Retention Rate

What is the retention rate?

The retention rate (in German Haltequote) is the counterpart to churn: what share stays?

What matters is which quantity is measured.

The two calculations

• Customer retention: Share of customers who have stayed. Shows how many customers are retained.
• Net revenue retention: Revenue from existing customers at the end of the period divided by their revenue at the start of the period, including expansion and contraction. New customers are not included.

Worked example

A provider starts the year with 100 customers and EUR 500,000 in annual revenue from these customers. At the end of the year, 84 of them are still there. Together they pay EUR 590,000 because many have expanded.

Customer retention: 84 / 100 = 84%
Net revenue retention: 590,000 / 500,000 = 118%

This is the decisive point: a net revenue retention above 100% means that the installed base grows even without a single new customer. At 118%, the company would grow by 18% a year even if sales stopped completely.

Why this figure moves the valuation

Growth through new customers costs money and stops as soon as the budget stops. Growth from the existing base costs almost nothing and keeps going. Net revenue retention is therefore one of the few metrics that can genuinely justify a higher valuation multiple.

The levers

• Onboarding: Customers who reach the core benefit within the first two weeks stay considerably longer.
• Pricing model: A price that grows with usage creates expansion without a sales conversation.
• Target group: Customers outside the profile churn at an above-average rate. The retention rate is therefore also a statement about sales.

Common mistakes

1. Mixing customer and revenue retention. They can be far apart and tell different stories.
2. Counting new customers in revenue retention. That measures growth, not retention.
3. Showing only the overall figure. Split by segment, it usually becomes visible that one segment carries the figure and another drags it down.
4. Changing the period. Monthly and annual values in one presentation make comparison impossible.

Frequently asked questions

How does this relate to the churn rate?

Retention and churn add up to 100% as long as the same quantity is measured. This does not hold for net revenue retention, because expansion can lead beyond 100%.

What is a good value?

That depends heavily on the segment. More reliable than a benchmark is the company's own development over eight quarters, split by the year in which customers joined.

How often should it be measured?

Monthly for management, annually for presentation to investors.

The Roemer Capital view

Roemer Capital always places customer retention and net revenue retention side by side in the business plan. The difference between the two is one of the most telling figures there is: it shows whether the business grows with its customers or merely keeps customers.