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Retention

Metric
Foundation

Definition

The percentage of customers remains active within a defined time period after signing up

Related Knowledge

Customer Acquisition Cost (CAC)LTV (Lifetime Value)Net Revenue Retention (NRR)

The most important growth metric because it determines whether acquisition efforts compound into lasting value or just temporarily inflate topline numbers.

If retention is bad, LTV crashes. If LTV crashes, you cannot afford a high CAC. Strong retention also indicates real product-market fit.

Types of Retention

  • Customer retention

      Tracks whether users remain customers at all (they are still subscribed or still paying).

  • Revenue retention (e.g. NRR)

      Tracks the dollar value retained, which can increase if customers upgrade or decrease if they downgrade.

  • User/active retention (product analytics)

      Tracks whether users remain active in the product, regardless of payment status.

    • How It Is Measured

    Retention is typically analyzed using cohorts:

  • Take all customers who signed up in a given period (for example, January).
  • Track what percentage are still active in February, March, April, and so on.
  • Plot this as a retention curve to see how quickly customers drop off and where the curve stabilizes.

    • Common views:

  • Day 1 / Day 7 / Day 30 retention for consumer apps and many B2C products
  • Monthly or annual retention for subscription and B2B businesses

    • The Compounding Effect

    Small improvements in retention have a huge long-term impact.

  • If you retain 90% of customers each month, after 12 months you keep about 28%.
  • If you retain 95% each month, after 12 months you keep about 54%.

    • That difference compounds into dramatically different revenue, LTV, and the size of the customer base over time.

    Retention vs. Churn

    Retention and churn are inverse measures:

  • If monthly retention = 95%, then monthly churn = 5%.
  • Some teams report churn rate. Others report retention rate. The underlying concept is the same: how many customers you keep versus lose.

    • Case Example

    Insight

    "Our Facebook ads bring in cheap users (low CAC), but they have terrible retention. Our podcast ads are expensive (high CAC), but those customers stay for 2 years."

    Recommendation

    "Even though the podcast channel has a higher CAC, it is more profitable because retention is much stronger and LTV is much higher. We should shift budget from Facebook to podcast, not just optimize for cheapest CAC."