Client retention rate designates the percentage of clients the business has retained over a given period of time. The retention rate shows the number new clients (Active) versus the number of clients lost (Alumni) over a defined period of time.
The formula to calculate the retention rate is:
Retention Rate= (All Clients at the beginning + New Clients - Lost Clients)/All Clients
All Client = Total Client at the beginning of the specific time period. Eg 100
New Clients = New Client Added in a specific time period. Eg 20
Lost Clients = Clients left in a specific time period. Eg 10
As per the above formula, the retention rate comes out to be =1.1. Therefore, based on the above example, the business is in a growth period as the retention rate is greater than 1.
If the retention rate is equal to 1, there has neither been growth or decline in active clients.
If the retention rate is less than 1, there has been a loss of overall active clients.