Retention rate: Definition, strategies, and methods

Improving retention rate means more happy & satisfied customers and higher revenue. The retention rate is an important metric that is used to determine the success of a business. It is basically the calculation of the percentage of customers who continue to purchase your product or service for a certain period of time. A higher retention rate means the customers are satisfied with your products or service. A low retention rate means that the customers don’t find your product or service worth investing in again. 

Acquiring new customers requires more investment, time, and effort. Not every customer you acquire will stay with your brand for the long term. You need to implement strategies and tactics to ensure customer satisfaction and retention. By calculating the customer retention rate, you can take a step toward reducing the customer churn of your business.

Here, in this blog, we will discuss about the user retention rate and how you can improve it. 

Main notes

  • Retention rate is a metric that is used to evaluate how many users or customers keep using your product or service after a given period of time.
  • Calculating retention rates is based on the number of users or time.
  • To enhance the retention rate, companies should pay attention to customer feedback and UX improvements.

What is a retention rate? 

A retention rate is used to determine the profits and predict growth. If your retention rate is greater than the acquisition rate, then that means your business is gaining customers with time. However, if the retention rate is lower than the acquisition rate, then it indicates that your business is losing customers. 

The retention rate also lets you know how many of your customers are satisfied with your products or service. It can help businesses to know a lot of factors, such as:

  • How good customer experience are they providing?
  • What values of their product are being liked by the customers?
  • If their business has a sustainable customer base?
  • How many customers are preferring to stay with them in the long term?

Some of the companies do the opposite of the retention rate. They calculate the attrition rate. For example, if the customer retention rate of a business for 30 days is 80%, then the attrition rate would be 10%. Businesses should aim to keep high retention rates and low attrition rates. 

Why maintaining a good retention rate is important for businesses? 


According to statistics, acquiring new customers cost five times more than retaining existing ones. Most companies calculate the retention rate to see if they are making enough money and to stay motivated. Every business with a high retention rate that works to improve the retention rate increases its profits. Just a 5% rise in customer retention can boost profits by more than 25%. 

The retention rate of a business is affected in a short period of time. For example, on an average, a mobile app loses 90% of its users within a month of their download. Therefore, it’s vital that businesses work consistently to enhance their customer experience. The first step to increasing retention is by establishing and maintaining the baseline retention rate.

Methods of calculating the retention rate

Here, we will tell you the aspects of your product that determine if your customer has retained or not.

Product’s critical event:

In this, from the user’s action, you can determine if they have retained or not. This is an event that indicates value for both customers and the business. It is specifically associated with a customer’s action that brings revenue to the business. It also demonstrates that the customer is getting what they expected from your products or service. For example, for Netflix, it would be when a user signs up or renew a subscription. 

Product’s usage interval:

This is a time period in which you expect the user to take a critical event action. Choose a time period in which your product has demonstrated its usability. For example, if a Netflix user renews their subscription after a month, it means they have retained. A candy crush player has retained if they play the game every day. 

Want to improve retention rate?

Understanding and Improving Retention Rate: Key Metrics and Strategies.

Retention rate formula 

The retention rate formula takes into consideration the users that are present on the first day and the period thereafter. There are various ways of calculating the retention rate based on the ‘active users’ and the defined period of time. You can calculate the retention rate according to both formulas. However, choose the retention rate formula that is suitable for your business. 

Calculating retention rate based on the users 


  • Customer retention rate determines the percentage of paying customers or users retained. This is the segment that focuses on the consumers that pay for your product. The retention rate directly impacts the business revenue.
  • User retention rate focuses on the entire user base, let them be the free or paid users. By focusing on this retention rate, you can determine if your users are happy & satisfied with your products or services. However, this necessarily might not help you to earn profits. This is the right retention rate measure if your business depends on advertising and not on a subscription model.
  • A cohort’s retention rate is calculated by taking a user segment or group with the same characteristic. This helps you to focus on specific user segments or groups and know what makes them happy. This method can help you to make significant changes and satisfy specific user segments or groups.

A cohort’s retention rate is calculated by taking a user segment or group with the same characteristic. This helps you to focus on specific user segments or groups and know what makes them happy. This method can help you to make significant changes and satisfy specific user segments or groups.

Calculating retention rate based on time

  • N-day retention rate measures how many days a user has stayed with your business after they have signed up or subscribed, such as two days or 30 days. You can calculate each day based on strict calendar rates or rolling 24 hours windows. This rate is important if you want your users to use your product daily. For example, a mobile game.
  • Unbounded retention rate measures how many people came back on a given day or any day afterward. Calculating this retention rate is the right choice for you if you don’t expect your users to use your product every day. This number is the inverse of the churn rate of your business.
  • Bracketed retention rate determines retention within custom periods specific to your product’s usage cadence, such as Day 1, Day 5, Day 7, Day 15, and Day 30.

Different retention rates can be used at different times based on the parameters you are considering. However, make sure when you are comparing retention rates, they should be the ones that are calculated in the same way.  

Strategies to improve your retention rate

If your retention rate is less compared to what you expect it to be, then it’s an alarming situation. You don’t want your business to shut down just because of going into debt. Here, we will give you some of the best retention rate strategies that you can utilize for your business. 

1. ‘Canceled’ and ‘churned’ customers are different

‘Canceled’ and ‘churned’ customers are different. Churned customers are those who have stopped using your service and quit it completely. These are the customers who are gone. However, a ‘canceled’ customer is one who has notified a company of their intent of not continuing, like not renewing the subscription. They might churn shortly but haven’t completely given up on your service. 

Most of the companies give up on the canceled customers. But there is a fair chance that they might retain with your business. According to a report,32% of customers leave a brand just because of one bad experience. Nonetheless, if you identify and correct those errors of the particular customers, then there’s a good chance that they become happy with your brand and continue. 

Customers might cancel because of many reasons. Therefore, it’s important that you contact and ask them the reason for canceling your service. By offering good customer support and assistance, you can retain your customers and thus revenue source. 

2. Take customer feedback


According to a survey, only 1 out of 26 customers who have a bad experience reach out to the company. The other 25 customers never reach out to the company and stay unhappy. They often even end up terminating the services without even reporting the issue. 

Consequently, companies should take customer feedback so as resolve issues that users might be facing silently. By eliminating the error areas of your user journey, you can enhance your customer experience. For instance, your users say that they get confused by the website. Then, you can renew the website design and conduct an A/B test to determine which works best for you. 

The changes that you make will have an impact on how users see your brand and their experience. However, the customer feedback process is a continuous one. It can help you increase customer satisfaction. There are various ways through which you can gather customer feedback, such as surveys, customer interviews, and usability testing. 

WebMaxy Analyzer can help you conduct customer surveys & polls within a few mins. It comes with ready-to-launch survey templates that have well-researched questions. You can customize and launch surveys quickly to collect user feedback.

3. Study user behavior analytics data


To know what customers like about your products or service, you need to study customer behavioral data. WebMaxy Analyzer can help you understand your users’ behavior through session recordings, heatmaps, surveys and feedback, user insights, form analytics, funnel view, and so on. You can see how users interact and engage with your website. 

You can analyze how users perceive your brand and what elements drive engagement. This way, you can modify strategies and tactics as per your users’ needs, wants, and expectations. This will have a positive impact on your customers, and thus, it will increase the conversion rate.

The Bottom Line 

Customer retention rate is an important metric for determining the success of a business. The higher the customer retention rate, the higher the company’s profits. Here, in the above blog, we have given retention definition, retention rate meaning, and strategies to improve it. However, the simplest way to increase the retention rate is by understanding your customers and delivering what they want. 

WebMaxy Analyzer is a user behavior analytics software that can help you collect quantitative and qualitative user data. It has a wide range of features such as session replays, click & scroll maps, funnel view, form analytics, survey & polls, feedback, user insights, push notifications, and advanced integrations. You can try its forever-free basic version to see how it can help your business. Schedule a call with our experts to learn more about WebMaxy Analyzer, or email us at

The importance of retention rate

“Unlock the Power of Retention: Your Complete Guide to Understanding and Improving Your Retention Rate.”

Retention rate FAQ’s

Is a high retention rate good?

A high retention rate indicates that your customers value your product or service and are loyal to your brand. The higher the retention rate, the better it is for your business growth.

What does 80% retention rate mean?

80% retention meaning is that you have lost 20% of your customers. It means 80% of your total customers choose to stay with your brand after a certain period of time.

What does customer retention rate mean?

Customer retention rate means the number of customers who remain your customers after a given period of time. The high customer retention rate indicates more happy and satisfied customers.

What is the retention rate formula?

The retention rate can be calculated with the following formula:

CRR= (Existing customers after a given time period – New customers gained in that period)
           ______________________________________________________ X 100 
                              The number of customers at the start of the period

Adam Wilson

Adam Wilson comes with an experience of 12+ years in the IT industry. As a Customer Success Manager, he has been researching and trying to understand the customers’ behavior in different scenarios. He has also studied human psychology to relate it to the purchase journey of the customers. His published books on customer psychology and behavior have received many honors and awards from various enterprises.

Leave a Reply

Your email address will not be published.

Copyright @ 2023 WebMaxy | All rights reserved.
Share via
Copy link
Powered by Social Snap