The term "retention rate" is used in a variety of fields, including marketing, investing and education.
In marketing

Marketing

Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...

, retention rate is used to count customers and track customer activity irrespective of the number of transactions

Financial transaction

A financial transaction is an event or condition under the contract between a buyer and a seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals.-History:...

 (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.
Additional Usage of the Term

In the investment field, Retention Rate (also called earnings retention ratio, plowback ratio) is the proportion of net income

Net income

Net income is the residual income of a firm after adding total revenue and gains and subtracting all expenses and losses for the reporting period. Net income can be distributed among holders of common stock as a dividend or held by the firm as an addition to retained earnings...

 that is not paid in dividends. A firm earning $80 million after tax

Tax

To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

es 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

Income

Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...

 and dividends will grow in future years. It's often expressed as a percentage

Percentage

In mathematics, a percentage is a way of expressing a number as a fraction of 100 . It is often denoted using the percent sign, “%”, or the abbreviation “pct”. For example, 45% is equal to 45/100, or 0.45.Percentages are used to express how large/small one quantity is, relative to another quantity...

.

Retention rate is calculated as: (Net Income - Dividends) / Net Income

Retention rate may also refer to college

College

A college is an educational institution or a constituent part of an educational institution. Usage varies in English-speaking nations...

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.

Purpose

The purpose of the "retention rate" metric 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.

Construction

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.

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

Methodologies

No retention rate methodologies have been independently audited by the Marketing Accountability Standards Board (MASB)

Marketing Accountability Standards Board (MASB)

The Marketing Accountability Foundation and its Marketing Accountability Standards Board is the independent, private sector, self-governing body of authorized by its membership constituency to establish marketing measurement and accountability standards across industry and domain, for continuous...

 according to MMAP (Marketing Metric Audit Protocol)

Marketing metric audit protocol (MMAP)

The marketing metric audit protocol is the Marketing Accountability Standards Board 's formal process for connecting marketing activities to the financial performance of the firm....

.