Customer Retention Rate: Definition, Formula & Strategy

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1. What is Retention Rate?

Retention rate is the percentage of customers who continue using your product over a given period. It shows how well you're keeping your users and delivering value long term. High retention is a key signal that your product fits the market and supports sustainable growth.

2. Why Is Retention Rate Critical in SaaS?

How does it reflect product value?

If customers stick around, it usually means they’re getting consistent value. A growing retention rate suggests your onboarding, support, and core product experience are all working together. It also hints at high customer satisfaction and trust in your solution.

What’s the difference between retention and renewal rate?

While renewal rate typically refers to contract renewals (especially in subscription-based models), retention rate is broader — it includes customers who continue using the product whether or not a formal contract is involved. In usage-based SaaS, retention is often more relevant.

What’s the impact on revenue growth?

Retention directly impacts your Net Revenue Retention (NRR). If you keep customers longer, you open up more opportunities for expansion, upsells, and advocacy. SaaS companies with high retention usually have better LTV, lower CAC pressure, and more stable revenue.

3. How to Calculate Retention Rate

Formula:

Retention Rate = ((E - N) / S) × 100

  • E = Customers at the end of the period
  • N = New customers acquired during the period
  • S = Customers at the start of the period

Example: If you started with 100 customers, gained 20 new ones, and ended with 110, your retention rate is ((110 – 20) / 100) × 100 = 90%.

4. How to Improve Customer Retention Rate

  • Segment your users – tailor success strategies by plan, size, or industry
  • Measure customer health – identify early signals of churn
  • Automate outreach – proactively engage low-usage customers
  • Set up onboarding playbooks – improve time-to-value
  • Track value moments – ensure users are adopting key features

FAQ

What is a good retention rate for SaaS?

For SMB SaaS, 85–90% is solid. For enterprise, 90–95%+ is expected. Retention goals should be tailored to your business model and pricing.

How often should I measure retention?

Monthly for short-term insight, and quarterly or annually for bigger-picture trends. Cohort analysis helps track patterns over time.

How is retention different from NRR?

Retention measures if customers stay, NRR includes whether they grow. High NRR means customers stay and spend more.

Can Customerscore.io help improve retention?

Yes! Customerscore.io helps you measure health scores, trigger alerts, and automate outreach to keep retention high without scaling your CS team.