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Customer retention (retention rate)

| Article: 3 min read | Customer retention

Customer retention is a company's ability to keep its customers over a given period. Retention rate is the share of customers who stayed.

Plain explanation

Wikipedia defines customer retention as the ability of a company or product to keep customers over a given period, stressing that the effort should cover the whole customer life cycle (Wikipedia). Retention is the opposite of churn: if churn is 20%, retention is 80%.

In a store, unlike a subscription, a customer doesn't "cancel" anything: they simply stop buying. So you have to decide for yourself who counts as "lost", for example someone who hasn't bought anything for 12 months.

Formula

Retention rate = (customers at end of period − new customers during the period) ÷ customers at start of period × 100%

Simpler and more accurate for a store: the share of a cohort's customers who bought again after N months. a16z describes this as cohort retention: the first month is 100% of the cohort, then the share of those who are still buying (a16z). For more on cohorts, see cohort analysis.

Example (hypothetical numbers)

The numbers are made up for the example. On 1 January a store has 5,000 customers who bought during the last year. Over the year, 2,000 of them bought again. Retention for the year = 2,000 ÷ 5,000 = 40%.

Why it matters

Repeat customers give a store a noticeable share of revenue, but it differs by industry. According to a benchmark for Black Friday and Cyber Monday 2025 (five days, brands from one email marketing platform), repeat customers generated 70.2% of revenue in food and drink, 55.4% in health and beauty, 52.2% in apparel and accessories, while in home and garden 67.5% of revenue came from new customers (BFCM 2025 benchmark). This is data from one holiday week, and the page does not describe the sample or the definitions of "new" and "repeat", so it is a guide, not a norm for your store.

Retention by itself does not guarantee growth. A study of more than 1.7 million customers worth $1.2 billion at Australian and New Zealand online stores (2023 and 2024 data, published May 2025) showed: brands that retained fewer customers but increased their spending grew more than three times faster than those that retained more but did not raise the order value. A retailer with 39% retention found that retained customers spent 46% less, and revenue fell by 14% (study, May 2025). So look not only at the share of returning customers but also at how much they buy: LTV, average order value.

There is no fresh universal figure for how many times cheaper it is to retain than to acquire: estimates depend strongly on the industry. Calculate your own CAC and compare it with the cost of bringing a customer back.

Common mistakes

  • Confusing retention with activity on the site. A visitor who doesn't buy is not a retained customer.
  • Including new customers in the calculation without subtracting them.
  • One number for everyone. Retention of customers from different channels differs.
  • Not separating one-off products (a refrigerator) from regular ones (pet food, cosmetics).

FAQ

What is retention rate? The share of customers who remained active over a period.

How do you calculate customer retention? Take a group of customers by the month of their first purchase and see what share bought again after 3, 6, 12 months.

How is retention different from churn? They are two sides of one indicator: retention plus churn equals 100%.

How can you raise retention? Improve the post-purchase experience, send emails based on RFM, reminders to restock, a loyalty program.

Sources

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