In plain words
Retention rate, for a subscription, is the share of subscribers who received an order and go on to receive the next. At 85%, 85 of 100 subscribers get the second order, about 72 the third, about 61 the fourth.
It is the multiplier on every renewal. A subscription's expected profit is the first order's margin plus each renewal's margin times the share of subscribers still active. Retention falls hardest after the first and second orders in most subscriptions, so a single average rate flatters the early renewals.
Formula
- Subscribers still active at order k = retention^(k − 1)
- Expected orders over n = 1 + r + r² + … + r^(n − 1)
Worked example
At 85% retention a coffee subscriber is expected to receive 5.72 of the first twelve orders, worth $58.90 in margin. The first order earns only $3.79; the rest comes from renewals.
The example order
A $40.00 bag of coffee, shipped free, every cost counted
2 declared kinds cost nothing on this option
| Step | Grain | Amount |
|---|---|---|
| Revenue | – | $40.00 |
| cogs | per unit | −$12.00 |
| pick_pack | per order | −$1.18 |
| packaging | per parcel | −$0.50 |
| shipping | per parcel | −$7.50 |
| processing_fixed | per order | −$0.30 |
| refunds | percent | −$2.00 |
| processing | percent | −$1.16 |
| Gross margin | – | $15.36 |
| 2 kinds costing nothing | – | $0.00 |
Computed by the margin engine in Offer Suite's own code, in whole cents, from a $40.00 bag of coffee with a $12.00 unit cost.
Retention is not churn, and not customer retention
Churn is its complement, the share who leave, often stated per month. Customer retention in general counts anyone who buys again, subscribed or not. For a subscription's economics, use the per-order rate from your subscription app.
Using it
Measure it per order number if your subscription app allows it: retention from the first to the second order, from the second to the third, and so on. Early retention is usually the lowest and matters the most, because every later renewal depends on it. When you only have one rate, use a lower one for a cautious forecast. Separate voluntary cancellations from failed payments if you can: failed payments can often be recovered, and they respond to different fixes than a subscriber who chose to leave.