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What is a retention rate, and why is it so important? A retention rate is the amount of customers that you bring in that you retain over time. Retaining a customer is far less expensive than acquiring a customer, so retention rates are quite important. Retention rates are also an indicator of overall company health: If a company has low retention, it isn’t delivering the services that its customers need. (Of course, retention rate also varies by industry. The retention rate of a real estate agent will be quite low, because clients will buy a single house and then be done.)
Because industries may vary, and analysis may vary, there are different types of retention. But any type of retention begins with a retention rate formula. As long as you calculate retention rate consistently, you will see the basic trends. You can calculate a customer retention rate formula with a number of platforms: Excel, calculators, or even customer relationship management suites. Many CRM solutions have their own retention rate calculator, and marketing suites usually have an area for retention rate marketing.
Because industries shift, there’s no one answer to “What is a good retention rate?” What is a good customer retention rate is going to vary, and the retention rate meaning in business will fluctuate depending on the company’s goals. For instance, a sudden influx of brand new customers may mean that retention rates are not yet accurate, because there’s no telling whether these brand new customers will stay.
It’s important to note that the retention rate in business can also refer to employees, whereas the retention rate meaning marketing is always relative to customers. Regardless, the retention ratio can be computed as a function of how many customers came in and how many of them were retained. You can input a retention rate formula Excel sheet and then use that to gauge how retention rates are adjusting over time. The standard net retention rate formula for a retention ratio calculator is:
Retention = ((C-N)/P)*100, where C = current customers, N – new customers, and P = previous customers.
Let’s say the business started the quarter with 22,000 customers. It acquired 8,000 customers. At the end, it had 26,000 active customers. The formula would be:
Retention = ((26,000-8,000)/22,000)*100. The retention rate of this business is 81%. (And it’s going to have to make some changes. It lost more customers than it gained!)
Why is retention so important? Retention is actually a key measure of success for virtually any type of business. Retention isn’t just relative to customers. It can also be relative to employees. And it may not even be customers, but may also be users, subscribers, and so forth. Retention rates that are growing means that the customer base is growing. Retention rates that are shrinking mean that the company has something that it needs to correct.
Of course, the retention meaning can also differ depending on what is going on for a business. For instance, a business might be shedding its lower paying clients so it can focus on higher paying clients. Mobile app retention rate statistics can vary depending on other issues, such as bugs introduced by operating system changes. So companies still need to track other metrics as well, but app retention rate benchmarks can overall be very useful.
An insurance agent retention rate and an insurance retention rate formula will both differ from retention rates for an eCommerce portal. Insurance agents have a type of “sticky” income, where it’s more likely for customers to stay on board for longer. The renewal retention insurance definition will compensate for this. Meanwhile, eCommerce companies are more likely to see a few customers purchase incidentals, and fewer customers keep coming back.
Then you have other questions, such as “What is a good retention rate for YouTube videos?” Are users coming back and watching more? Are they liking and following? A net retention ratio insurance formula can’t be applied to YouTube videos, and a risk retention ratio insurance isn’t going to be the same as a crew retention rate formula. Businesses need to consider their own business models and which types of retention rate are most important for them.
Why is having a good retention rate so important for a business? And, in fact, what is a good retention rate for a company? A good retention rate for a company should also be compared to other businesses within the industry. Your retention rate finance should be compared with other financial holding companies, and your annualized retention rate for YouTube videos or app users should be compared to others within your field.
But to really understand why retention rates are so important, you need to understand other calculations such as the ROE formula, dividend payout ratio, payout ratio formula, and MRR retention rate. These are all things that venture capitalists might look to in order to value a company, and high numbers in these categories could lead to a company being able to attract additional funds. The ROE formula is a return on equity formula, which indicates how much you are gaining with the equity you have. And keeping existing customers is always cheaper than acquiring new ones.
When companies have a sustainable growth rate, as measured by their sustainable growth rate formula, they are able to ensure that they thrive. Companies can use their growth rate and their retention rate as a metric of success. They know they are doing well and that they are operating as they should when their retention rate is high. But when their retention rate starts to drop, that is when alarm bells should start to sound.
For software companies, higher retention rates naturally lead to higher valuation for investors, as well as possible acquisition. Ultimately, high retention rates are a positive marker for any business.
Apart from retention rate, churn rate is also an important metric. Churn rate is essentially the same thing as a retention rate, but it has a different label that’s more popular for the B2B software industry. When you say retention, the focus is on the amount of customers you have. When you say churn, the focus is more on the amount of customers coming in and out. But to understand your company’s churn rate, you also need to understand what industry you’re in.
When it comes to churn rate vs retention rate, also keep in mind that though they may mean the same thing, different companies are going to compute these metrics differently, and companies also don’t happen in a vacuum. The average turnover rate 2019 may be different from the average turnover rate 2018 by industry, and the average customer retention rate by industry alone will vary. There’s no “average retention rate” for businesses because the data wouldn’t be meaningful.
So, if you had your own SaaS retention rate for 2019, you would be comparing it with the average turnover rate 2019 by industry: SaaS. You would not be comparing it to the eCommerce retention rate, but only the SaaS retention. You would be able to get an average of SaaS retention for that particular year.
And when comparing churn rates and retention rates, companies shouldn’t be comparing themselves just to other businesses in their industry, but also to their own past performance. In many ways, this is the most important metric, because it shows whether the company is growing or shrinking. This can be affected by other companies in the industry and by the industry itself, but it’s still an incredibly important metric to track.
Employee Retention Rate
Employee retention rates are very important for businesses who want to gauge employee satisfaction and improve their overhead. Training a new employee can cost as much as twice the employee’s annual wages. Training is an expensive process. Any company with a high employee retention rate isn’t just going to be able to save money (and boost productivity), but it’s also going to look better to outside investors.
As with retention, it’s best not to just look at average employee turnover rate 2018 or average employee turnover rate 2019. You also need to look at industry trends. What is a good employee retention rate at an accounting firm is not the same as a good retention rate at a call center. Certain industries beget more churn than others. However, companies should look at their numbers in comparison with others within their industry.
When companies have high churn, it isn’t just about the cost of training. The company itself is less productive overall, because the company isn’t able to easily manage its new employees. Company culture becomes diluted, because there are no long-standing employees of the company. And because the company is in constant flux, it’s very easy for processes to go unfollowed, and for security to start to falter. A company with a poor retention rate likely has specific issues that it needs to address, such as not offering enough money for the position, or not having the right managers within their positions. Addressing these issues will make the company stronger overall.
Average College Retention Rate
What’s the average college retention rate? For schools, the retention rate is incredibly important. Not just the national college retention rate, but also college retention rates by state. Colleges are able to determine how well they are educating students and inspiring them by how long they stay. The retention rate meaning school is just as important as the retention rate meaning for businesses, because a school needs to operate like a business.
As with businesses, the year matters; the national college graduation rate 2018 may be lower or higher than the national college graduation rate 2019 because of economic issues or other environmental concerns. Employers should look into how to calculate student retention rate in Excel and customer relationship management software, to determine whether they are doing better or worse year-over-year.
Why is student retention important? What is a good retention rate for a college? It largely depends on the college. Better performing colleges with more exclusive application processes will have higher retention rates, whereas broader colleges such as stage colleges may have lower retention rates.
Universities that are looking for grants, additional funding, and outside investments from their alma mater will look better the higher their retention rate. And ultimately, retention rate for a school, just like a business, is going to depend on how well the school is operating. Low retention rates means that students either cannot afford their schooling, or have become disenchanted with it.