How to Compute Retention Rate (Formula, Steps, and Examples)

Calculate retention rate by subtracting new additions from the ending group, dividing the result by the starting group, and multiplying by 100. The result estimates the share of the people or accounts present at the start that remained through the end of a chosen period. It applies to employee, customer, member, and other groups, but only when you define who counts as active and use the same rules for every count. New additions must be separated from the ending total because they were not part of the starting group. A single rate shows what happened to that group, while comparisons across consistent periods or segments can reveal patterns; the calculation alone does not explain why people left.

The Retention Rate Formula

Use this formula:

Retention rate = ((E − N) ÷ S) × 100

• S is the number of people, customers, members, or accounts in the group at the start of the period.
• E is the number in the group at the end of the period.
• N is the number of new additions during the period who are included in the ending count.

The formula removes additions from the ending count so the remaining figure represents the original group still present. Then it compares that figure with the starting count. For example, if a company ends a period with more employees than it started with, that growth does not mean every original employee stayed.

The calculation depends on consistent counts. The starting and ending totals must refer to the same population and use the same definition of active. Count additions consistently as well. If the result is above 100% or below 0%, check for mismatched dates, populations, or counting rules before interpreting it.

How to Calculate Retention Rate Step by Step

Choose a period first, such as a month, quarter, year, or contract term. Then establish who qualifies for the count and follow these steps.

1. Count the Starting Group

Record the number of people or accounts active on the first day of the period. For example, if an organization begins the quarter with 120 employees, then S = 120. Decide in advance how to treat temporary workers, inactive accounts, or people on leave. Apply the same eligibility rules when you count the ending group.

2. Count New Additions

Count the people or accounts that joined during the period and are included in the ending total. If the organization hired 25 employees during the quarter, then N = 25. For customer retention, count newly acquired customers; for membership retention, count new members. Keep these additions separate from the starting group.

3. Count the Ending Group

Count the same defined population at the end of the period. If the organization finishes the quarter with 130 employees, then E = 130. This total includes both people who were there at the start and those who joined later.

4. Apply the Formula

Substitute the counts into the formula:

Retention rate = ((130 − 25) ÷ 120) × 100 = (105 ÷ 120) × 100 = 87.5%

The organization retained 87.5% of its starting employees during the quarter, according to the definitions used for these counts.

Employee Retention Example

An example published by the SHRM Vendor Directory starts with 200 employees, ends with 210 employees, and includes 30 new hires during the period. The calculation is:

((210 − 30) ÷ 200) × 100 = 90%

The workforce grew overall, but 90% of the employees present at the start remained by the end. The example shows why headcount growth and employee retention measure different things.

Customer Retention Example

The same calculation works for customers, but first define what counts as retained. For example, a subscription business might count a customer as retained only if the account is active and paid at both the start and end of the period. Suppose it begins the quarter with 400 active subscribers, gains 60 new sign-ups, and ends with 430 active subscribers.

Retention rate = ((430 − 60) ÷ 400) × 100 = (370 ÷ 400) × 100 = 92.5%

Under that definition, 92.5% of the customers who were paying subscribers at the start were still paying at the end. New sign-ups increase the ending total but are not part of the starting group. If the business instead counted trial-to-paid conversions as retained or treated paused accounts as active, the same raw counts could describe a different measure. The definition therefore matters as much as the arithmetic.

What Retention Rate Tells You

Retention rate reports how much of a starting group remained over a specified period. It is usually more useful as a trend across comparable periods than as a single snapshot. Comparing quarters or cohorts can show whether a change is temporary or part of a pattern.

An overall rate can also hide differences between groups. Break it down by department, tenure, plan type, or acquisition source when those segments are relevant. A low rate in one segment may be obscured by a stronger rate elsewhere. The calculation identifies where retention changed, but it does not establish why; feedback and other evidence can help explain the result.

How Retention Rate Varies by Context

The formula stays the same across settings, but the group being measured and the meaning of “retained” change.

Employee Retention

Employee retention measures the share of employees in the starting workforce who remain employed at the end of the period. Organizations may calculate it across the whole workforce and then examine departments, locations, roles, or tenure groups to find differences that an overall average can conceal.

Customer Retention

Customer retention measures the share of customers who remain active or continue buying during a period. Define whether retention means an active subscription, a renewal, or a repeat purchase. These behaviors can represent different customer relationships, so use the definition that fits the question being measured.

Member or Participant Retention

Associations, gyms, nonprofits, and online communities can track renewals or continued participation. When membership terms differ, compare similar cohorts. Mixing monthly and annual members can make a rate difficult to interpret because the groups have different renewal schedules.

Common Retention Calculation Mistakes

A rate is only as reliable as the counts and definitions behind it. Check these points before using the result:

• Do not count new additions as retained. If you start with 100 customers, gain 30, and finish with 110, the calculation is ((110 − 30) ÷ 100) × 100 = 80%. The 30 new customers are removed because they were not in the original group.
• Use one consistent period. A monthly rate and a quarterly rate do not measure the same span of time. Choose a reporting cadence and keep it consistent when comparing results.
• Set rules for departures and status changes. Decide how to treat internal transfers, contract completions, leaves of absence, and reactivated accounts. Apply those rules consistently.
• Check that the data describes the same population. A payroll system, customer platform, and HR report may use different definitions or update schedules. Reconcile differences before presenting the rate.

Retention Rate Versus Turnover and Churn

Retention focuses on who stayed from the starting group. Turnover and churn focus on departures. With a consistent starting population and straightforward counting rules, the departure share is the complement of the retention rate. For example, if 90% of the starting group remained, 10% left.

Actual reporting may be more complicated when people are rehired, transferred, or treated differently under eligibility rules. Check how each metric handles those cases before comparing rates or treating them as exact opposites.

Making Retention Reporting More Useful

Calculate the overall rate first, then break it down by relevant groups such as tenure, job category, customer plan, region, or contract type. Pair the figures with evidence that can help explain changes, such as exit interviews, surveys, or cancellation reasons. The rate shows what happened to the starting group; that additional information can help identify possible reasons.

For useful comparisons over time, document the reporting period and the definitions for starting members, ending members, and new additions. Applying the same rules each time makes it possible to distinguish a real change in retention from a change in how the data was counted.

*This article is for general informational purposes only and is not legal advice.