FREE Customer Retention Calculator

What is the Customer Retention Rate?

The customer retention rate defines as the percentage of the customer in a company that remains consistent over a specific time frame.

CRR helps you understand the factors that keep the consistency of the consumers with your company and what steps you should take to improve your overall customer service.

How to Measure Customer Retention Rate?

• The first step to calculating the retention rate is to set a particular time frame you want to measure.
• The next step is obtaining the number of customers at the start of that specific time frame (S).
• Collect the number of the total customer at the end of that specific time frame (E).
• Now determine the number of new customers you gained over that measuring period (N).
• Once you collect all the data, put the values in the retention rate formula and get the result.

Customer Retention Rate Formula

The customer retention rate (CRR) formula is = [( E-N) / S] * 100

• S = The number of customers a company had at the start.
• E = The number of customers at the end.
• N = The number of customers acquired over a defined period.

What is a good customer retention rate?

Well, you will not get any clear answer to this question. Monthly subscription-based SaaS companies have different retention rates than accounting companies, which rely on one month of the year for 90% of their sales.

If you are in an accounting firm and in a good position, you can expect a good retention rate, while the rate will differ in the case of retail stores, where the possibility of getting repeat customers is pretty low. In short, the CRR tends to vary among industries. The customer retention rate for professional service and media is around 84%, retail 63%, telecom 78%, and the IT sector 81%.

Although you must know these are just general averages and may change when you dig into subsections of the respective sectors.

It might be tempting to compare your CRR with the industry’s, but don’t put too much emphasis on it. Just try to put your attention on enhancing the baseline number.

How to Calculate Dollar Retention Rate

We need to calculate the CRR to determine customer retention of a company. While analyzing the economy is equally essential for the overall growth of a business. With the help of the dollar retention rate, you can easily calculate whether the existing customers are beneficial for the economy or not and whether they are spending enough money on products.

The purpose is to retain all the customers while increasing their lifetime value. But it’s pretty natural to lose customers instead of having a good retention percentage and healthy competition on the market.

The dollar retention rate = Amount of the revenue at the start of the period + upgrades – downgrades – churn / amount of the revenue at the start of the period

Dollar Retention Rate Example

Let’s take an example of a food delivery app that offers discounts on food delivery every Saturday. But it results in a loss when the company offers discounts. This deal stretches over three months in the first quarter of the year. The customer retention rate for Q1 is 55% which is pretty good, but the operational rate for the first three months is not good.

The company decided to try surge pricing and stopped the first offer every Saturday. When they calculated the CRR for the second quarter, the rate decreased to 25%. Now they measure the dollar retention rate.

It’s clear that a healthier business model resulted in substantially higher profitability instead of a low retention rate. But the result can be against the company as well.

Customer retention could be higher, but dollar retention could be lower if surge pricing caused more purchases on other days of the week. That is why it is crucial to measure the dollar retention rate.