Company starts the year with 1,000 customers. During the year, 200 customers leave, and 300 new customers are acquired. What is the company’s customer retention rate for the year?
1. 80%
2. 60%
3. 70%
4. 50%
The correct answer and explanation is:
The correct answer is 1. 80%.
Explanation:
Customer retention rate measures the percentage of existing customers a company retains over a specific period, typically a year. It focuses on how many customers stayed with the company out of those who started the year.
To calculate the customer retention rate, use the formula:
Retention Rate = (Number of customers at the end of the period – Number of new customers acquired) ÷ Number of customers at the start of the period × 100%
Here are the given values:
- Customers at the start of the year = 1,000
- Customers lost during the year = 200
- New customers acquired during the year = 300
First, calculate the number of customers remaining from the original 1,000:
Customers remaining = Starting customers – Customers lost
Customers remaining = 1,000 – 200 = 800
Next, apply the retention rate formula:
Retention Rate = (Customers remaining ÷ Starting customers) × 100%
Retention Rate = (800 ÷ 1,000) × 100% = 80%
This means that out of the original 1,000 customers, 80% were retained by the company during the year. The 300 new customers do not affect the retention rate calculation because retention focuses only on keeping existing customers, not on new acquisitions.
Retention rate is an important metric to understand customer loyalty and satisfaction. A high retention rate, like 80%, indicates that most customers stayed with the company, which often reflects good service or product quality. Lower retention rates may suggest problems that need attention, such as dissatisfaction or better competitors.