Hotel industry is one of the service sectors where competition is stiff to attract new or retain the existing customers. Customer relationship management is one of the strategies whereby hotels are using to be competitive in the industry. The objective of this study was to examine the effect of customer relationship management on customer retention for the case of three and above star hotels in Bahir Dar. The researcher used the components of CRM i.e. people, business process and Technology to examine their effect on customer retention. The researcher used explanatory research design to meet the research objectives and used convenient sampling method to get representative sample from the populations. The researcher collected data from nine three and four star hotels through structured questionnaire to assess customers’ level of agreement regarding CRM practice in their respective hotels. The descriptive statistics (mean, standard deviation) and inferential statistics (correlation and regression) were used to describe demographic facts, to test hypothesis and to answer research questions. The statistical result showed that Customer relationship management is represented by three components from the three components two (people and business process) has a positive and significant influence on customer retention and technology has no significant influence on customer retention. The researcher suggested that hotels have to pay attention to people as it has highest influence on customer retention.