What is customer retention rate?
Customer retention rate is the percentage of customers a business keeps over a given period, counting only the customers it had at the start. It leaves out new customers won during the period, so it shows how well the business holds on to the ones it already has.
How do you calculate retention rate?
To calculate retention rate, take the customers you have at the end of a period, subtract the new customers you won during it, divide by the customers you had at the start, and multiply by 100.
The retention rate formula:
Customer retention rate = (E − N) ÷ S × 100
- S = customers at the start of the period
- E = customers at the end of the period
- N = new customers won during the period
Subtracting N is the step people skip. Without it, a quarter of strong sales hides a quarter of heavy losses.
One edge case: a customer who joins and leaves within the same period counts in N but not in E, which pulls the rate slightly down. For an exact figure, track the starting customers directly.
Worked example. You start the year with 400 customers. During the year you win 60 new ones and finish with 420.
- Remove the new customers: 420 minus 60 leaves 360. These are the starting customers still with you.
- Divide by the starting count: 360 ÷ 400 = 0.9.
- Multiply by 100: your customer retention rate for the year is 90%.
The other 40 starting customers left, so churn rate for the same period is 10%. For the same group and period, retention rate and churn rate always add up to 100%.
What mistakes should you avoid when calculating retention rate?
- Keep the period consistent. Compare monthly with monthly and annual with annual. An annual rate is not twelve monthly rates added together, because losses compound.
- Decide how to count downgrades. In customer retention, a customer who downgrades still counts as retained. Gross revenue retention captures the downgrade; net revenue retention also adds expansion.
- Calculate it by cohort and segment. One company-wide number blends small and large customers and old and new ones. The trend inside each group tells you more.
What is a good customer retention rate?
There's no figure that fits every business. Retention runs higher with annual or multi-year contracts, larger customers, deep integrations and products used every day. It runs lower with monthly plans, small businesses and products used occasionally.
Before comparing yourself with a published benchmark, check that it matches your segment, contract length and pricing model. The comparison that helps most is your own: retention by sign-up cohort, by plan and by customer size over time. Each new cohort should hold on better than the one before.
What lifts customer retention rate?
Customers stay when they keep getting the result they bought the product for. The levers follow from that:
- Get to the first result early. A customer who stalls in setup has little reason to renew.
- Spread use across the account. More teams and workflows depending on the product make it harder to drop.
- Catch decline early. Falling use of the core action and a quiet admin show up months before a renewal decision.
The first lever carries the most weight: in the first weeks, a new customer either reaches the result or stalls in setup. An in-product agent can do the stalled step with them when they ask. Foldspace's Product Agent does this in the product itself, which helps teams accelerate time to value, and the included product analytics (funnels, retention and session replay) can compare retention across segments, so a team can see whether the customers who worked with the agent keep coming back.