How to Calculate Customer Retention Rate? (+ Benefits)

How to Calculate customer retention rate

In SaaS, customer retention stands as a key indicator of sustained success. When you understand how to measure and improve customer retention rates, you can secure your business lasting customer loyalty, sustained growth, and a better market position.

In these unstable economic times when acquiring new customers is already difficult, the businesses that manage to retain their customers and keep them happy are those that can thrive and stay in the competition for long.  

Therefore, if you wish to learn how to calculate customer retention rates and improve them, read on.

Customer Retention Rate: Explained

The customer retention rate proves whether your business is able to retain its customer base and prevent churn or not.

The higher the customer retention rate, the clearer the indication that your customers are loyal and satisfied and have positive outlooks on your software, customer service, and overall business strategies that you implemented.

What Is a Good Retention Rate?

It’s difficult to define a good customer retention rate as it varies based on different factors, but a strong retention rate in the SaaS industry is usually considered to be somewhere around 90%.

The size of the business, the target market, the frequency of calculating the customer retention rate, and the competitive landscape are some of the factors that determine whether the retention rate can be defined as “good.”. 

Important Customer Retention Metrics

There are several key customer retention metrics in SaaS you should track:

  • Churn Rate
    • It shows the percentage of customers who are no longer active and stopped using your services or cancelled their subscription over a given period. 
  • Revenue Churn
    • Revenue churn shows you how much MRR (monthly recurring revenue) you lost over the given time frame.
  • The Customer Health Scores
    • Health scores show customer engagement, interactions, and usage data to predict the possibility of retention. If you’re looking for an all-in-one customer success platform that comes with advanced customer segmentation options, including the customer health score, try Akita.
  • Renewal Rate
    • This metric shows the percentage of users who renew their subscriptions after the contract term has ended. 

Now that you know how to find the customer retention rate and how to improve retention let’s go over what’s a good rate.

How to Calculate Customer Retention Rate?

Here’s a step-by-step guide for using a customer retention rate formula:

  1. Select a certain time frame (monthly, quarterly, or annually) for the start. 
  2. Count the number of customers at the beginning and end of the selected period.
  3. Apply the formula:
Calculate Customer Retention (CRR) rate formula
Calculate Customer Retention (CRR) rate formula

Now, make sure to track and analyze them frequently to get all the insights that can help you create effective retention strategies. 

How to Do a Retention Analysis?

To successfully perform retention analysis, it is crucial to assess customer retention rates over specific periods. This is how you can understand churn patterns and identify factors contributing to attrition. Let’s see how to do retention analysis in SaaS:

  1. Calculate retention rates
    • Use the formula for customer retention above to get the numbers.
  2. Perform cohort analysis
    • Analyze retention rates within customer cohorts to get insights into how different groups behave over time. Then, compare retention rates between cohorts to see the differences and identify trends.
  3. Calculate the Churn Rate
  4. Customer segmentation
    • Segment customers based on demographics, behavior, and usage patterns to understand retention dynamics between segments.
  5. Identify retention factors
    • Analyze factors that contribute to customer retention or churn like feature usage, engagement levels, etc.

Why is Customer Retention Rate Crucial?

Customer retention rate is important in SaaS businesses due to its direct impact on the sustainability and health of a business. Here are the key reasons:

  • It’s cost-efficient
  • It ensures revenue stability
    • High retention rates ensure a stable and predictable revenue stream, as recurring subscriptions are a large part of SaaS businesses’ income.
  • It’s a foundation for business growth
    • Strong customer retention serves as a foundation for business growth. This further allows you to invest in product development, innovation, and market expansion.
  •  It maximizes Customer Lifetime Value (CLV)
    • A prolonged customer retention period indicates increased CLV, which means that your customers are satisfied and ready for recurring subscriptions, and the possibility for your business to generate revenue over an extended period.
  • It can ensure continuous improvement
    • The valuable feedback and insights you get from your retained users aid in product development and enhancement that align closely with their needs and preferences.


Understanding and leveraging customer retention rates is crucial in SaaS. Go through this article and learn how to calculate customer retention rate so you can have valuable insights into customer loyalty, satisfaction, and the efficiency of your retention strategy.

In order to improve customer retention use the customer retention formula to learn the right metrics, because a company must put in continuous efforts to ensure proactive customer support and engagement, and an ongoing commitment to strengthen customer relationships to prevent them from even thinking about switching to a competitor.

That’s not an easy task, but with the right customer retention tool, you can improve customer retention rates much faster and easier.

Frequently Asked Questions

How can I measure the effectiveness of retention strategies?

To measure effectiveness monitor retention rates, compare them with the previous period, and track customer engagement metrics to see how they stand.

Is there a single solution that can improve retention rates?

No, there’s no single solution. Firstly, you need to understand your customer base, their needs and preferences. Then, you should apply a personalized approach that aligns with the given preferences to get the best results!

How frequently should I calculate the retention rate?

You can calculate retention rates monthly, quarterly, and annually, depending on the billing cycle and subscription plan.

Related Articles

Best customer segmentation software Best Customer Segmentation Software to Utilize in 2024

Understanding customers at scale has come a long way. Back in the day, companies used simple attributes to carve up their customer base in some way to apply different resources to support and/or expand those customers. Boy was it blunt though! Generally, it never got far beyond segmenting your account list by their spending or […]

Read more
best customer success software Best Customer Success Software for Your CS Department in 2024

If you are reading this, you are faced with a real challenge. Either you already manage a customer success function and your existing toolset is not fit for purpose, or you have decided to start a customer success department and want to implement the right software as a solid foundation for your Customer Success Managers […]

Read more
top customer retention software Top Customer Retention Software to Reduce Churn in 2024

Figuring out the right customer retention management software to help manage your Customer Retention goals can be tricky. It really comes down to what your specific goals are, what type of market you serve, the customer data you retain and where that data resides. There are some specific types of tools you should consider. Customer […]

Read more
Voice of the customer best practices Voice of the Customer Best Practices and Tips in 2024

When we aim to understand someone or something, the first step is to listen or observe carefully. The same rule applies for customers.  If you wish to truly meet your customers and understand their concerns and goals, you must not only solicit and gather their feedback but also act on it. This is precisely what […]

Read more
what is product discovery What Is Product Discovery: Definition, Benefits and How to Do it?

Developing, launching and promoting a new product or feature is not only time and energy-consuming but also expensive. This is why frustration is inevitable if the new feature of a product goes unnoticed or unused.  To avoid that, companies must first understand market trends and customer needs to be able to create products that address […]

Read more
What is customer stickiness What is Customer Stickiness: How to Measure & Increase it?

Although customer churn and retention are the most important metrics that help you assess the overall health of your business, they often fail to explain why customers leave or stay with you. This is precisely where customer stickiness can help you. To answer the question “What is customer stickiness?” with ultimate precision, we must thoroughly […]

Read more
Customer success books Best Customer Success Books You Should Read in 2024

Customer success is the backbone of a successful SaaS business. The way your CS team manages and nurtures customer relationships often determines the size and quality of your customer base and, therefore, affects revenue and growth.  A smart customer success manager knows very well that customer success is a dynamic and ever-changing field where continuous […]

Read more
customer success conferences 2024 10 Customer Success Conferences to Check Out in 2024

To become and remain successful in the realm of customer success, one must constantly hone their skills, make meaningful connections with other customer success leaders in the field, and find a place to get some inspiration and discover innovative ideas and strategies.  One of the ways to advance in your CS career is to attend […]

Read more
customer success playbooks Customer Success Playbooks: Definition, Types, Tips

SaaS businesses’ success depends on both customer acquisition and customer retention. In the past few years, many companies have started to invest more in their customer success efforts, ensuring existing customers achieve their desired goals and get maximum value from the SaaS product in a short period of time. 

Read more