I have seen a lot online about calculating Retention rates all articles seem to post the same equation: ((E-N)/S) * 100 Where E is the number of active contracts at the end of a period, N is the new business in that period and S is the active contracts at the start of the period.
This makes sense if you are looking over a full 12 months when the contracts in question are annual as each contract will come up for renewal in that period. But if you were looking over a period say FY to date then this equation does not make sense.
Say there are 100 contracts active at the start of the FY, and 98 at the current date, and there has been 3 New Business contracts start. Using the equation above ((98-3)/100) * 100 = 95%. Which sounds very good. but if you consider that only 5 of the contracts came up for renewal in that period then the actual retention rate is 0%.
Are there any alternative, more accurate ways of calculating retention. Or is this just an industry standard practice?
Thanks
