What is the retention rate?
The retention rate is a metric that measures the percentage of customers, employees, or members that remain with a company, organization, or program over a given period. It is often used to measure customer and employee loyalty to a program or organization.
The retention rate also refers to the percentage of customers who continue to do business with a company after making an initial purchase. It’s a key metric for businesses as it allows them to gauge how well they’re retaining customers and whether or not they’re providing a good enough experience to keep them coming back. There are a number of factors that affect retention rates, such as the quality of a product or service, customer service, and the overall user experience.
What is a good retention rate?
A good retention rate dependes on the industry and the type of organization. As a rule of thumb, a retention rate in the range of 70% to 85% is optimal.
The average retention rate for SaaS companies is around 80%, but this varies depending on the industry and the specific company. A company with a retention rate of 90% or higher is exceptional.
How to calculate retention rate
“Retention rate can be calculated by taking the number of customers, employees, or members that remain with a company over a period of time and dividing it by the number of customers, employees, or members at the beginning of that period. The result is then multiplied by 100 to get the retention rate as a percentage.
For example, if a company has 100 customers at the start of the year and 90 by the end of the year, the retention rate would be calculated as follows:
Retention rate = (90/100) * 100 = 90%”
Churn rate vs. retention rate
The retention rate is the percentage of customers or subscribers that remain with a company over a given period. It is the inverse of the churn rate, which is the percentage of customers that leave or cancel.
The churn rate is the percentage of customers who stop using a product or service over a given period. The retention rate is the percentage of customers who continue using a product or service over a given period.
There is a direct relationship between the churn rate and the retention rate: as the churn rate increases, the retention rate decreases. This relationship exists because the pool of customers who are using the product or service shrinks as more customers churn.
Churn rates vary widely across industries, but they are typically in the range of 5-15%. Retention rates are usually much higher, often in the range of 70-90%.
In general, the higher the churn rate, the lower the retention rate.
Churn rate and retention rate are two important metrics for any business, but they can be difficult to compare directly. The churn rate measures the percentage of customers or subscribers who cancel their service within a given period, while the retention rate measures the percentage of customers or subscribers who remain with the service.
Generally speaking, a higher retention rate is better than a lower one, and a lower churn rate is better than a higher one. However, there are a few important caveats to keep in mind when comparing these two metrics.
First, the retention rate only measures customers or subscribers who are active at the end of a period, while the churn rate includes both — those who cancel and those who simply stop using the service. In other words, the retention rate will always be lower than the churn rate.
Second, the retention rate is a lagging indicator, while the churn rate is a leading indicator. This means that changes in the retention rate will lag behind changes in the churn rate.
Third, the retention rate is a static metric, while the churn rate is a dynamic metric. This means that the retention rate can be difficult to change in the short term while the churn rate fluctuates more rapidly.
Fourth, the retention rate only measures customers or subscribers who are active, while the churn rate includes both those who cancel and those who simply stop using the service. This means that the retention rate will always be lower than the churn rate.
Finally, it’s important to keep in mind that both the churn rate and the retention rate can be affected by a number of factors, including pricing, customer service, and the overall quality of a product or service.
What is the opposite of retention rate?
The churn rate measures how many customers or subscribers stop doing business with a company over a given period. It is usually expressed as a percentage of total customers or subscribers at the beginning of the period. It is used to measure customer satisfaction, loyalty, and attrition. It is also known as customer churn.