Product management glosary

Customer retention rate

Product Management Glossary: Customer Retention Rate

What is Customer Retention Rate?

Customer retention rate is a key performance indicator (KPI) that measures the percentage of customers a business is able to retain over a specific period of time. It is an essential metric for evaluating the effectiveness of customer relationship management strategies, as well as the overall health and sustainability of a business. A high customer retention rate indicates that a company is successful in keeping its customers satisfied and loyal, while a low rate suggests that there may be issues with the product, service, or customer experience that need to be addressed.

Why is Customer Retention Rate Important?

Customer retention rate is important for several reasons:

  • Cost-effectiveness: Acquiring new customers is often more expensive than retaining existing ones. By focusing on customer retention, businesses can reduce marketing and sales costs while maintaining a stable customer base.
  • Customer lifetime value: Retaining customers for a longer period of time increases their lifetime value, which is the total revenue a business can expect from a single customer over the course of their relationship. This, in turn, contributes to the overall profitability of the company.
  • Word-of-mouth marketing: Satisfied and loyal customers are more likely to recommend a business to their friends and family, which can lead to new customers and increased revenue.
  • Competitive advantage: A high customer retention rate can give a business a competitive edge, as it demonstrates the company's ability to consistently meet or exceed customer expectations.

How to Calculate Customer Retention Rate

Customer retention rate can be calculated using the following formula:

Customer Retention Rate = ((E - N) / S) x 100


  • E is the number of customers at the end of the period
  • N is the number of new customers acquired during the period
  • S is the number of customers at the start of the period

For example, if a business starts the month with 100 customers, acquires 20 new customers, and ends the month with 110 customers, the customer retention rate would be:

((110 - 20) / 100) x 100 = 90%

Strategies for Improving Customer Retention Rate

There are several strategies businesses can implement to improve their customer retention rate:

  • Improve customer service: Providing exceptional customer service can help resolve issues and keep customers satisfied. This includes being responsive to customer inquiries, offering personalized assistance, and proactively addressing potential problems.
  • Offer loyalty programs: Rewarding customers for their continued business can encourage them to remain loyal. Loyalty programs can include discounts, exclusive offers, or points-based systems that can be redeemed for products or services.
  • Regularly solicit feedback: Asking customers for their feedback can help identify areas for improvement and demonstrate that their opinions are valued. This can be done through surveys, reviews, or direct communication.
  • Continuously improve products and services: Regularly updating and enhancing products or services can help maintain customer interest and satisfaction. This includes addressing customer pain points, adding new features, and staying up-to-date with industry trends.

In conclusion, customer retention rate is a crucial metric for businesses to monitor and optimize. By focusing on strategies to improve customer satisfaction and loyalty, companies can increase their customer retention rate, leading to long-term success and profitability.