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

At the end of a busy quarter, a manager opens a workforce report and sees two numbers that seem to conflict: the team is larger than it was three months ago, but several experienced people have left. The team added new hires, filled urgent gaps, and still delivered its work. So was retention good or bad?

This is a hypothetical scenario, but the question behind it comes up constantly in businesses, membership groups, schools, and subscription programs. A growing total does not necessarily mean the original group stayed. Retention rate separates those two ideas by showing how much of the starting group remained over a chosen period. To compute it, subtract new additions from the ending total, divide by the starting total, and multiply by 100.

The retention rate formula

Use this standard formula:

Retention rate = ((E − N) ÷ S) × 100

Where:

• S = number of people, customers, members, or accounts at the start of the period
• E = number at the end of the period
• N = new additions during the period

The calculation answers a specific question: of the group you started with, what percentage was still with you at the end? New additions are subtracted because they were not part of the original group. Without that step, strong recruiting, sales, or enrollment could make retention look better than it actually was.

How to calculate retention rate step by step

Start by choosing a time period, such as a month, quarter, year, or contract term. Then follow four steps.

1. Count the starting group

Record the number of people or accounts active on the first day of the period. For example, imagine an organization begins the quarter with 120 employees. In this case, S = 120. Be consistent about who qualifies as active. If temporary workers, inactive accounts, or people on leave are included at the start, use the same rules when counting the ending group.

2. Count new additions

Identify how many people joined during the period. Suppose the organization hired 25 employees during the quarter: N = 25. For customer retention, this would be newly acquired customers. For a membership organization, it would be new members. The key is to count additions separately from the original group.

3. Count the ending group

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

4. Apply the formula

Substitute the numbers:

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

The organization retained 87.5% of its starting employees during the quarter.

A worked employee retention example

The formula is widely used in workforce reporting. One example published through 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 the retention result shows that 90% of the employees present at the start remained. Headcount growth alone cannot show whether existing employees stayed. SHRM Vendor Directory's employee retention calculation example

A worked customer retention example

The same math applies outside HR, but the definition of "retained" has to be set first. Suppose a subscription business defines a retained customer as one with an active, paid account at both the start and end of the period. It begins the quarter with 400 active subscribers, gains 60 new sign-ups, and ends the quarter with 430 active subscribers.

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

That means 92.5% of the customers who were paying subscribers at the start of the quarter were still paying at the end. New sign-ups grew the total headcount, but they are not part of this percentage. If the business instead counted a single trial-to-paid conversion as "retained," or treated a paused account as still active, the same raw numbers could produce a different result. That is why defining what counts as retained, before running the calculation, matters as much as the arithmetic itself.

What retention rate tells you

Retention rate is a percentage, but it is more useful viewed as a trend across several periods than as a single snapshot. Comparing one quarter to the next, or one cohort to another, shows whether a change is a blip or a pattern. Before assuming a cause, segment the number by group, such as department, tenure, plan type, or acquisition source, since a strong overall rate can hide a weak spot in one segment. The calculation itself does not identify why people left; it tells you where to look closer.

Retention rate by context

The math stays the same across settings, but the definition of the group changes.

Employee retention

Employee retention measures the share of employees from the starting workforce still employed at the end of the period. Employers often calculate it companywide, then break it down by department, location, role, or tenure to see whether an average is hiding a concentrated problem.

Customer retention

Customer retention measures the share of customers who remain active or continue buying over a period. Before calculating, define what "retained" means, whether that's an active subscription, a renewal, or a repeat purchase, since a one-time small purchase is not the same signal as a renewed annual agreement.

Member or participant retention

Associations, gyms, nonprofits, and online communities can use retention rate to track renewal and ongoing participation. If membership terms vary, calculate comparable cohorts; mixing monthly and annual members can make the result hard to interpret.

Avoid common calculation mistakes

A retention rate is only as reliable as the underlying counts.

Do not count new additions as retained. If you begin with 100 customers, gain 30 new ones, and finish with 110, the retention rate is not 110%. The calculation is ((110 − 30) ÷ 100) × 100 = 80%. You retained 80 of the original 100 customers. This adjustment step is easy to skip, so double-check it in every calculation.

Use one consistent time period. Do not compare a monthly rate with a quarterly rate as if they measure the same thing. A shorter period usually shows fewer opportunities for people to leave. Choose a reporting cadence, document it, and keep it consistent.

Define departures and status changes in advance. Decide how to treat internal transfers, contract completions, leaves of absence, and reactivated accounts before you calculate, and apply the rule consistently.

Check the data before interpreting it. Make sure the ending count, new-addition count, and starting count refer to the same population. A payroll system, a customer relationship platform, and an HR report may use different definitions or update schedules, so reconcile obvious differences before presenting the rate.

Retention rate versus turnover and churn

Retention focuses on who stayed from the original group. Turnover and churn focus on who left. In a simple situation with a stable starting group, retention and departure rates can be thought of as complements: if 90% of the starting group remained, roughly 10% left. Real reporting can get more complicated because of rehiring, transfers, and changing eligibility rules, so check how each metric is defined before comparing them.

Make retention reporting more useful

Calculate the overall number first, then break it down by tenure, job category, customer plan, region, or contract type to guide action. Pair the data with direct feedback, such as exit interviews, surveys, or cancellation reasons, to explain what the formula alone cannot.

As a next step, pick one reporting period and one clear definition of your starting, ending, and new-addition counts, then apply the same rule every time you calculate. That consistency is what makes a retention rate worth tracking over time.

Informational note: This article is provided for general informational purposes only and is not legal advice. It does not represent the advice or opinion of the website or organization on which it appears.