Customer Retention Rate | Meaning and Definition

Customer Retention Rate

One of the key objectives of an organisation, and the marketing department of a company, is retention. The ability to attract new customers and retain them for an extended period is extremely vital. In this process, the marketing department, whose job is to create sales, leads, and potential customers, is important. Customer retention rate, simply, is the percentage of customers a business retains over a specific time period. Customer retention rate is a KPI (key performance indicator) that is measured in a percentage over a monthly, quarterly, or annual basis. This metric provides insights into a company’s ability to retain its existing customer base and sustain ongoing relationships. 

Why Is a High Retention Rate Good?

A high retention rate means more leads and potential customers are retained. This means retaining customers so that they can continue their relationship with the company. With a high retention rate, also comes multiple factors, which can affect the amount of leads created as a result. Before understanding the advantages of a high retention rate, it is important to understand how an organization would measure their retention rate.

                     Number of Customers at End of Period – (New Customers Acquired During Period/ Number of Customers at Start of Period)*100

The formula to measure the retention rate is above. The formula itself aims to calculate the period and the amount of retained relationships during that period. Whether the period is one month, four, or twelve, the effect of the retention rate % only increases with higher intervals. Optimal retention rates are around 75-85%, and ideal and goal retention rates should be 90% and above. To achieve these retention rates, companies use strategies in order to ensure continuous interaction between the company and the lead. 

How to increase Retention Rate?

To increase retention rate various strategies can be used such as:

  • The first strategy is probably one of the most common. Companies often use newsletters, and emails to continue conversations with their leads. The use of these newsletters and reminders to show prospects about their work allows a high retention rate. Emails are also sent, with reminders, notifications, and other bits of information to deliver to their potential customers. Doing anything repetitively can help retain customers, but also lose them, because the prospects might get irritated and end their relationship with the company.
  • Loyalty programs are also extremely popular in order to improve retention rates. An employee who stays with the company, gets points, products, and other incentives, in order to stay with them longer. It encourages repeat business and strengthens the bond with the brand.
  • The clever use of customer service can also allow companies to retain prospects for longer. The ability to anticipate customer needs, and provide proactive support allows customers to know they are wanted. Giving customers the help they need further allows them to understand that they are valued customers. Businesses that excel in customer service create an environment where customers feel heard, valued, and respected.
  • Finally, another common way to retain customers is through community building. By establishing online forums or communities, businesses create spaces for customers to connect, share experiences, and support each other. Companies that facilitate community building foster a sense of belonging among customers. Additionally, these communities offer businesses insights into customer preferences, behaviors, and trends, informing strategic decisions and further enhancing customer satisfaction.


The core aspect of customer retention is not providing endless incentives to a customer or prospect. On the other hand, customer retention is a system, in which healthy communication is fostered. This communication builds trust and a relationship between the customer and the organization. The company has an idea of what its customer base might want, and the customer is provided with incentives.

FAQs (Frequently Asked Questions)

Customer retention rate is the percentage of customers a business retains over a specific time period

You can measure customer retention rate using the following formula:

Number of Customers at End of Period – (New Customers Acquired During Period/ Number of Customers at Start of Period)*100

Businesses can use newsletters, emails, loyalty programs, good customer service, and community building to increase their customer retention rate.