How to Calculate & Improve Your Customer Retention Rate in 2024

Originally published on April 7, 2022

Customer retention rate is an important metric that calculates the percentage of customers who keep using your product or service over time. A high retention rate means your current customers value your product and are providing a sustainable source of revenue. A low retention rate means customers are leaving, which can undermine your growth efforts, no matter how many new customers you acquire.

Some customer turnover is inevitable—existing customers may stop using your product for reasons outside your control. However, calculating your product’s retention rate is the first step toward turning potentially lost customers into loyal brand advocates.

What is retention rate?

Retention rate is the percentage of customers who keep using your product over a given period. It’s the inverse of churn rate, which measures the customers who stop using your product. If a company has a retention rate of 90%, its churn rate is 10%.

Companies use retention rate to measure business health. If the retention rate exceeds the acquisition rate, your product gains users (and generally revenue) over time. Alternatively, a retention rate lower than the rate of customer acquisition equates to a net loss of customers.

Retention isn’t just important from a revenue standpoint. Businesses often consider the retention rate to determine customer satisfaction. They use retention rate to understand:

• How loyal their customers are
• How good their customer experience is
• What value their users get out of their product
• Whether they have a sustainable base to maintain their business

Why does retention matter?

There’s little point in acquiring customers if they churn after a short time. A business needs to at least make back its cost of acquisition before those customers churn.

Strong retention fuels revenue growth. Take a SaaS subscription product. The larger your customer base, the more subscriptions and revenue you have. As acquiring new customers typically costs more than maintaining existing ones, it makes sense to focus on retaining customers you gain to make more money.

Retention is also an indicator of customer engagement and happiness. If people stop using your product after a short time, you know it’s time to improve it.

What is a good retention rate in 2024?

A good retention rate depends on your specific business. Knowing your industry's retention benchmarks can help you determine if you’re way off the mark.

According to data from the Amplitude platform, the average month-one retention rate across all industries is 14%. The retention rate is highest in transportation and logistics (16%) and lowest in education (10%).

Check out retention rates by industry below, or explore more product benchmarks by industry, region, and company size. 

How to calculate your retention rate

The standard retention rate formula is:

Retention Rate = (Number of customers at the end of the period − Number of new customers acquired during the period) / Number of customers at the start of period) × 100

Let’s say you want to calculate your retention rate over one month. You start with 105 customers, acquire 20, and end with 95. Your retention rate is 71%.

• (95-20) / 105 = 0.71
• x 100 = 71%

While you can calculate retention rate simply based on how many customers have a subscription with you, that doesn’t help if you have a free version of your product or tell you much about engagement. A customer may keep paying their subscription for a while after they stop using your service.

Some companies prefer to define retention based on product usage. This takes into account two aspects of your product:

1. Your product’s critical event. This action a user takes determines whether or not they have been retained. This event is tied to something that indicates value for your customers and your business. It’s an activity that generates revenue for you and indicates that a customer is getting what they need out of your product as well. For example, Spotify’s critical event might be playing a song, while Candy Crush’s could be playing a game level.
2. Your product’s usage interval. This is how often you expect a customer or user to perform the critical event action. Choose a period of time that makes the most sense for your product. Spotify may consider users retained if they play at least one song every week. Candy Crush players are retained each day they play a game.

Calculating retention rate based on users

User retention rate tracks the retention of your entire user base, including both free and paid users. It’s the right measure if your business model relies on advertising or other non-subscription revenue.

Paying customer retention rate measures the percentage of your paying subscribers or users retained. Focusing on this segment prioritizes the needs of the users who pay for your product, and their retention directly impacts your bottom line.

Cohort retention rate measures retention within specific user groups or segments with common characteristics (e.g., sign-up date, location, or behavior). This approach helps you understand how different users engage with your product, allowing you to tailor strategies to meet their specific needs and improve overall retention.

Calculating retention rate based on time

N-Day retention rate measures how many users were retained on a specific day after they signed up, such as Day 5 or Day 30. You can determine each day according to strict calendar rates or rolling 24-hour windows. N-Day retention rate is valuable if you expect people to use your product every day, like a mobile game.

Unbounded retention rate measures how many users return on a given day or any day after. This retention rate makes sense when you don’t expect people to use your product every single day.

Bracketed retention rate measures retention within custom timeframes specific to your product’s usage cadence, such as Day 1, Day 3, Day 7, Day 14, Day 31.

You might use different retention rates at different times, but if you are going to compare rates, only compare retention rates that are measured in the same way. Lining up your unbounded customer retention rate with your N-Day user retention rate is an apples-to-oranges comparison.

3 strategies for improving your retention rate

If calculations reveal that your retention rate is not as high as you’d like it to be, don’t fret. These three simple retention strategies can help boost your rate:

1. Don’t give up on customers who cancel

“Canceled” and “churned” seem like different words for the same status, but they’re not. Churned customers have stopped paying a company and are no longer using the service. They’re gone. Meanwhile, a canceled customer has notified a company of their intent to stop using a service and will be churning shortly—that is unless you can change the customer’s mind.

Companies that give up on canceling customers miss out on a chance to retain business. Over half of customers said they would stop using a brand after one bad experience. This means saving a number of canceling customers, who may come down to rectifying a single error and making the customer happy again.

Perhaps a user was never properly onboarded and simply didn’t know how to gain value from the product. Targeted re-engagement campaigns with product education can help the customer reverse course.

2. Gather customer feedback

You can’t fix retention issues if you don’t know what’s causing your customers to churn. Unhappy customers may not go out of their way to share feedback.

Companies that commit to systematically gathering customer feedback stand a better chance of correcting friction in the user journey. Collect, analyze, and act upon customer criticism to prevent frustration. For example, if users complain about your confusing onboarding process, you can create different workflows and A/B test them to determine which performs best.

Every change you make to your UX will result in new opinions of your product. So, the customer feedback process is not a one-time event. Actively seek feedback and increase customer satisfaction to maintain a high retention rate. Methods for gathering customer feedback include:

• Customer interviews
• Surveys
• Usability testing

3. Engage with product data

Soliciting feedback from customers helps you gather rich qualitative information. However, customers may not always be able to articulate their feelings, opinions, and experiences accurately.

One of the best ways to understand how customers react to your product is to study its analytics. A look at your customer’s behavioral data will reveal what features drive engagement.

For example, your music streaming product’s data may reveal that creating a playlist within the first week of onboarding doubles the rate of 30-day retention. In that case, you can try in-app messaging and email campaigns to drive new users to the playlist feature.

Interested in learning more about what your customers want? Get started with Amplitude for free.

Examples of customer retention rate in action

You can’t expect improvements to your retention rate simply by measuring it. Use your rate as a benchmark for building a customer retention strategy to improve engagement and decrease customer churn. Here are some retention stories from real-world companies to inspire you.

Super.com

Super.com, a company that helps shoppers save money and earn rewards, made experimentation a core part of its retention strategy. Super used the Amplitude platform to make it easy for any team member to test product changes quickly.

By conducting more experiments, Super.com could better understand what users value most, such as the specific benefits tied to their Super+ membership program. They refined these features based on real-time data from Amplitude, which led to a 90% increase in customer retention in the first month.

Safety culture

SafetyCulture, a workplace operations platform, aimed to improve user retention by identifying key engagement drivers within its course creation feature. Using Amplitude, the team discovered that users who could create courses quickly were more likely to publish them, leading to higher retention. They found that the PowerPoint Converter, though initially overlooked, had one of the highest conversion rates due to its speed and ease of use.

SafetyCulture invested in new features like the AI Document Converter, enabling users to convert various documents into training courses quickly. The changes led to a 20% increase in publishing rates and an 18% rise in 30-day retention.

Paired

Paired, an app designed to help couples strengthen their connections, noticed many users did not use the app consistently after downloading. It used Amplitude to dig into the issue further.

Paired discovered that new users often struggled to find relevant content during their first interactions with the app. To address this, Paired simplified the onboarding process by guiding new users directly to popular conversation starters and activities. It tested this change through A/B experiments and found that users given easier access to these core features from the beginning were more likely to engage deeply with the app. As a result, Paired saw a decrease in trial cancellations and a 40% increase in engagement metrics.