Retention Rate is the percentage of users who continue to engage with your product or service over a given period. It measures customer loyalty and product stickiness, making it a core growth KPI.

Formula for Retention Rate: 

Retention Rate =  (Number of customers at the start of the period  – (subtract) Number of customers at the end of the period) /(divided) Number of new customers acquired during the period × ​×100

Why Retention Rate Matters 

• Indicates the long-term value of your user base.
• Helps predict churn and customer lifetime value (LTV).
• Affects referral, upsell, and repeat revenue potential.
• Signals product-market fit and user satisfaction.
• Critical for subscription-based or SaaS business models.

Retention rate is essential for business as it indicates sustainable growth. This helps in proving whether your product delivers value that users want to return for.