The retention rate describes the proportion of customers or users who continue to use a product or service over a specific period of time.
It is a key indicator of customer retention and shows how successful a company is at retaining existing customers in the long term.
The basic calculation is as follows:
Retention rate = ((Customers at the end of the period – new customers) ÷ Customers at the start of the period) × 100
One example:
A start-up begins the month with 1,000 customers. Over the course of the month, it gains 200 new customers. By the end of the month, there are a total of 1,050 active customers.
(1,050 – 200) ÷ 1,000 × 100 = 85 per cent retention rate
This means that 85 per cent of the original customers have remained.
A high retention rate may indicate that:
- the product offers long-term benefits
- Customers are satisfied with the service
- It offers excellent value for money
- the onboarding process works well
- the product is needed on a regular basis
- customer service is reliable
A low retention rate can be caused by a number of factors:
- unclear expectations regarding the product
- no added value, or only short-term added value
- technical problems
- complicated operation
- poor customer service
- inappropriate pricing
- more competitive offers from competitors
The retention rate is particularly relevant for subscription models, Software-as-a-Service offerings, platforms and digital products. It is closely linked to the Churn rate, which describes the proportion of customers who no longer use the product or who cancel their subscription.
| Retention rate | Churn rate |
| Proportion of customers retained | Proportion of customers lost |
| As high as possible | As low as possible |
| Demonstrates customer loyalty | Shows customer churn |
Start-ups can improve their retention rate by:
- simplify the onboarding process
- Regularly analyse customer feedback
- communicate the benefits of the product more clearly
- resolve technical issues quickly
- Personalise content and features
- Actively supporting customers
- Analysing reasons for resignation
The retention rate should always be analysed over a clearly defined period and for comparable customer groups. Depending on the business model, a good retention rate can vary considerably.
innoWerft helps start-up founders to interpret relevant key performance indicators relating to customer retention, analyse the causes of customer churn, and align their business models and products with long-term usage and sustainable growth.