The formula
Retention rate = ((E − N) ÷ S) × 100, where S is customers at the start of the period, E is customers at the end, and N is customers acquired during it. Subtracting new customers is the whole point: without it, aggressive acquisition would disguise the fact that existing customers are leaving.
Worked example: start with 200, finish with 220, of which 60 are new. ((220 − 60) ÷ 200) × 100 = 80% retention. Twenty percent of the original base did not come back, even though the headline count rose.
Measuring it without accounts
A café does not know who walked in. Retention is only measurable for customers you can identify, which in practice means the ones enrolled in something — a loyalty program, a mailing list, a booking system.
This is the underrated reason to run a loyalty program. The reward is what gets customers to identify themselves; the identification is what makes retention measurable at all.
What actually moves it
Consistency first. Most churn in small businesses is not a competitor winning — it is one bad visit, one long wait, one order that was wrong.
Then a reason to return on a schedule. A reward two visits away is a concrete reason to choose you over the equivalent place across the street, which is exactly the margin where retention is won.
Be realistic about the size of the effect. A loyalty program will not turn 40% retention into 80%. Moving it a few points is a good outcome, and a few points compounds.