Retention rate: Difference between revisions
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{{Short description|Measurement of customers or participants who are maintained or returned}} |
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Retention Rate 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. Also called earnings retention ratio, plowback ratio. It's often expressed as a percentage. |
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{{about|the measure of customers or participants retained|the financial measure of profits reinvested in a corporation|retention ratio}} |
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'''Retention rate''' is a [[Statistics|statistical]] measurement of the proportion of people that remain involved with a group from one time period to another. |
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The concept is used in many contexts, including marketing, investment, education, employee management, research, and clinical trials. The exact definition depends on the context. As a general rule, high retention corresponds to a positive outcome. |
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Retention rate is calculated as: |
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(Net Income - Divdends)/Net Income |
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In [[marketing]], retention rate count [[customers]] and their activity irrespective [[Financial transaction|transactions]] they make.<ref>{{cite web|author=Search Engine Spot |url=https://searchenginespot.com/14-proven-steps-to-boost-your-organic-click-through-rate-ctr/ |title=CTR – Customer Lifetime Value |website=searchenginespot.com |date= 29 October 2020|accessdate=2021-01-20}}</ref> |
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For those of you who dont know what divdends are, dividends is the money a business earns paid to shareholders. |
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"''Retention rate is the ratio of the number of retained customers to the number at risk".'' In [[Contract|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." |
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Category: Financial ratios |
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{{Uncategorized|date=November 2010}} |
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In a survey of nearly 200 senior marketing managers, 63 percent responded that they found the "retention rate" metric very useful.<ref name="Marketing_Metrics">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 [http://www.commonlanguage.wikispaces.net/ Common Language in Marketing Project].</ref> |
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==Purpose== |
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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."<ref name=Marketing_Metrics /> Since there are multiple definitions of retention rates this could cause issues with interpreting retention rates in practice.<ref>{{Cite journal|last=Wierckx|first=Patrick J.|date=2020-10-11|title=The Retention Rate Illusion - Understanding the Relationship between Retention Rates and the Strength of Subscription-Based Businesses|url=https://papers.ssrn.com/abstract=3629281|language=en|location=Rochester, NY|ssrn=3629281 }}</ref> |
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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.<ref>{{cite web|url=http://smallbusiness.chron.com/average-employee-retention-rate-18799.html |title=The Average Employee Retention Rate | Chron.com |website=Smallbusiness.chron.com |date=2011-08-15 |accessdate=2016-08-10}}</ref> 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.<ref>{{cite web|url=https://money.cnn.com/magazines/fortune/bestcompanies/2011/turnover/ |title=100 Best Companies to Work For 2011: Turnover - from FORTUNE |website=Money.cnn.com |date=2011-02-07 |accessdate=2016-08-10}}</ref> |
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Retention rate may also refer to ''[[college]]s''. 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.<ref>{{cite web|url=http://www.fafsa.ed.gov/help/fotw91n.htm |title=What are graduation, retention, and transfer rates? |website=Fafsa.ed.gov |date=2013-04-04 |accessdate=2016-08-10}}</ref> |
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==Construction== |
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"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."<ref name=Marketing_Metrics /> |
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:''Retention Rate:'' The ratio of the number of customers retained to the number at risk.<ref name=Marketing_Metrics /> |
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==Workplace== |
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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”.<ref>[http://www.shrm.org/TemplatesTools/hrqa/Pages/CalculatingRetentionandTurnover.aspx] {{dead link|date=August 2016}}</ref> 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%. |
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==See also== |
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*[[Employee retention]] |
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*[[Turnover (employment)]] |
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*[[University student retention]] |
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==Methodologies== |
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No retention rate methodologies have been independently audited by the [[Marketing Accountability Standards Board (MASB)]] according to [[Marketing Metric Audit Protocol (MMAP)|MMAP (Marketing Metric Audit Protocol)]].<ref name=MMAP>MASB. [http://www.themasb.org/wp-content/uploads/2009/07/mmap-stand-alone-july-09.pdf ''Marketing Metric Audit Protocol (MMAP)''.] February 2009. [cited 8 July 2011]</ref> |
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==References== |
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{{Reflist}} |
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[[Category:Rates]] |
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[[Category:Customer relationship management]] |
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Latest revision as of 20:27, 5 August 2024
Retention rate is a statistical measurement of the proportion of people that remain involved with a group from one time period to another.
The concept is used in many contexts, including marketing, investment, education, employee management, research, and clinical trials. The exact definition depends on the context. As a general rule, high retention corresponds to a positive outcome.
In marketing, retention rate count customers and their activity irrespective transactions they make.[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]
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] Since there are multiple definitions of retention rates this could cause issues with interpreting retention rates in practice.[3]
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]
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.[6]
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”.[7] 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).[8]
References
[edit]- ^ Search Engine Spot (29 October 2020). "CTR – Customer Lifetime Value". searchenginespot.com. Retrieved 2021-01-20.
- ^ 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.
- ^ Wierckx, Patrick J. (2020-10-11). "The Retention Rate Illusion - Understanding the Relationship between Retention Rates and the Strength of Subscription-Based Businesses". Rochester, NY. SSRN 3629281.
{{cite journal}}: Cite journal requires|journal=(help) - ^ "The Average Employee Retention Rate | Chron.com". Smallbusiness.chron.com. 2011-08-15. Retrieved 2016-08-10.
- ^ "100 Best Companies to Work For 2011: Turnover - from FORTUNE". Money.cnn.com. 2011-02-07. Retrieved 2016-08-10.
- ^ "What are graduation, retention, and transfer rates?". Fafsa.ed.gov. 2013-04-04. Retrieved 2016-08-10.
- ^ [1] [dead link]
- ^ MASB. Marketing Metric Audit Protocol (MMAP). February 2009. [cited 8 July 2011]