Renewal Rate vs Retention Rate: The Differences

The difference between renewal rate and retention rate lies in their focus and application:

Renewal Rate

• This metric specifically applies to subscription-based models.
• It measures the percentage of customers who renew their subscriptions at the end of a billing cycle.
• Renewal rates focus on the ability to retain paying customers over time. It would include zombie/at-risk customers – those that pay but don't use.
• Formula for Renewal Rate = Total Number of Eligible Customers / Number of Customers Renewing​ × 100%

Retention Rate

• Retention rate is a broader metric that measures the percentage of users who continue to use a product or service over a given period.
• It can span any defined period (monthly, annually)
• It applies to both subscription and non-subscription models and reflects the overall ability to keep users engaged and active.
• Retention rates include free users too.
• Formula for Retention Rate = Number of Customers at End of Period / Number of Customers at Beginning of Period × 100%

Consider An Example

Imagine a SaaS company with 1,000 customers up for renewal at the end of the billing cycle, including 100 zombie users. Out of these, 800 customers renew their subscriptions.

Renewal Rate = (800 / 1,000) × 100% = 80%

If the same SaaS company has 9,000 free users, of which 3,000 are active, and excludes the 100 zombie users from the 800 renewing, the Retention Rate would focus only on active users. Assuming the company starts with 10,000 users (1,000 paying + 9,000 free) and ends with 3,700 active users (700 active paying + 3,000 free):

Retention Rate = (3,700 / 10,000) × 100% = 37%

How Churnkey Can Help?

Churnkey is retention automation for self-serve subscription companies. Fix failed payments. Reduce cancellations. Increase ARR.

Or, get started with free churn metrics. Simply connect your billing provider to see metrics you've never seen before.

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