The companion metric to churn. If churn measures who's leaving, retention measures who's staying. For subscription businesses, retention - especially Net Revenue Retention - is one of the strongest indicators of product-market fit.
Definition
Retention Rate - the percentage of customers (or revenue) that stay during a period. Retention + Churn = 100%. Net Revenue Retention (NRR) goes further by factoring in expansion from existing customers.
Formula
Customer Retention Rate = 1 − Churn Rate Net Revenue Retention (NRR) = (Starting MRR + Expansion − Contraction − Churn) ÷ Starting MRR × 100%
Common uses
- Subscription health - the single best long-term indicator
- Cohort analysis - retention by cohort surfaces what drives staying power
- Investor reporting - NRR is one of the headline metrics
Watch out
Customer retention rate and revenue retention rate can differ significantly. A business losing many small customers but retaining big ones can have weak customer retention but strong revenue retention.