What formula is used to determine a company's customer retention rate?

• A. (The number of customers at the end of the period - the number of new customers acquired during the period) / the number of customers at the start of the period x 100
• B. (The number of new customers during the period + the number of customers at the end of that period) / the number of customers at the start of the period x 100
• C. (The number of new customers during the period - the number of customers at the end of that period) / the number of customers at the start of the period / 100
• D. (The number of customers at the end of the period - the number of new customers acquired during the period) / the number of customers at the start of the period x 100

Answer: (D)

Customer retention rate measures what portion of the customers you started with are still with you at the end of the period. To capture that, focus on how many of the original customers remained, excluding new joins during the period. The correct approach is to subtract the number of new customers acquired during the period from the ending total, then divide by the number of customers you started with, and multiply by 100 to express it as a percentage. In formula form: (ending customers − new customers during period) ÷ (starting customers) × 100.

For example, if you began with 100 customers, 20 new customers joined during the period, and you ended with 110 customers, the retained original customers are 110 − 20 = 90. Retention rate is 90 ÷ 100 × 100 = 90%. This method isolates the original cohort and ignores the impact of new customers on the retention calculation, which is what retention rate is intended to measure.