Retention rate

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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. [1]

"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.[2]


Additional Usage of the Term[edit]

In the investment field, Retention Rate (also called earnings retention ratio, plowback ratio) is the proportion of net income that is not paid in dividends. A firm earning $80 million after taxes and paying dividends of $20 million has a retention rate of $60 million/$80 million, or 75%. A high retention rate makes it more likely a firm's income and dividends will grow in future years. It's often expressed as a percentage.

Retention rate is calculated as: \frac{(NetIncome-Dividends)}{Net Income}

Retention rate may also refer to colleges. According to the FAFSA, the retention rate is the percentage of a school’s first-time, first-year undergraduate students who continue at that school the next year. For example, a student who studies full-time in the fall semester and keeps on studying in the program in the next fall semester is counted in this rate.[3]

Purpose[edit]

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." [2] In the workplace arena, the purpose of the retention rate is to assist organizations with deciding when to take action in order to keep employees happy and motivated.[4] According to a survey by CNN Money, the top 100 best companies to work for had less than a 3% turnover rate during a 12 month period.[5]

Construction[edit]

"Retention applies to contractual situations in which customers are either retained or not. Customers either renew their magazine subscriptions or let them run out. Customers maintain a current account with a bank until they close it. Renters pay rent until they move out. These are examples of pure customer retention situations where customers are either retained or considered lost for good. In these situations, firms pay close attention to retention rates." [2]

Retention Rate: The ratio of the number of customers retained to the number at risk.[2]

Workplace[edit]

Retention in the workplace refers to “the percentage of employees who were employed at the beginning of a period, and remain with the company at the end of the period”.[6] For example, in January, 2010, Company A had 500 employees. After one year, 200 of the 500 employees were still working for the company. The retention rate is 200/500 = 40%.

See also[edit]

Methodologies[edit]

No retention rate methodologies have been independently audited by the Marketing Accountability Standards Board (MASB) according to MMAP (Marketing Metric Audit Protocol).[7]


References[edit]

  1. ^ Fripp G. (2014) Customer retention rates ,
  2. ^ a b c d Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeifer; David J. Reibstein (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance. Upper Saddle River, New Jersey: Pearson Education, Inc. ISBN 0137058292. Content from this book used in this article has been licensed under Creative Commons Attribution Share Alike 3.0 and Gnu Free Documentation License and be modified and reused. The Marketing Accountability Standards Board (MASB) endorses the definitions, purposes, and constructs of classes of measures that appear in Marketing Metrics as part of its ongoing Common Language in Marketing Project.
  3. ^ http://www.fafsa.ed.gov/help/fotw91n.htm
  4. ^ http://smallbusiness.chron.com/average-employee-retention-rate-18799.html
  5. ^ http://money.cnn.com/magazines/fortune/bestcompanies/2011/turnover/
  6. ^ http://www.shrm.org/TemplatesTools/hrqa/Pages/CalculatingRetentionandTurnover.aspx
  7. ^ MASB. Marketing Metric Audit Protocol (MMAP). February 2009. [cited 8 July 2011]