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E-commerce Retention Rate
growthThe percentage of customers who continue using a product or service over a given time period. It is the complement of churn rate.
Definition
Retention rate measures the stickiness of your product. A 95% monthly retention rate means 95 out of every 100 customers stay each month. This seemingly strong number still results in losing 46% of customers over a year. Retention rate is the single best indicator of product-market fit, because customers who stay are customers who are getting value.
The economics of retention are compelling. Acquiring a new customer typically costs 5-7 times more than retaining an existing one. Retained customers also tend to spend more over time, refer other customers, and require less support. A 5% increase in retention rate can increase profits by 25-95%, according to research by Bain & Company, because long-term customers are simply more valuable per unit of cost.
Retention is best measured cohort by cohort, not as a single blended number. If your January cohort retains at 80% after 12 months but your July cohort retains at 60%, the blended number hides a deteriorating product or market problem. Cohort analysis reveals trends that aggregated retention rates obscure, enabling earlier intervention.
Formula
Retention Rate = ((Customers at End of Period - New Customers) / Customers at Start of Period) x 100 Example
A subscription box starts the quarter with 5,000 customers, adds 800 new customers, and ends with 5,200. Retained customers = 5,200 - 800 = 4,400. Retention rate = (4,400 / 5,000) x 100 = 88%.
Related Terms
Churn Rate
growthThe percentage of customers who cancel or stop using a product or service during a given time period. It is the inverse of retention rate.
Customer Lifetime Value (LTV)
growthThe total revenue a business can reasonably expect from a single customer account throughout the entire duration of their relationship.
Net Revenue Retention (NRR)
growthThe percentage of recurring revenue retained from existing customers over a period, including expansion revenue (upgrades, cross-sells) and subtracting contraction and churn.
Expansion Revenue
growthAdditional revenue generated from existing customers through upsells, cross-sells, add-ons, or increased usage beyond their original purchase.
Put It Into Practice
Use these calculators to apply retention rate to your own numbers.
Churn Rate Calculator
Calculate customer and revenue churn rates with annualized projections.
Open calculator →Retention Cost Calculator
Compare the cost of retaining customers vs acquiring new ones to optimize your budget.
Open calculator →CAC vs LTV Calculator
Calculate your customer acquisition cost vs lifetime value ratio.
Open calculator →