How to calculate customer retention rate | Step-by-step guide

Winning new customers always feels rewarding. But keeping them coming back, that’s where long-term success truly begins. Retaining loyal customers doesn’t just boost revenue; it builds stability, trust, and brand advocacy that can’t be achieved through acquisition alone.

While many businesses pour resources into finding new leads, it’s often retention that quietly drives growth behind the scenes. Loyal customers spend more, refer others, and cost far less to maintain than constantly attracting new ones. In fact, even a small increase in your retention rate can lead to a significant rise in profit over time.

That’s why knowing how to calculate your customer retention rate matters. It provides a clear picture of how well you’re maintaining relationships, where you might be losing customers, and what improvements could have the biggest impact.

In this guide, we’ll walk through the exact steps to calculate your customer retention rate, explain what the numbers really mean, and share practical tips to help you strengthen customer loyalty. By the end, you’ll have a simple and reliable way to measure how well your business is converting one-time buyers into long-term supporters.

What is the customer retention rate?

Customer retention rate (CRR) shows how well your business keeps existing customers over a specific period. In simple terms, it’s the percentage of customers who continue to buy from you rather than switching to a competitor or disappearing after their first purchase.

Think of it as a way to measure loyalty. If you started the year with 100 customers and still have 85 of them by the end, your retention rate is 85%. That single number reveals how strong your relationships are and how effective your customer experience truly is.

Retention rate is more than just a performance metric; it’s a reflection of your customers’ satisfaction and trust. High retention often means you’re consistently delivering value. Low retention, on the other hand, signals friction in the journey, whether that’s product quality, communication gaps, or unmet expectations.

Understanding your retention rate helps you answer key questions:

• Are customers happy enough to stay?
• How well do your engagement or support efforts work?
• Which stages of the customer journey need improvement?

By tracking it regularly, you can identify patterns, refine your strategy, and focus your energy on keeping the customers you’ve already worked hard to win. In the next section, we’ll explore exactly how to calculate your customer retention rate, step by step.

Calculate customer retention rate using the customer retention formula

Calculating your customer retention rate might sound complicated at first, but once you know what to look for, it’s surprisingly simple. The goal is to measure how many customers stayed with your business over a certain period, without counting the new ones who just joined.

To start, choose a time frame that fits your business rhythm. Many companies track retention monthly or quarterly, while fast-moving SaaS or ecommerce teams might prefer a weekly snapshot. Once you’ve defined that period, gather three key numbers:

• S: the number of customers at the start of the period.
• E: the number of customers at the end of the period.
• N: the number of new customers gained during that time.

Now, use this simple formula:

Customer retention rate = ((E - N) ÷ S) × 100

Let’s bring this to life with an example.
Imagine you started the quarter with 200 customers. By the end, you had 230. During that time, 50 of them were new.

Plug those numbers into the formula:
((230 − 50) ÷ 200) × 100 = 90%

This means you retained 90% of your existing customers that quarter, a strong signal of loyalty and satisfaction.

Tracking this number regularly helps you see whether your efforts to improve customer experience are working. Over time, even small percentage increases in retention can lead to higher revenue and long-term growth.

Why does customer retention rate matter more than you think?

Customer retention rate isn’t just another marketing metric. It’s one of the clearest indicators of how healthy your business really is. While most teams track conversions and new leads, retention shows whether customers actually stick around after the first sale, and that’s where sustainable growth begins.

A high retention rate means your product or service is consistently delivering value. It signals that customers trust your brand enough to come back, recommend you to others, and even spend more over time. But when retention starts to drop, it often points to deeper issues in the customer journey, things like unclear communication, poor onboarding, or lack of engagement after purchase.

Here’s why keeping an eye on your retention rate matters:

• It reflects true customer satisfaction. When people return, it’s because you’ve met or exceeded their expectations.
• It improves profitability. Retaining existing customers costs far less than acquiring new ones, and loyal customers often buy more.
• It stabilises your revenue. A predictable retention rate makes it easier to forecast sales, plan inventory, and make confident business decisions.
• It reveals weak spots. A sudden drop in retention highlights where customers might be losing interest or encountering friction.
• It supports long-term strategy. Retention data helps you focus on valuable customers and re-engage those at risk of churning.

When viewed consistently, your retention rate becomes more than a percentage. It’s a reality check, one that tells you how strong your customer relationships truly are and how ready your business is to grow.

How customer retention rate differ across industries?

Not all industries hold on to customers in the same way. Retention rates often depend on how often people use a product, how easy it is to switch brands, and how emotionally connected customers feel to a business. A 5% increase in retention can look very different for an online store compared to a subscription app.

Here’s a look at how retention plays out across a few key sectors:

E-commerce

Online stores usually see retention rates between 30% and 60%. With endless choice and quick price comparisons, shoppers can switch brands with a single click. To build loyalty, ecommerce businesses need to focus on ease, smooth checkout, clear return policies, and personalised re-engagement campaigns that make repeat buying effortless.

Retail (in-store and omnichannel)

Physical retail tends to perform slightly better, with average retention around 60–65%. Local connection, service quality, and consistent in-person experiences make a big difference. Loyalty programmes that reward regular visits or purchases can also help retailers maintain customer interest beyond discounts.

Mobile apps

App-based businesses face the toughest challenge. Many users download an app, try it once, and never return. Day 1 retention hovers around 25%, dropping to below 10% after the first month. The key to improving this is immediate value, clear onboarding, regular feature updates, and timely push notifications that keep users engaged.

Subscription and D2C brands

Direct-to-consumer subscription models usually enjoy higher retention, often between 75% and 85%. Because customers already commit to recurring purchases, maintaining trust and consistent value becomes critical. Flexibility, proactive communication, and transparent billing help keep churn low.

Financial services

Banks, insurance providers, and investment platforms lead the pack with retention rates around 75–80%. Customers stay longer because switching is inconvenient, and relationships are built on trust. However, even in this sector, digital convenience and personalised support are key to sustaining loyalty.

Retention benchmarks offer helpful context, but they’re not universal. Instead of chasing an industry average, look at your own numbers over time. Ask yourself:

• Is your retention rate improving each quarter?
• Where do customers drop off in their journey?
• Are you consistently providing value that makes them stay?

Customer retention isn’t about comparing numbers; it’s about understanding what keeps your audience coming back, again and again.

Understanding the difference between retention and churn rate

Retention and churn are two sides of the same story; one tells you how many customers stayed, and the other shows how many walked away. Together, they paint a complete picture of your customer relationships.

Your retention rate measures the percentage of customers who continue doing business with you over a specific period. Churn rate, on the other hand, tells you the opposite: the percentage of customers who stop buying, cancel a subscription, or simply don’t return.

In fact, the two metrics are directly connected. If your retention rate is 85%, your churn rate is 15%. You can calculate it with a simple formula:

Churn rate = (Churned customers ÷ Total customers at the start of the period) × 100

Here’s a quick example:
If your business starts the quarter with 200 customers and loses 20 by the end, your churn rate is (20 ÷ 200) × 100 = 10%.

While the calculation looks simple, churn can mean different things depending on your business model. In a subscription company, a churned customer might be someone who cancels their plan. In ecommerce, it might be a shopper who hasn’t made a repeat purchase within a set time frame. For freemium products, it might be users who never upgrade after a trial.

That’s why it’s important to look beyond the numbers. Analysing why customers leave, whether it’s pricing, onboarding, experience, or lack of engagement, gives your retention rate real meaning. Tracking both metrics side by side helps you spot problems early, improve customer experience, and build relationships that last longer.

Beyond retention rate: other metrics that reveal customer loyalty

Your retention rate gives you a clear picture of how well you keep customers, but it doesn’t tell the full story. Two businesses could have the same retention rate and completely different levels of growth or customer loyalty. That’s why it’s important to look at a few additional metrics, each offering a different view of your customer relationships.

Let’s explore the key ones worth tracking.

1. Revenue churn

While customer churn shows how many people left, revenue churn reveals how much recurring income you lost in the process.

Here’s the simple formula:
(Revenue lost during the period ÷ Revenue at the start of the period) × 100 = Revenue churn

This metric is particularly valuable if you offer multiple pricing tiers or variable order sizes. For instance, losing two small accounts might not affect you as much as losing one high-value customer. Tracking revenue churn helps you see the real impact on your bottom line and whether you’re attracting customers who bring sustainable value.

2. Net promoter score (NPS)

Your NPS measures how likely customers are to recommend your brand to others. It’s usually based on a quick survey asking: “How likely are you to recommend us to a friend or colleague?”

Respondents are grouped into:

• Promoters (9–10): loyal fans who advocate for your brand.
• Passives (7–8): satisfied but not enthusiastic.
• Detractors (0–6): unhappy customers at risk of leaving.

By tracking NPS, you can spot early warning signs of churn. It helps you identify which customers might need more support and which experiences are driving genuine loyalty.

3. Repeat purchase rate

For ecommerce and retail businesses, the repeat purchase rate shows how many customers return after their first order.

Formula:
(Number of returning customers ÷ Total number of customers) × 100 = Repeat purchase rate

This metric helps you understand if your marketing, product quality, and post-purchase experience are strong enough to keep customers coming back. A high repeat rate signals that your brand is building trust and habit, two key ingredients of long-term retention.

4. Customer lifetime value (CLV)

Customer lifetime value measures how much total revenue a customer contributes during their entire relationship with your brand.

Here’s how to estimate it:

• Customer value = Average purchase frequency × Average purchase value
• CLV = Customer value × Average customer lifespan

Knowing your CLV helps you balance acquisition and retention costs. If your CLV is low, you may need to improve loyalty programmes or customer experience to extend relationships. If it’s high, you can afford to invest more in acquiring new customers without hurting profitability.

Ways to improve the customer retention rate

Improving retention isn’t just about discounts or loyalty points, it’s about creating experiences that feel personal, fast, and reliable. Here are a few effective strategies to help your business keep customers coming back, and how Trengo can support them.

1. Personalise communication
Customers are more likely to stay when messages feel relevant. Use their preferences and behaviour to send tailored recommendations or follow-ups.
With Trengo, you can centralise all conversations and personalise replies across WhatsApp, email, and social channels from one shared inbox.

2. Respond instantly and consistently
Fast responses build trust and reduce frustration.
Trengo’s AI HelpMate automates FAQs and handles repetitive queries, ensuring customers always get an answer, even outside business hours.

3. Re-engage before customers drift away
Keep an eye on customers who go quiet. A small reminder or exclusive offer can bring them back.
Set up automated follow-ups and behaviour-based triggers with Trengo to reach out at just the right time.

4. Listen and adapt through feedback
Understanding why customers leave is key to improving retention.
Collect feedback directly in chat, then use Trengo’s analytics to spot trends and areas to improve.

5. Create a seamless omnichannel experience
Customers want effortless conversations, not disconnected channels.
Trengo keeps every message — from WhatsApp to Instagram — connected in one place, helping your team deliver smooth, consistent service.

Retention grows when your customers feel heard, supported, and valued. With Trengo, you can automate the busywork, stay personal at scale, and build relationships that last.

Wrapping up

Customer retention is what turns one-time buyers into lifelong supporters. Measuring it helps you understand not only how well you’re doing but where you can grow. By focusing on meaningful conversations, fast support, and consistent value, you can build relationships that drive sustainable success.

The key is to make every interaction count. When customers feel heard, supported, and understood, they’ll keep choosing you over competitors, not because of price, but because of trust.

At Trengo, we help businesses strengthen that trust every day. From automated customer journeys to personalised, omnichannel conversations, Trengo gives your team the tools to create lasting connections.

Book a free demo to see how Trengo can help you retain more customers and deliver experiences they’ll keep coming back for.

Frequently Asked Questions (FAQs)

Why is customer retention rate important?

Customer retention rate shows how well a business keeps its customers over time. High retention means loyal customers, steady revenue, and lower marketing costs for acquiring new clients.

How do you calculate customer retention rate step by step?

First, select a time period. Then, find the number of customers at the start (S) and the end (E) of that period. Next, count how many new customers (N) were acquired during the period. Finally, use the formula to calculate the retention rate.

What is the formula for customer retention rate?

Retention Rate = 

E −N / S × 100

Where E = customers at period end, N = new customers acquired, and S = customers at period start.

What’s the difference between customer retention rate and churn rate?

Retention rate measures the percentage of customers kept, while churn rate measures the percentage lost. They are complementary metrics used to understand customer loyalty and business health.

What is a good customer retention rate for a business?

Good retention rates vary by industry but generally anything above 80% is considered strong. Subscriptions and service industries often aim for rates over 90%.

What industries typically have the highest customer retention rates?

Industries like utilities, insurance, and SaaS generally have high retention due to ongoing service and contracts. Retail and hospitality may have lower rates due to competitive offers and customer switching.

What tools can help measure customer retention rate?

Analytics software, CRM systems, and customer engagement platforms help measure retention. Trengo’s integration capabilities allow businesses to gather comprehensive customer data across multiple channels to accurately track retention rates.

Can CRM systems track customer retention automatically?

Yes, many CRM systems, including Trengo’s integrated features, can automatically track customer activity, flag repeat purchases, and calculate retention metrics over specific time frames.

How do analytics platforms show retention trends over time?

Analytics platforms use cohort analysis and visual trend reports to highlight retention changes. Trengo’s analytics tools provide detailed insights by consolidating data across communication channels, helping businesses track retention more effectively.

What’s the difference between using spreadsheets and customer engagement platforms to measure retention?

Spreadsheets require manual input and can lead to errors, whereas customer engagement platforms like Trengo automate data collection, offer real-time insights, and integrate retention metrics with customer interaction histories for more accurate analysis.

How can Trengo’s customer data help calculate retention rate across multiple channels?

Trengo centralises conversations and transactions from WhatsApp, Instagram, email, and other platforms, creating a unified dataset that allows precise calculation of customer retention across channels.

How does Trengo integrate retention data with customer conversations (e.g., WhatsApp, email, Instagram)?

Trengo connects retention metrics with detailed conversation histories, enabling businesses to correlate customer loyalty with support interactions and marketing campaigns within one platform.