What is Customer Retention Rate?
Customer Retention Rate shows what percentage of your starting customers are still active at the end of a period, after removing the effect of new customer acquisition.
In a recurring-revenue or subscription model, it’s a core driver of customer lifetime value, payback on customer acquisition cost, revenue durability, and ultimately valuation multiples.
Formula
Where:
- S = starting customers in the period
- E = customers at the end of the period
- N = new customers acquired during the period
Equivalently, if you already know churn:
Example
Assume a SaaS business starts the month with S = 1{,}000 customers.
By month-end it has E = 1{,}080 customers, of which N = 120 are new acquisitions.
Plug into the formula:
Interpretation:
- Retained customers from the starting base = 960
- Lost (churned) customers from the starting base = 40
A 96% monthly retention rate supports strong unit economics, higher customer lifetime value, and more efficient payback on CAC, especially when combined with healthy expansion metrics like net revenue retention.