Customer retention rate tells you how many customers keep using your product or service over a certain time. It helps you understand if people like your business enough to stay.
You may be a business owner with a high-quality product. And, you are heavily focused on getting new customers. Rightly so, but what if those customers leave just as fast? Will it help your business grow in the long run? The answer is a big NO.
Be aware that simply having a great product isn’t always enough to keep customers coming back. For consumer brands, D2C companies and service providers, other factors such as fast customer support, digital experiences and competition all affect retention.
To measure this, you usually calculate customer retention rate. A high retention rate means customers are happy and keep coming back. In contrast, a low rate means your customers are leaving, which can hurt your business growth and profits.
Want to know more? In this article, let’s study what a customer retention rate is and how it is calculated. We will also learn its importance and see how it differs from churn rate. Lastly, we will know what is a good customer retention rate (industry-wise).
What Do You Mean by Customer Retention Rate?
Retention rate is the percentage of customers who continue to use your product or service over a certain period. It shows how well your business keeps customers coming back:
- A high retention rate means most customers stay with your business. This allows you to keep earning a steady revenue.
- A low retention rate means your customers are switching to alternatives. They are not interested in using your products or services anymore. Such a situation reduces your business revenue.
According to a PwC study, 32% of customers will stop doing business with a brand they love after just one bad experience, and nearly 96% switch after repeated poor service.
Retention Rate vs. Churn Rate
Several business owners use the terms customer retention rate and churn rate interchangeably. However, these two terms are complete opposites:
- Retention rate tells you how many customers stay with your business.
- Whereas churn rate tells you how many customers leave your business.
Both these rates maintain an inverse relationship. If your churn rate is high, your customer retention rate will be low, and vice versa.
How to Calculate Customer Retention Rate?
By calculating customer retention rate, you can understand how many customers continue using your business over a period (like a month or a year). To calculate it, follow these simple steps:
Steps to Calculate Retention Rate
- Choose a period. This could be 30 days, 3/6 months, or a year.
- Find the number of customers at the start of the period (CS).
- Find the number of customers at the end of the period (CE).
- Find the number of new customers gained during this period (CA).
- Apply the customer retention rate formula:
Customer Retention Rate = (CE – CA) ÷ CS × 100
Practical Example
Assume that you want to calculate customer retention rate for February 2025. Based on data analysis, you found that your business had:
- 100 customers at the start of the month (CS)
- 150 customers at the end of the month (CE)
- 80 new customers joined during the month (CA)
Now apply the formula:
Customer retention rate = (150 – 80) ÷ 100 × 100 = 70%
So, your customer retention rate is 70%. This means 70% of your original customers stayed with you, while 30% left or churned away.
What is a Good Customer Retention Rate?
Please understand that there is no single value that applies uniformly to every business. Different industries have different customer retention rates. That’s because some businesses find it easy to keep customers, while others struggle due to high competition.
Thus, you should ideally know the average customer retention rate in your industry and then compare it with your business. For consumer brands and D2C companies in the US and UK, retention rates fall between 60–70%, depending on customer experience quality and loyalty strategies.
For your reference, below are five key industries and their average customer retention rates:
- Retail: 63%
Retail businesses have a lower customer retention rate because customers have many options and can easily switch brands. To improve, successful D2C companies often use:- Personalized experiences
- Loyalty programs
- Strong customer service
- Banking: 75%
Banks have a higher retention rate because switching accounts is inconvenient. They often build loyalty through:- Superior banking services
- Personalized financial advice
- Reward programs
- Telecom: 78%
Telecom companies rely on bundled services, loyalty offers, and customer care to retain subscribers. - IT Services: 81%
IT service providers maintain high retention rates because clients depend on them for business continuity. - Insurance: 83%
Insurance customers often stay long-term due to the complexity of switching, though digital-first insurers are disrupting this trend.
Increase Customer Retention, Achieve Business Stability
To achieve long-term business success, you must try to increase your customer retention rates. A high retention rate means your customers are satisfied and loyal. Every industry has different benchmarks, but the goal remains the same — keeping customers coming back.
For CX leaders such as VPs, Senior Managers and Directors at consumer brands, the most effective retention drivers include:
- Rapid and empathetic customer support
- Personalized experiences across digital and human channels
- Rewards, exclusive discounts, and loyalty programs
Studies show that a 5% increase in retention can boost profits by 25–95%.
At Atidiv, we specialize in omnichannel customer experience outsourcing for US, UK and Australian brands. By improving support quality at 60% lower operational costs, we help companies retain more customers and scale profitably. Partner with Atidiv Today!
FAQs On Customer Retention Rate
1. Why do my customers leave even when I offer great products?
Despite having a great product, your customers can leave due to:
- Poor service
- Lack of engagement
- Better offers from competitors.
To increase your customer retention rate, you should try to improve customer experience (CX).
2. How can I increase my customer retention rate without spending too much?
You can focus on cost-effective strategies like:
- Excellent customer service
- E-mail follow-ups
- Running loyalty programs
Also, try to offer personalised deals and proactive support. These measures keep customers satisfied without large marketing expenses.
3. How do I measure customer retention rate?
You can use the customer retention rate formula:
Customer Retention Rate = Customers at the End – New Customers Gained Customers at the Start x 100
By tracking your customer retention rate monthly or yearly, you can easily spot trends and improve retention.
4. What are common mistakes that hurt customer retention?
If your business is facing a low customer retention rate, it could be due to:
- Ignoring customer feedback
- Slow response times
- Lack of personalisation
- Complex purchasing processes
Also, if you don’t adapt to customer needs, you may lose your customers to competitors.