Calculate Customer Retention Rate and Revenue Retention [Calculator]

A free customer retention rate calculator to understand the health of your business. Learn how calculating dollar retention rate can change the trajectory of your subscription business.

Calculate Customer Retention Rate and Revenue Retention [Calculator]

Customer retention rate calculator

The worse your customer retention rate is, the more new revenue you need to acquire over time to continue to grow. And customer acquisition costs only go up, so you'd have to find new ways to extend the lifetime value over time.

Input the numbers in the calculator below and we'll automatically calculate your retention rate.

We've also created a free ChatGPT custom GPT to help calculate your retention rate and growth ceiling. It requires a ChatGPT plus subscription.

Churnkey is everything your customer-obsessed team needs to improve retention, automatically.

What if improving retention was handled for you? With the right churn management software, you’d boost your company’s profitability, keep customers around longer, and demystify the reasons why people leave your product. So if you want to run a healthier subscription business, let’s begin. We're already protecting over two billion dollars in ARR.

Your MRR on Churnkey

How to calculate customer retention rate

The customer retention rate formula is designed to measure the percentage of customers a company retains over a specific period, excluding any new customers acquired during that period. The formula to calculate the retention rate looks like this:

Customer Retention Rate = (Total Customers at the End of Period - New Customers Acquired During Period) / Total Customers at Start of Period*100

Rough next steps:

  • Start by looking at a high level analysis to understand whether your revenue retention is healthy or unhealthy (our calculator helps with this).
  • Then analyze individual cohorts to ask how customer and revenue retention has been trending over time.
  • And then look at segments (eg, free trial vs mid-tier plan) asking if different segments are performing better or worse than others.

Customer retention rate definition

The customer retention rate is a measure of how many customers or users your business keeps over a certain period of time, without counting any new customers gained during that period. It's like keeping track of how many friends you stay in touch with over the summer, not including new friends you make.

  • Shows customer satisfaction: A high retention rate usually means customers are happy with your product.
  • Cost-effective: It's generally cheaper to keep existing customers than to find new ones.
  • Predictable revenue: Businesses with high retention rates have more predictable income.
  • Feedback loop: Loyal customers can provide valuable feedback to help improve your product or service.
  • Word-of-mouth marketing: Happy, loyal customers are more likely to recommend your business to others.
Why do you not include new users acquired in the calculation?

The retention rate doesn't include new users acquired during a period because its purpose is to measure how well a business or product keeps its existing customers over time, not how many new customers it can attract.

Including new users would skew this measurement, making it difficult to understand the true loyalty and satisfaction of the existing customer base.

Think of it like a class where the teacher wants to know how many students continue to attend from the beginning of the year to the end.

If new students join the class mid-year, counting them in would not accurately reflect how many original students stayed throughout the entire year. The focus is on understanding the stickiness for those who have already experienced it, rather than the appeal it has to new users.

What customer retention rate doesn't include

  • Specific customer identities: The formula does not differentiate between which specific customers were retained or lost; it only deals with overall numbers.
  • Reasons for customer churn or retention: It doesn't provide insights into why customers were retained or why they left, which would require further qualitative analysis.
  • Segmentation of customers: The basic formula treats all customers as a single group, without accounting for different segments that might have varying retention rates.
  • Revenue metrics: It focuses purely on the count of customers, not the revenue they generate. Some businesses may have a high retention rate but might be retaining lower-value customers. In that case, you'd want to use the net dollar retention rate.

How to measure retention rate [advanced mode]

This formula above is simplistic in nature. The advanced mode of calculating retention rate involves segmenting customers into cohorts based on their start date or other relevant characteristics and tracking these groups over time. This method provides a more nuanced understanding of retention by accounting for variations in customer behavior that may be influenced by factors such as product changes, marketing efforts, or seasonal trends. Here's how it's done:

Step 1: Define cohorts

Cohorts are groups of users who share a common characteristic, typically the time they first made a purchase or signed up. For example, you might have a January cohort, a February cohort, etc.

Step 2: Track over time

For each cohort, track the number of customers who remain active or continue to make purchases over subsequent periods (e.g., months, quarters).

Step 3: Calculate retention rates for each cohort

Calculate the retention rate for each cohort at each time interval. This involves dividing the number of customers still engaged at the end of the period by the original number of customers in the cohort.

Step 4: Analyze patterns

Look for patterns in the data. For example, you might find that cohorts exposed to a new onboarding process have higher retention rates than those who were not.

Step 5: Compare across cohorts

Compare retention rates across different cohorts to identify trends, such as improvements in retention over time or the impact of specific changes or initiatives.

Advanced insights:

  • Cohort analysis allows you to see how retention rates change over time for different groups of customers, providing insights into the long-term value of customers acquired during specific periods.
  • LTV (Lifetime Value) calculation: By understanding the retention rates of different cohorts, you can better predict the lifetime value of customers, which helps in making informed decisions about customer acquisition costs and profitability.

This advanced approach to calculating retention rates offers deeper insights into customer behavior, enabling businesses to tailor strategies to improve retention and overall customer value more effectively.

Calculate and manage your retention rate with Churnkey

Churnkey can help improve your retention rate out of the box. You'll keep more customers with personalized cancel flows, recover more failed payments, and you'll expand customer-driven product development.

Chunrkey products:

  1. Cancel Flows: Every cancellation attempt is an opportunity to craft a better relationship with your customer. When you do that, you'll build a bigger subscription business
  2. Reactivation & Winback Campaigns: Every one of your customers left for a reason. Use those reasons as the foundation of your Reactivation campaigns to address why they left and how you resolved their objections. Then sit back and watch your MRR grow.
  3. Customer Timelines: Understand how individual customers respond to invoices, cancel flows, and payment recovery efforts with Customer Timelines. It's the essential link between your billing, feedback, and dunning systems.
  4. Customer Health: Be more strategic with your team's time: know when to engage your best customers, predict at-risk revenue, and track trends in feedback. Done for you automatically.
  5. Customer Insights AI: Get endless product ideas without having to hire a team of data scientists. Make our Insights AI and years of customer data analysis work for your team, saving you time and informing your product decisions.

Churnkey integrates with Stripe, Chargebee, Paddle and lots of other payment providers. Check if we integrate with yours, explore our product, and book a demo if you'd like to improve your retention rate.

Integrations | Churnkey
We play nice with your retention ecosystem: Stripe, Chargebee, Paddle, and more.

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