Kozminski Techblog

In this article I will explain you how retention rate works. Retention rate reflects the numerical estimate of the level of customer retention. It is relevant for every business, not only for e-commerce. It plays a special role when an e-commerce shop has repeat sales or works as a subscription model.

The level of customer retention shows how satisfied customers are and how business is developing. If you manage to keep more customers, it will lead to the rapid growth of the business.

How to calculate the Retention Rate?

The retention rate (RR)  is calculated using the following formula:

RR = ((CE-CN) / CS)) x 100, where:

CE = the number of customers in the end of period;

CN = the number of new customers for a period;

CS = the number of customers at the beginning of a period;

For example, you start the month with 100 clients, and by the end of the month you have 105 clients (15 canceled their contracts and you’ve got 20 new clients).

Using the formula above, we get: ((105-20) / 100)) x 100 = 85%

That means that 85% of the customers continue to use your services.

Why RR is so important?

• Every lost customer constitutes costs to the company;
• Loyal customers generate 10 times the value of their initial purchase (money is here);
• To acquire a new customer is 5-7 times harder and more expensive to maintain than the old one.

Retention rate – is an accurate indicator that shows how loyal and satisfied your clients are.