buijs

Founder & Digital Consultant

Written on Aug 1, 2023

2 minutes

Customer Experience

Retention Rate refers to the percentage of customers or users that a business is able to retain over a specific period of time. It is a key metric that measures the effectiveness of a company's customer experience efforts in keeping customers engaged and loyal.


For example, if a company starts with 100 customers and manages to retain 80 of them at the end of a year, the retention rate would be calculated as 80%. This indicates that the company has been successful in keeping 80% of its customers happy and satisfied, leading to repeat business and long-term loyalty.


Retention Rate is a crucial metric for businesses as it directly impacts their profitability and growth. Here's why it is important:

  1. Customer Loyalty: A high retention rate indicates that customers are satisfied with the product or service and are likely to remain loyal. Loyal customers not only continue to make purchases but also act as brand advocates, recommending the business to others.

  2. Cost-Effectiveness: Acquiring new customers can be significantly more expensive than retaining existing ones. By focusing on improving retention rates, businesses can reduce customer acquisition costs and increase their overall profitability.

  3. Long-Term Relationships: A high retention rate allows businesses to build strong, long-term relationships with customers. This enables them to understand customer needs and preferences better, leading to personalized experiences and improved customer satisfaction.

How to Use it

To measure and improve retention rate, businesses can follow these steps:

  1. Define the Time Period: Determine the duration for which you want to calculate the retention rate. It could be monthly, quarterly, or annually, depending on your business and industry.

  2. Collect Data: Gather data on the number of customers at the beginning of the time period and the number of customers retained at the end of the same period.

  3. Calculate Retention Rate: Divide the number of customers retained by the total number of customers at the start of the period and multiply by 100 to get the retention rate percentage.

  4. Analyze Results: Monitor the retention rate over time and identify any fluctuations or trends. Analyze factors that may be contributing to changes in retention, such as customer satisfaction, product quality, pricing, or competition.

  5. Take Action: Use the insights gained from the analysis to implement strategies and initiatives aimed at improving customer experience and increasing retention. This could include enhancing product features, providing better customer support, or implementing loyalty programs.

Useful Tips

Here are some useful tips to improve retention rate:

  • Deliver Exceptional Customer Service: Provide prompt and personalized customer support to ensure customers feel valued and cared for.

  • Monitor Customer Feedback: Actively listen to customer feedback and address any concerns or issues promptly. Use feedback to identify areas for improvement and make necessary changes.

  • Offer Incentives and Rewards: Implement loyalty programs, discounts, or special offers to incentivize repeat purchases and reward customer loyalty.

  • Stay Engaged: Regularly communicate with customers through email newsletters, social media, or personalized messages. Keep them informed about new products, updates, and exclusive offers.

  • Continuously Improve: Regularly evaluate and improve your product or service based on customer feedback and market research. Stay ahead of competitors and constantly strive to exceed customer expectations.


Retention rate is a metric used to measure the percentage of customers who continue to do business with a company over a specific period of time.
Retention rate is important because it reflects customer loyalty and satisfaction. Higher retention rates indicate a strong customer base and can lead to increased revenue and profitability.
Retention rate is calculated by dividing the number of customers at the end of a period by the number of customers at the beginning of the period, then multiplying by 100.
A good retention rate varies by industry, but generally, a rate above 70% is considered favorable. However, it is important to compare retention rates within the same industry for more accurate benchmarking.
Factors that can influence retention rate include customer satisfaction, product quality, customer support, pricing, competition, and overall customer experience.
A company can improve its retention rate by providing exceptional customer service, offering personalized experiences, addressing customer concerns promptly, rewarding loyalty, and continuously improving products and services.
Common strategies to increase retention rate include implementing customer loyalty programs, conducting customer satisfaction surveys, offering exclusive discounts or rewards to existing customers, and maintaining regular communication with customers.
A high retention rate can result in increased customer lifetime value, reduced customer acquisition costs, positive word-of-mouth referrals, and a stronger competitive advantage in the market.
Yes, a low retention rate can be a cause for concern as it may indicate customer dissatisfaction or difficulties in meeting customer expectations. It is important to identify the reasons behind the low retention rate and take appropriate actions to improve it.
Retention rate should be measured regularly to track customer behavior and identify any changes or trends. The frequency of measurement may vary depending on the business, but monthly or quarterly measurements are common.

Article by

Ruben Buijs

Ruben, the founder of Boei, leverages over a decade of consultancy experience at Ernst & Young to optimize lead generation. Boei specializes in converting website visitors into qualified leads. Outside of work, Ruben is passionate about crossfit and enjoys gaming occasionally.

Table of contents

  1. Examples
  2. Importance
  3. How to Use it
  4. Useful Tips
  5. Related Terms

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