What is Customer Retention Rate? Meaning, Formula & Metrics

If you want your business to grow steadily, gaining new customers isn’t enough—you also need to keep the ones you already have. This is where customer retention rate comes in.

Simply put, customer retention rate tells you how well your business keeps customers coming back over a certain time period. It’s one of the most important customer retention metrics, helping you understand if your customers are satisfied and loyal.

Many companies work with a customer experience agency to improve their retention numbers by making sure customers have a smooth and positive journey.

In this guide, we’ll explain:

• What customer retention rate means
• Why it’s important
• How to measure customer retention
• The exact formula for customer retention rate calculation
• Key customer retention metrics to track

Let’s dive in.

What Does Customer Retention Rate Mean?

Customer retention rate (CRR) is the percentage of customers a business keeps over a specific period of time, compared to how many it had at the start.

In simple words: It shows how good you are at keeping customers loyal.

For example:

• If you started the month with 100 customers and ended with 90, your retention rate is 90%.
• This means you successfully kept 90% of your customer base.

Why Customer Retention Rate Matters

Your customer retention rate says a lot about your business health. Here’s why it’s crucial:

1. Lower cost than acquisition

It’s 5–7 times cheaper to keep an existing customer than to acquire a new one.

2. Higher lifetime value

Loyal customers spend more over time and often buy repeatedly.

3. Strong word of mouth

Happy, retained customers are more likely to recommend your brand.

4. Business stability

A high retention rate means reliable revenue and less dependence on constant new customer acquisition.

In short: Retention drives profits, growth, and long-term brand loyalty.

Customer Retention Rate Formula

Now let’s talk about customer retention rate calculation.

The formula is:

CRR = [(E – N) ÷ S] × 100

Where:

• E = Number of customers at the end of the period
• N = New customers acquired during the period
• S = Customers at the start of the period

Example:

• Start of month (S): 200 customers
• End of month (E): 220 customers
• New customers acquired (N): 50

CRR = [(220 – 50) ÷ 200] × 100
CRR = (170 ÷ 200) × 100 = 85%

That means your customer retention rate is 85%.

How to Measure Customer Retention

When it comes to measuring customer retention, there are several methods you can use. The most common way is the formula above, but there are also supporting metrics.

Steps for measuring customer retention:

1. Define the time period (month, quarter, or year).
2. Count the number of customers you had at the start.
3. Track how many new customers you gained during that time.
4. Count how many total customers you have at the end.
5. Apply the retention rate formula.

This gives you a clear picture of how many customers stayed with your business.

Customer Retention Metrics You Should Track

Apart from the retention rate itself, businesses also track related customer retention metrics to understand loyalty better.

1. Repeat Purchase Rate (RPR)

Percentage of customers who buy more than once.

Formula: (Number of repeat customers ÷ Total customers) × 100

2. Churn Rate

The opposite of retention—percentage of customers lost over a period.

Formula: (Lost customers ÷ Total customers at start) × 100

3. Customer Lifetime Value (CLV)

The total revenue a customer brings during their relationship with your business.

4. Net Promoter Score (NPS)

Measures customer loyalty and satisfaction by asking: How likely are you to recommend us to a friend?

5. Average Order Value (AOV)

Shows how much customers typically spend per purchase.

Tracking these alongside retention rate gives you a complete view of customer loyalty and satisfaction.

How to Improve Customer Retention Rate

Knowing how to calculate is just the start—the real goal is improving your customer retention rate.

Here are proven strategies:

1. Deliver a Great Customer Experience

• Make it easy to buy, use, and get support.
• Be consistent across all touchpoints.

2. Personalize Interactions

• Send personalized emails and offers.
• Recommend products based on purchase history.

3. Build Trust with Transparency

• Be clear about pricing and policies.
• Admit mistakes and fix them quickly.

4. Offer Loyalty Programs

• Reward customers with discounts, points, or exclusive offers.
• Encourage repeat purchases with incentives.

5. Stay Engaged

• Use newsletters, social media, and updates to stay connected.
• Proactively reach out to check customer satisfaction.

Real-World Example of Customer Retention Rate

Let’s say you run a subscription-based fitness app.

• Start of quarter: 1,000 subscribers
• End of quarter: 1,200 subscribers
• New sign-ups: 400

Retention rate = [(1,200 – 400) ÷ 1,000] × 100
= (800 ÷ 1,000) × 100
= 80% retention rate

This means you successfully kept 80% of your original customers while also growing your base.

Common Mistakes in Measuring Customer Retention

Even though the formula is simple, businesses often make mistakes when measuring customer retention:

• Not excluding new customers in the formula.
• Measuring too short or too long a time period.
• Ignoring related metrics like churn and CLV.
• Treating all customers the same (instead of segmenting).

Avoiding these mistakes will give you a more accurate picture of loyalty.

Final Thoughts

The customer retention rate is one of the most powerful indicators of business success. It not only shows how satisfied your customers are but also predicts long-term growth.

• Use the formula to track retention regularly.
• Combine it with other customer retention metrics for deeper insights.
• Focus on strategies that improve the overall customer journey.

At the end of the day, keeping your customers happy is the smartest way to build a sustainable and profitable business.