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Learn How To Calculate Retention Rate For Your Business

With the new businesses starting up and growing every day, the competition is becoming no less difficult.

Now, customers get a choice to choose a similar product amongst two or more competitors. The reasons could vary but a company could lose a customer at any given point to its rivals. But what makes a company stand out? It is how well they are executing their strategies to retain their customers!

As we know, the lesser the churn rate, the better is the company’s growth.

Contrary to that, the more is the retention rate, the better is the company’s growth.

What is Retention Rate?

Customer Retention Rate (CRR) is the ratio of the number of retained customers to the number at risk.

In simple terms, it means the percentage of your customers who have retained or stayed in your company during a period of time. It’s the opposite of the churn rate where the customers leave your company during a period of time.

Why is it important for your business?

Withholding a customer throughout your growth is extremely difficult and there could be various reasons why they would decide to leave or switch from your company. Or, stop using your product or service at any moment. 

This makes your business weak and thus retaining customers is a very important strategy you need to make throughout. Customer Retention Rate is a very important metric in business terms. It is like an insurance policy for your business – safeguarding the company from going downwards.

Retaining customers can be more expensive than acquiring new customers but letting them churn is not a good idea as well. You can always plan out the maximum cost to spend to retain a customer.

How do you calculate the retention rate?

Calculating the retention rate is very easy. You can calculate for any period you want. It could be for a day, week, month or a year. It totally depends upon you.

You need to remember only these 3 points while calculating the retention rate – 

  1. E – the number of customers you have at the end of that period
  2. N – the number of new customers you get during that period
  3. S – the number of customers at the start or beginning of that period

The formula to calculate the retention rate is – 

CRR = ((EC-NC)/SC)*100

You need to subtract the customers at the end of that period from the new customers you get during that period. Divide it by the customers who were present at the start of that period and multiply it by 100 to get the final percentage.

This might look confusing but let’s take a look at an example for better understanding – 

You have a shoe business and during the month of January (let’s calculate for a month as a period of CRR %) you had 1000 customers at the beginning of that month.

You get 500 new customers throughout January but you also lose or churn out 200 customers in that month. So the total left at the end of January would be 1300 customers. Thus, the calculation would look like – 

((Total customers at the end of January – New Customers obtained in January) / Total number of customers at the start of January)*100

= ((1300-500)/1000) *100 = 80%

How much percent is a good retention rate?

There is no such industry standard to determine how much percent is a good retention rate. But, the higher the better. It all depends from company to company. 

So you need to remember that the more you try to retain your customers, the more genuine growth it will bring in to your business.

What can you do to improve your retention rate?

There could be many ways to not let your customers go. Retaining a customer could make you spend a certain amount more than adding a new customer but they do bring value to your business.

If a larger percent of your customer base is leaving your company, then there must be certain internal issues that you need to work upon and fix immediately.

But to increase your retention rate, you can do try these few methods

  • Customer Support – A customer should never say that 

‘I tried contacting your support team but got no response’,

‘Nobody from your team is able to resolve my issue’,

‘Your customer support is the worst’,

‘Company Z’s customer support is far better than yours’

These statements do hurt your brand image and so your first priority should be having the best customer support channel. Statements shared via word of mouth spread faster than a paid ad.

If that customer talks bad about your company, it would do much harm and no said amount could help recover the damage done to your brand. Contrary, the more positive review a customer leaves, the higher the chances it will create for them and other customers to stay.

These days, almost every business has its own website with a support chatbot. You can do a certain level of automation replies regarding a few simple issues, but still reaching out to your company for support shouldn’t be difficult. After all, they are your customers and are bringing you business. The best could be having a 24*7 customer service but again, it totally depends upon your business niche and on the number of customers you have.

  • Giveaways – It is one of the best ways when your customers would want to win that giveaway or be a part of that giveaway. This helps a lot in retaining your old customers.

When they see that you are running a contest, they not only participate themselves but do share and invite their friends who are your potential leads as well.

Even if someone forgets about your company or switches over to your rival brand, doing a giveaway might create brand recall and this helps them to stay back in your company. 

  • Personalization – Sending out a personalized email to your list is definitely a better approach as it makes them feel special to be a part of your community.

There are a few software that you could use to create personalized videos or notes that you can send to your customers. 

If you run a small business where you have less than 100-1000 customers or around, you can even add a personalized handwritten note to their purchases. This would only cost you a little more time but it works best when you have a small scale business.

  • Loyalty Programs – People love when they are welcomed into your group. With privileged programs, a customer can feel closer to the brand. This helps them to stay in your company for a long duration thus helping to increase the retention rate.

Loyalty Program would work for almost every business niche because when you welcome your customers with such programs, they feel more connected to your brand.

  • Discounts and Rewards – Keeping up with the trend or any festive activities, giving them a certain percentage of discount or a reward for their purchase can help boost the retention rate no matter what the reward is. Keeping the customers happy is what going to make them stay with you.

The rewards could be in the form of cash or credits.

  • Referral programs – This is again one of the best ways to make sure that a customer not only stays with you but brings you a new customer with a valuable purchase. And, when both the customers get a certain reward for their purchase, this also increases their lifetime value in your business.

These rewards might not harm your revenue scale but it does help to retain your customers and goes a long way round. 

There are many ways you can try to hook your customer with your brand but remember one thing – the most important factor is to make them feel special. If you have a better customer support relationship, it will always bring a positive effect to your brand image which means a lot for the other existing customer. Let them feel assured that you are there with them personally throughout their journey with you.

But you should also focus on your product which would directly affect the Customer Retention Rate and maintain it as well.

  • Improve your UI/UX – Having a smooth and beautiful UI and UX is definitely going to bring in new customers and help retain the old customers. No customer would want to go through a shabby and unstructured website where even buying a single product is consuming more time than needed. Thus a good flow from onboarding to checkout is super important for your customers to stick to your brand.
  • A/B Split test with your product – Your product or service might not do well with one method but might work with other ideas. Do not fear to do multiple split testing so that you know what works the best for your brand.

Your customers might love method B over the originally planned method A. You can do a split test within the same marketing budget as well.

  • Identify any other issue – Every product has its own pros and cons. You need to be able to identify them and work upon them to find a fix.

Make sure to listen to your customers’ feedback and try to fix any issue they mention immediately.

Why do you have a low retention rate? 

Having a lower retention rate if surely not a good sign for your company and so you need to find out the issue immediately and start fixing them quickly. There could be several reasons for your high customer churn rate that is resulting in low retention rate like – 

  • Quality issues with the product or service – This could happen at any given point in a company’s journey. So you need to make sure that nothing should compromise the quality of your product. Produce less quantity if you have a low budget but make sure that it has the best quality. People remember their purchase quality over the number of products or services you sell.
  • Poor customer management – If you cannot value your customers, they won’t value your brand either. So you should be very careful in handling your customers. Work on your customer management relationship and start seeing the difference. 

Put in more effort in managing your customers and you can see positive growth in your company too.

  • Competition – Having a low CRR could also be due to your competitor’s product. You can plan out a strategy accordingly for your brand and execute them properly that should make your customers have their next purchase with you.

Never create a rift with your competitor but do show your customers the advantages of making a purchase from your brand.

There could be several other internal or external reasons or disputes that are causing a decrease in the retention rate. You need to work upon those strategies and make sure your customers love your brand.

The reverse to that, a major benefit of having a higher percentage of Customer Retention Rate is that you are having a stable and profitable business structure. You need to have the paying customers in your company to keep the cash flow cycle going on.

People would only stay with you when they genuinely love your brand. This helps boost the customer relationship and brings in a profitable balance between the customers and the company.

No business person would want their customers to leave their brand. Thus, having a higher CRR metric assures a smooth business. This lets you focus on building new products or provide a new service.

It also lets you work on developing new strategies for the growth and development of the company.


It never hurts your brand to know all possible methods of making your customers stay with you. Knowing why your customer is choosing your brand over others brings in a more positive effect on your business development and growth. So make sure you never miss out on knowing your business’ CRR and thus developing strategies accordingly to make them stay ahead with you. 

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