What retention rate means
Retention rate measures the share of a starting customer cohort that remains active at the end of a period. The business must define “active” consistently, for example, an active subscription or a customer who repurchased inside a set window.
Retention is one of the inputs behind customer value. Improving acquisition without improving retention can create a business that constantly replaces lost customers rather than compounding its base.
For the same cohort and period, retention rate + churn rate = 100%.
Worked example
A service starts a quarter with 800 active customers and retains 720. Retention rate is 90%. If the same pattern continues in a comparable future cohort, roughly 9 of every 10 opening customers remain active through the period.
How to use the result
Track retention by acquisition cohort, product, subscription plan or first-order offer. A blended average can hide channels that acquire inexpensive customers who leave quickly.
Common mistakes
- Counting new customers acquired during the period as retained opening customers.
- Using different activity windows across cohorts.
- Assuming retention is stable before cohorts have matured.
When to recalculate
Recalculate as cohorts mature and whenever product, onboarding, pricing or acquisition mix changes.
Frequently asked questions
Is retention rate useful for ecommerce?
Yes, but the business needs a meaningful repeat-purchase window instead of a subscription-style cancellation event.
Why segment retention by acquisition source?
Channels can attract customers with different repeat behavior, which changes the long-term value of a seemingly cheap acquisition.