Net Retention Rate

Definition, examples, and why it's important

Table of Contents

What is Net Retention Rate

How do you calculate Net Retention Rate

Example of Net Retention Rate

Why is Net Retention Rate Important?

What is Net Retention Rate

Net retention rate is a metric that measures the percentage of customers who stay with a company over a given period of time. To calculate net retention rate, you take the number of customers at the beginning of a period and subtract the number of customers lost during that period. You then divide that number by the number of customers at the beginning of the period. This gives you the percentage of customers who remained loyal to your company during that time frame.

Example of Net Retention Rate

For example, let's say you had 100 customers at the beginning of January. During January, you lost 10 customers and gained 5 new ones. This means your net retention rate for January would be 95%.

Why is Net Retention Rate Important?

Startups live and die by their ability to retain customers. That's because acquiring new customers is incredibly expensive—often 5-25 times more expensive than retaining existing ones. A high net retention rate means your startup is not only keeping its existing customer base happy, but also growing it. This is essential for long-term success.

A high net retention rate also indicates that your product or service is valuable to your target market. After all, if people didn't find value in what you're offering, they wouldn't stick around for long. So not only will a high net retention rate help your bottom line in the short-term, it will also help you attract new customers and investors in the long-term.

In Summary

As a startup founder, it's important to have a firm understanding of your company's net retention rate. This metric can give you valuable insights into whether or not your product or service is valuable to your target market, and how well your startup is doing at retaining (and growing) its customer base.

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