Glossary
What is retention rate?
Retention rate is the proportion of customers from one period who return in the next, and even a small increase compounds substantially over a year.
Retention compounds because each retained customer continues to generate revenue in every subsequent period. This is why loyalty programmes are usually assessed over a year rather than a month: a five-point improvement looks marginal in week one and significant by month twelve.
How is retention rate calculated?
Divide the customers active in this period by those active in the previous one, counting only people who were already customers at the start. Adding new customers into the numerator turns a retention measure into a growth measure and hides the problem you are trying to see.
What is a good retention rate?
It depends entirely on visit frequency, so comparisons across business types are meaningless. What matters is the direction of your own number over time, measured the same way each month.
A useful companion figure is the share of enrolled loyalty customers who have reached at least half the reward threshold. Below about a quarter, the threshold is too far away and members have disengaged.
How quickly does a loyalty programme move it?
Expect the first honest read at about three months, because a customer has to enrol, accumulate progress and approach the reward before the mechanic can change anything. Enrolment numbers in month one look excellent for the wrong reason: your existing regulars join first, and they were never going to churn.
See also
- Customer retention: Customer retention is the share of customers who return to a business over a given period, and it is usually far cheaper to improve than customer acquisition.
- Churn: Churn is the rate at which customers stop returning, and in a local business it is usually silent: customers rarely announce they have left, they simply stop appearing.
- Customer lifetime value: Customer lifetime value is the total revenue a business expects from one customer across the whole relationship, rather than from a single transaction.
- Purchase frequency: Purchase frequency is how often a customer buys within a period, and its inverse, the typical gap between one customer's visits, is what sets every other number in a loyalty programme.
Further reading
How to measure repeat customer rate (and what to do with it)
The formula for repeat customer rate, the window to measure it over, what a good figure looks like by industry, and the two numbers that are more useful.
The best digital loyalty apps for small businesses in 2026
A comparison of the main wallet-based loyalty platforms for cafés, salons and independent retailers, including where each one is the better choice.