Customer Retention Rate: Formula, How to Calculate & Improve

Suppose, you’re investing heavily in marketing to acquire new customers, but your revenue isn’t growing as expected. The reason? Customers aren’t sticking around. 

Retaining customers is far more cost-effective than acquiring new ones, yet many businesses struggle to effectively measure and improve their customer retention rate (CRR).

For eCommerce businesses, SaaS platforms, and service providers, knowing how to calculate customer retention rate is the first step in building a strategy to improve it. Without a clear retention metric, businesses face challenges like: 

• Unclear customer loyalty trends – Are customers leaving after their first purchase?
• Missed revenue opportunities – How much more could existing customers contribute?
• Inefficient marketing spend – Are you investing in the wrong acquisition strategies?

This blog will break down how to calculate customer retention rate with a simple formula, why it matters, and how you can use this data to build stronger customer relationships.

What is Customer Retention Rate?

Customer retention rate (CRR) is the percentage of customers who continue doing business with your company over a specific period. It helps measure customer retention by assessing loyalty and satisfaction. 

This gives insight into how well your business retains existing customers. A strong retention rate indicates that customers find value in your product or service, while a low rate may highlight areas for improvement in customer experience.

Average Customer Retention Rate by Industry

Customer retention rate varies from industry to industry. Though several businesses have specific retention rates, the average customer retention rate is considered 78% based on a recent study.

Below is a concise overview of average retention rates for several industries including telecom, BFSI, eCommerce, IT, and many more.

Industry	Average Retention Rate
Telecommunications	78%
E-commerce	38%
Financial Services	78%
Banking	75%
IT Services	81%

Telecommunications (78%)

The telecom industry enjoys a relatively high retention rate due to long-term contracts, bundled services, and customer reliance on network infrastructure. However, competitive pricing and service quality remain key factors influencing retention.

E-commerce (38%)

E-commerce businesses face significant challenges in customer retention due to high competition, frequent price comparisons, and a wide range of options for consumers. Personalized recommendations, loyalty programs, and seamless customer support can help improve retention.

Financial Services (78%)

The financial services sector benefits from strong customer trust and long-term relationships, especially in investment and insurance services. Customers tend to stay with institutions that offer security, seamless transactions, and personalized financial products.

Banking (75%)

Banks maintain a strong retention rate by offering essential financial services, convenience, and loyalty incentives. However, customer experience, digital banking features, and service fees play crucial roles in long-term customer retention.

IT Services (81%)

The IT services industry sees the highest retention rate due to the critical nature of software, cloud solutions, and managed services in business operations. Companies that offer reliable support, innovation, and scalability tend to retain customers for longer periods.

Customer Retention Rate Formula: How to Calculate It?

You need to understand your customer retention rate because this is crucial for assessing business growth and customer loyalty. To make it easy, let’s break it down step by step so you can understand and apply it to your business.

The Customer Retention Rate Formula

The standard formula for calculating customer retention rate is:

( E – N ) ÷ S× 100 = Customer Retention Rate (%)

Where:

• E = Number of customers at the end of a given period

• N = Number of new customers acquired during that period

• S = Number of customers at the start of the period

How to Calculate Customer Retention Rate (Step-by-Step)

Step 1: Define Your Time Period

First, decide on the time frame you want to measure. Businesses typically evaluate retention rates on a:

• Annual basis (e.g., for year-over-year comparisons)

• Quarterly basis (every three months)

• Monthly basis (useful for fast-growing industries like SaaS)

• Weekly or even daily basis (for companies with rapidly changing customer bases)

Step 2: Gather Your Data

Once you’ve chosen the time frame, you’ll need the following numbers:

• Customers at the start of the period (S): The total number of customers you had at the beginning.

• Customers at the end of the period (E): The total number of customers remaining at the end.

• New customers acquired during the period (N): The total number of customers gained within this time frame.

Step 3: Plug Your Numbers Into the Formula

Now, apply your data to the formula:

( E – N ) ÷ S× 100

This calculation gives you the percentage of customers you retained during that period.

Customer Retention Rate Example

Let’s walk through a real-world example to make this clear:

Imagine you run a subscription-based business and want to measure your customer retention rate for the past year. And your business data is below.

• Start of the year (S): 1,000 customers

• End of the year (E): 1,200 customers

• New customers added during the year (N): 400

Now, let’s plug the values into the formula:

( E – N ) ÷ S× 100

(1200 – 400) ÷ 1000 × 100

800 ÷ 1000 × 100 = 80% retention rate

This means that 80% of your customers stayed with your business over the course of the year.

How to Improve Your Customer Retention Rate?

Improving the customer retention rate requires a strategic approach, including understanding the customers, engaging proactively, providing improved customer service and a personalized experience, building a strong relationship, and many more.

Below are some effective ways to improve your customer retention rate. Let’s go through it.

Understand your Customers

You can’t retain customers if you don’t know what they want. Knowing them is your foundation. Dig into who they are, their preferences, pain points, and buying habits. You can use surveys, chat feedback, or even a quick “What do you think?” email to learn more. 

Look at your sales data too, it’ll show you what they love and what they skip. An Adobe study found that 71% of customers expect businesses to understand their unique needs

Learn more: 15 Effective Customer Retention Strategies from Top Brands

Proactively Engage Customers Before They Drift

Don’t wait for your customers to call you with a problem, get ahead of it. Reaching out first shows them you’re invested in their happiness, not just their money.

How you can start: Drop them a personalized email like, “How’s [your product] treating you?” or share a tip based on how they’re using it.

Forrester says 66% of customers value their time above all else. By checking in, you save them the hassle and keep them hooked on your business.

Improve Customer Service

Your customer service is your retention glue. If you mess it up, they will be gone. Respond fast (aim for under an hour), solve problems completely, and train your team to empathize, not just troubleshoot. 

A study found that 66% of customers ditch brands after one bad experience, while 74% stay loyal when issues are fixed well. You can add self-service options like FAQs or a chatbot for quick wins.

In 2025, Gartner predicts 40% of customer service will be AI-assisted, but a human touch still seals trust and balance. Good customer service turns a $50 buyer into a $ 500-lifetime customer by showing reliability.

Provide Personalized Customer Experience

Your customers want you to know what they like, especially in 2025 when personalization is no longer optional, it’s expected. By continuously improving customer experience, you can keep them loyal and reduce the chances they’ll look elsewhere.

You can use data you already have like their past purchases or browsing history to suggest something just for them. 

A birthday discount or an email saying, “This might suit you,” can go a long way. For instance, if they bought a planner, follow up with a list of pens that complement it, not a random ad.

Epsilon’s research shows that 80% of people buy more when offers feel personal. It’s about using customer behavior to show you’re listening, not guessing. 

Tools like Chatbot and Live Chat can play a major role here. The chatbot intelligently recommends products based on customer preferences, previous interactions, and real-time queries, creating a more engaging shopping experience. 

Live chat agents can further enhance this by offering human-assisted, tailored suggestions, making every interaction feel seamless and meaningful.

Build Good Relationships With Your Customers

Loyalty isn’t transactional, it’s emotional. Show gratitude with a post-purchase “Thank you” email or a handwritten note for big spenders. Ask for feedback as it matters (“What can we improve?”), and share your story or maybe a blog post on how your business started. 

Harvard Business Review found emotionally connected customers are 52% more valuable, and a 2024 PwC study says 73% want brands to “know them.”

Ask for Customer Feedback

Your customers have opinions, and asking for them shows you’re serious about keeping them happy. Don’t assume you know what’s working, let them tell you. A quick “How are we doing?” survey after a purchase or a casual “What can we improve?” email opens the door. Follow up on what they say, fix issues, thank them for praise, and let them know you’ve listened. 

A Qualtrics study found that 77% of customers feel more loyal when businesses act on their feedback, a trend growing as transparency matters more in 2025. Microsoft’s data adds that 52% are less likely to switch brands after being asked their opinion.

Monitor Customer Retention Metrics

You can’t build loyalty to your customers without knowing what’s working. And the right metrics are your guide. They pinpoint why customers stay or leave, helping your business keep more of them. Here’s what to track and how to use it. Because data is your shortcut to a stronger bottom line.

Key Metrics to Watch:

• Net Promoter Score (NPS): One of the major metrics to measure is your net promotor score. You can ask, “How likely are you to recommend us? (0-10)” Subtract detractors (0-6) from promoters (9-10). A score above 50 is gold.

• Customer Effort Score (CES): After support, ask, “How easy was that? (1-5)” Lower effort means higher loyalty.

• First Response Time (FRT): How fast do you answer? Aim for under an hour to keep trust high.

• Churn Rate: (Customers lost ÷ Total customers) × 100—aim below 5%.

Create a Loyalty Program 

Loyalty programs aren’t just perks, they’re retention engines. But generic discounts won’t cut it. Your program needs to feel valuable and relevant.

You can offer tiered rewards (e.g., VIP status after $500 spent) or points for actions like referrals. Starbucks’ program, for instance, drives 40% of its revenue by rewarding frequent buyers with freebies.

To make it unique you can tie rewards to your brand, and think of exclusive access (e.g., early product drops) over basic cashback. 

The result you will get from this is, that loyal customers spend 67% more than new ones, per Inc. A well-designed program turns one-time buyers into lifelong fans.

Choose the Right Tools

You probably now understand that to improve your customer retention rate, it’s essential to step up your customer service game. To deliver top-notch service, you need to offer real-time support and personalized experiences that make your customers feel valued. 

The right tools can lighten the load and help you keep them coming back. Here are a few you might consider to boost your retention efforts.

REVE Chat

When your customers need help, they don’t want to wait. REVE Chat lets you connect with them instantly through live chat, AI-powered chatbots, and even voice options. It’s built to handle queries across channels like your website or social media, so you can solve issues fast and keep interactions smooth.

Klaviyo

Retention isn’t just about fixing problems, it’s about staying in touch. Klaviyo focuses on email marketing, letting you send tailored campaigns based on what your customers buy or browse. Think “Happy Birthday” discounts or product tips that hit the mark, all automated to save you time.

Mixpanel

You need to know what’s working, and Mixpanel digs into the data. This analytics tool tracks how your customers use your product or site, spotting trends like drop-offs or repeat purchases. It’s your window into why they stay or why they leave.

Conclusion

To increase your customer retention rate, you need to improve customer experience. Because satisfied customers are far more likely to stay loyal to your brand. A seamless, engaging, and personalized experience makes all the difference in whether customers return or look elsewhere.

AI chatbots and live chat provide instant support, proactive engagement, and personalized interactions to ensure customers feel valued at every touchpoint. Whether resolving queries in real-time, providing product recommendations, or guiding users through their journey, these tools help build trust and long-term relationships.

Want to improve your customer retention rate? Try REVE Chat’s AI-powered chatbot and live chat solutions to deliver exceptional customer experiences that keep your customers coming back. Sign up for a free demo today!