Retention rate is the percentage of customers who remain engaged with a business over a given period of time. Companies measure retention rate in order to track customer engagement and loyalty, as well as identify areas where they may need improvement in order to keep their current customers coming back for more. The higher the retention rate, the better—a high retention rate indicates that people are happy with your product or service and are more likely to stay loyal to your company in the long run.
Calculating retention rate is simple—all you need is two sets of data points: one at the start of a period (S) and one at its end (E). To calculate your total retention rate, simply divide S by E (S/E) x 100 = Total Retention Rate%. For example, if you had 10 customers at the beginning of a month (S) and 8 at its end (E), your total retention rate would be 80%.
$$\frac{Customers\:at\:End\:of\:Period-New\:Customers}{Customers\:at\:Start\:of\:Period}$$
Retention rate is an important metric because it allows companies to understand their customer base better by tracking customer satisfaction levels over time. If a company has a low retention rate, it could mean that their offering isn’t meeting the needs of their customers, which could lead to decreased revenue and potential losses for the business. In addition, understanding customer behavior helps companies identify areas where they may need improvement in order to maintain current customer relationships and attract new ones.
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