Software Growth

Retention rate

Retention rate is the percentage of customers or users still with you at the end of a period. It mirrors churn rate and is best tracked by cohort.

Retention rate is the share of customers you kept. If you start a period with 200 customers and 190 are still paying at the end, retention is 95%. It carries the same information as churn rate (retention is 100% minus churn), but people reach for it when they want to talk about how long customers stay and how good the product is, not about the loss.

How to calculate retention rate

You start a quarter with 200 customers, sign 40 new ones and end with 230. Retained customers are 230 - 40 = 190, so retention is 190 / 200 = 95%, and quarterly churn is 5%. The subtraction of new customers matters. Without it you would report 115%.

Customer retention vs revenue retention

Retention can be counted in accounts or in dollars. Dollar versions are gross revenue retention, which counts only losses, and net revenue retention, which adds expansion and can pass 100%. Plain retention rate usually means the account version.

User retention and customer retention

For products with free users, retention often refers to active users coming back, not paying customers staying subscribed. Lenny Rachitsky's study of what good retention looks like measures it as the share of users still active after 6 months, and gives these targets as good and great:

  • Consumer SaaS: 40% and 70%
  • SMB and mid-market SaaS: 60% and 80%
  • Enterprise SaaS: 75% and 90%

The lower the price and the smaller the customer, the lower the retention you should expect. The study also notes that weaker retention can be acceptable if acquisition is cheap or you are not chasing venture-scale growth.

Why a single number is not enough

A blended retention rate mixes customers who joined last week with customers who joined three years ago, and those two groups behave very differently. Sequoia's data science team, in its retention essay, looks at retention by cohort and by curve. See retention curve and cohort analysis.

Common mistakes

  • Leaving new customers in the numerator.
  • Comparing a monthly rate with an annual one. 97% monthly retention is about 69% annual, since 0.97 to the 12th power is 0.694.
  • Counting a paused or downgraded customer as lost, or as fully retained, without deciding on a rule first.

For small SaaS

Pick a single definition, such as paying customers at day 90, and report it for each monthly signup group. With a few hundred customers a month-to-month change of a point or two is noise, so judge by trend across several cohorts.

Sources

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