When analyzing customer loyalty or business growth, two key metrics often come up: churn and retention rates. Theyāre two sides of the same coin; one shows how many customers youāre losing, while the other shows how many youāre keeping.
Understanding both helps you assess business health and identify areas to improve customer experience.
What is Churn Rate?
Churn rate refers to the percentage of customers (or subscribers) a business loses over a specific period. A high churn rate usually signals dissatisfaction, weak onboarding, or a lack of perceived value.
Churn Rate Formula:(Customers lost during a period / Total customers at the start of that period) Ć 100
Example:
If you had 1000 customers at the beginning of the month and lost 50 by the end, your churn rate is 5%.
What is Retention Rate?
Retention rate is the percentage of customers you keep over a given period. A high retention rate means your business is doing well at delivering ongoing value and building customer loyalty.
Retention Rate Formula:[(Customers at end of period ā New customers) / Customers at start of period] Ć 100
Example:
If you started with 1000 customers, gained 100 new ones, and ended with 1020, then you retained 920.
Retention rate = (920 / 1000) Ć 100 = 92%
Churn Rate vs Retention Rate: Whatās the Difference?
| Metric | Focus | High Value Means | Goal |
|---|---|---|---|
| Churn Rate | Customers lost | More customer loss | Reduce it |
| Retention Rate | Customers retained | More customer loyalty | Increase it |
| Perspective | Negative (what you lose) | Positive (what you keep) | Use both to assess health |
Essentially:
- Churn = % of customers lost
- Retention = % of customers kept
Why These Metrics Matter
- Help forecast future revenue more accurately
- Reveal how well your product/service meets ongoing needs
- Show where to improve customer onboarding and support
- Inform pricing, feature updates, and communication strategy
- Crucial for SaaS, subscription-based businesses, and mobile apps
Tips to Improve Retention & Lower Churn
- Improve onboarding with tutorials, welcome emails, or demos
- Offer proactive customer support
- Regularly collect feedback and act on it
- Introduce loyalty programs or usage-based incentives
- Keep adding value: product updates, new features, personalized content
TL;DR
Churn rate shows how many customers you lost; retention rate shows how many you kept. Together, they give a full picture of customer loyalty and business health.
Want to benchmark your churn and retention rates or swap strategies with others? Join our marketing community for insights, templates, and peer advice.
