Concept

Retention rate

Summary
The term "retention rate" is used in a variety of fields, including marketing, investing, education, in the workplace and in clinical trials. Maintaining retention in each of these fields often results in a positive outcome for the overall organization or school, or pharmacological study. In marketing, retention rate is used to count customers and track customer activity irrespective of the number of transactions (or dollar value of those transactions) made by each customer. "Retention rate is the ratio of the number of retained customers to the number at risk". In contractual situations, it makes sense to talk about the number of customers currently under contract and the percentage retained when the contract period runs out." This term should not be confused with growth (decline) in customer counts. Retention refers only to existing customers in contractual situations. "In non-contractual situations (such as catalog sales), it makes less sense to talk about the current number of customers, but instead to count the number of customers of a specified recency." In a survey of nearly 200 senior marketing managers, 63 percent responded that they found the "retention rate" metric very useful. The purpose of the "retention rate" metric in a marketing atmosphere is to monitor firm performance in attracting and retaining customers. "Only recently have most marketers worried about developing metrics that focus on individual customers. In order to begin to think about managing individual customer relationships, the firm must first be able to count its customers. Although consistency in counting customers is probably more important than formulating a precise definition, a definition is needed nonetheless. In particular, we think the definition of and the counting of customers will be different in contractual versus non-contractual situations." Since there are multiple definitions of retention rates this could cause issues with interpreting retention rates in practice.
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