Customer retention rate: formula and how it differs from churn

Customer retention rate measures the share of an opening customer group that is still a customer at the end of a defined period. Count the people who were there at the start and remain at the end; new additions do not belong to that opening cohort.

Opening-cohort retention = opening customers still active at period end ÷ customers in the opening cohort × 100.

Hypothetical example: follow the same group from start to finish

A monthly service starts October with 120 active customers. During the month, 15 of those customers cancel. At the end, 105 from the opening cohort remain; 25 new customers also join, and all of them remain active. The total at the end is 130.

• Retention of the opening cohort: 105 ÷ 120 × 100 = 87.5%.
• Churn in that same cohort: 15 cancellations ÷ 120 × 100 = 12.5%.

They add up to 100% here because both calculations follow the same 120 customers, the same month, and the same rule: continue the contract or cancel it. The period is October, and churn means canceling the service before the period ends.

Why new additions can change the calculation

The aggregate formula (customers at end − new customers) ÷ customers at start gives 87.5% in the example above because all 25 new customers are still active at the end. But if three of those new customers also cancel during October, only 22 remain and the final total is 127.

Subtracting all 25 additions gives (127 − 25) ÷ 120 = 85%. That understates retention in the opening cohort: the three new customers who canceled were never part of the original 120. Subtracting the 22 new customers who remain gives (127 − 22) ÷ 120 = 87.5%. To avoid that assumption, identify which customers from the opening cohort remain at the end; report departures among new additions separately if they matter.

Churn can also refer to a different measure. If you count lost revenue instead of lost customers, you are measuring revenue churn. A filing Banzai submitted to the SEC distinguishes customer (or “logo”) churn from revenue churn and defines its own rate against the active base at the start; that is the issuer’s method, not a universal standard. Read its SEC filing.

Define what counts as remaining a customer

For a contracted service or renewal, you can use an active contract at period end as the retention rule and cancellation as churn. For a store with no contract, a customer who does not buy again right away has not necessarily left. Set a repeat-purchase window that fits the product cycle and name the metric for what it counts; do not describe it as an observed cancellation.

Record the opening group, period, event that marks a departure, and whether the figure counts customers or revenue. Do not compare a monthly rate with an annual one as if they covered the same horizon. Website or app user retention is another measure: GA4 groups users by acquisition cohort and tracks whether they return on later days.

The 120 customers, 15 cancellations, and 25 additions are fictional figures that show how the calculation changes. They are not a benchmark or an expected rate for other businesses.

The cover is an AI-generated illustration.