Ep 35: How to Calculate your Retention Rate

Oct 18

How to Calculate your Retention Rate

If you have a recurring revenue business, there's one number that you absolutely need to be tracking. So you can imagine my shock when I was reading a recent study that revealed over half of membership site owners don't know this metric. I'm going to share with you exactly how to track it on the back of a napkin and reveal why it is such an important metric to know.

The Importance of Retention Rate

I was recently reading a membership benchmark report about membership site owners and their programs. There was one metric they mentioned that stopped me in my tracks. The report said that over half of membership site owners are not tracking one of the most important metrics in their business. Now, how on earth you can have a membership site without tracking this one metric is beyond me.

But I know that you are going to want to track this because you have a CEO mindset and you understand the importance of knowing your numbers. This is how you determine where to invest your time and your money for the highest return on investment. So let's talk about this metric. It's retention rate.

How to Track Your Retention Rate

Retention rate is understanding how many people are staying inside of your membership month after month. So if you have 10 people leave your membership every month, or 500 people leave your membership every month, what retention rate is that? This is really important because your retention rate determines the lifetime value of your customer, and it's also going to tell you how fast you need to be adding people to your membership if you want to sustain or grow your membership over time.

But so few people are tracking it, and here's the deal. It's really not that complicated to track. All I want to do is tell you exactly how to track your retention rate. So grab a pen and a piece of paper or a napkin because I'm about to share with you a simple formula for tracking your retention rate.

To calculate your customer retention rate (R) you can use the following simple formula involving the customers you have at the start of a month (S), at the end of the month (E) and customers acquired during the period you're measuring (N). It looks like this:

R = ((E-N)/S) x 100

For example, if you had 110 members at the end of a month, gained 20 new members, and started with 100 members, your retention rate would be 90%.

E = 110
N = 20
S = 100

R= ((110-20)/100) x 100 -> 90/100 x 100 -> .9 x 100 -> 90%

That means you're keeping 90% of your members every month, but you're also losing 10% of them.

The Impact of Retention Rate

Knowing your retention rate allows you to make data-driven decisions on where to invest your time and money for the highest return on investment. As your retention rate increases, it has an exponential effect on the revenue and profitability of your business.

If you're not currently tracking your retention rate, there's no excuse anymore. It's easy to do and can be done on the back of a napkin. And if you want to take a shortcut, you can access a free Membership Retention & Lifetime Value Calculator at memberltv.com.

Tracking your retention rate is critical for the success of your recurring revenue business. Don't be one of the 56% of membership site owners who aren't tracking this metric. Start tracking your retention rate today and see the impact it has on your business's revenue and profitability.