15 Customer Retention Metrics and 7 Ways To Boost Customer Retention

Understanding Customer Retention Metrics

What is customer retention?

Customer retention is any business’s or product’s ability to retain customers to do business with them again. It is crucial in any SaaS business since it is harder to make new customers than keep existing customers engaged. Customer retention metrics give detailed insight into how a product or company performs while retaining its older customers. It also keeps track of the customer journey which helps in growth and expansion strategies.

Why is tracking retention KPIs important?

Let’s consider a SaaS company that provides a project management tool to businesses. They aim to retain as many customers as possible and increase revenue. The company needs to measure the percentage of customers using its software to create an effective customer retention strategy.

Now consider the company is left with 80 customers at the end of its first year (started with 100 customers). Therefore, the company’s retention rate is 80%. However, the retention rate drops to 60% the following year, meaning 60 customers continue to use their tool at the end of the second year. There could be a lot of reasons for this decline, such as the product does not offer value, poor customer service, etc.

This example tells how tracking customer retention metrics can allow a SaaS company to use insights about its performance.

SaaS businesses rely on the revenue generated from the subscriptions from their older customers rather than from new customers because of their product’s value. Customer retention is imperative in a subscription-based business model. Thus, tracking customer retention rate is the best way for SaaS businesses to determine how loyal customers are to their brands and reduce customer churn.

In addition to revenue growth, customer retention metrics are essential for gauging business stability and growth, customer loyalty, cost savings, and performance evaluation.

14 essential customer retention metrics to track

Let’s look at the most critical customer retention KPIs to understand your product’s strengths and weaknesses.
1. Customer retention rate (CRR)

• What is CRR?
• Why is CRR important?
• How do you calculate CRR?

2. Monthly recurring revenue (MRR)

• What is MRR?
• Why is MRR important?
• How do you calculate MRR?

3. Customer lifetime value (CLTV)

• What is CLTV?
• Why is CLTV important?
• How do you calculate CLTV?

4. DAU to MAU rate

• What is the DAU/MAU rate?
• Why is the DAU/MAU rate important?
• How do you calculate the DAU/MAU rate?

5. Repeat purchase rate

• What is the repeat purchase rate?
• Why is the repeat purchase rate important?
• How do you calculate the repeat purchase rate?

6. Expansion MRR

• What is expansion MRR?
• Why is expansion MRR important?
• How do you calculate expansion MRR?

7. Customer satisfaction score

• What is the customer satisfaction score?
• Why is the customer satisfaction score important?
• How do you calculate the customer satisfaction score?

8. Net Promoter Score (NPS)

• What is NPS?
• Why is NPS important
• How do you calculate NPS?

9. Customer health score

• What is the customer health score?
• Why is customer health score important?
• How do you calculate the customer health score?

10. Revenue churn rate

• What is the revenue churn rate?
• Why is the revenue churn rate important?
• How do you calculate the revenue churn rate?

11. Existing Customer Revenue Growth Rate

• What is the Existing Customer Revenue Growth Rate?
• Why is the existing customer revenue growth rate important?
• How do you calculate existing customer revenue growth rate?

12. Feature adoption rate

• What is the feature adoption rate?
• Why is the feature adoption rate important?
• How do you calculate the feature adoption rate?

13. Renewal rate

• What is the renewal rate?
• Why is the renewal rate important?
• How do you calculate the renewal rate?

14. Engagement rate by channel, segment, and cohort

• What is the engagement rate?
• Why is the engagement rate important?
• Engagement rate by channel

1. Engagement rate by segment

• Engagement rate by cohort

15. Customer Growth Rate

The customer growth rate (CGR) measures the increase in the number of customers a business has over the time period, such as weeks, months, quarters, or years. It indicates the business’s performance and ability to meet market demands through its offerings.

Your customer growth rate is an important metric for allocating your resources in the future. If your customer base grows faster than you can handle, you may find yourself short on resources to service the new customers you currently have on board. If it grows too slowly, your business may not be able to cope with the ever-growing business expenses.

Seven practices to boost customer retention rates

1. Personalized onboarding

The best way to retain new customers and have a good loyal customer rate is to give them the experience they need starting from the first impression. Identify the users’ needs to enhance the product, especially the onboarding experience.

A positive first impression can keep the customers engaged with the product by pulling them to continue using the product to fulfill their needs — reducing customer churn and increasing customer retention.

You can reduce confusion and frustration by helping the users understand the product quickly and effectively. Personalized onboarding lets you address the customers’ needs, foster engagement and build trust in your brand.

2. In-app messaging and email campaigns
Most of the time, customers lose interest or forget why they were excited about the product in the first place. Therefore, keeping in touch with the customer is the step to keep building their interest and curiosity in the product.

Using In-app messaging and email campaigns, the business can reach out to their customers to share new updates and guide them about what new problem the product is solving and why this product is the best for them, which will lead to an increase in customer retention.

The company emails are usually lost in the customer’s spam folder. Therefore, In-app messaging is the best way to ensure direct customer conversation.

3. Great customer service
Nothing can beat a product that offers excellent customer service. Offering the customers a smooth experience enhances their interest in the product. However, this is also tricky because many customers leave the product even if they have one bad experience.

Customers are more likely to continue doing business with a company and recommend it to others when they have positive experiences with its customer service. Satisfied customers are less likely to switch to a competitor. In addition, prompt and effective customer service can turn a negative experience into a positive one, increasing customer retention.

4. Better customer retention tools

Using customer retention tools like Usermaven helps businesses plan and build a better customer experience with insights into customer behavior and preferences. These tools increase task flows with automation and streamline communication, as well as keep a record of customer retention data. Such tools also help identify which product is getting you to repeat orders and promote it aggressively to your existing customer base. You can offer targeted incentives to customers at the risk of leaving your product.

5. Keep tabs on your churn metrics

Providing customers with an excellent first impression is great, but keeping the customer annual churn rate as low as possible is a long-run process that requires continuous monitoring of the churn metrics. Tracking and analyzing churn can help businesses constantly adjust their product to keep delivering value to end users and keep track of customer retention efforts.

6. Hyper-personalize your communication
A deep understanding of your customer is essential for any business to improve customer retention. Many customer retention tools are available for companies to use, which can provide detailed data about the customer’s interest and can be used to tailor your communication with them. These insights allow businesses to get their inactive audience back by using hyper-personalized communication like sending them emails or using social media ads hence making the individual customer feel important.

7. Reward your VIP Customers
In any SaaS business, most revenue is generated from a pool of loyal customers known as VIP customers. Also, investing in new customers is between 5 and 25 times more expensive than retaining existing ones. Therefore, you should put effort into keeping these customers’ interest at the peak. You can award these customers special discounts or send personalized notes highlighting their loyalty to the business. Rewarding these VIP customers can improve their satisfaction level.

Customer retention metrics FAQs

1. What are customer retention metrics?
Customer retention metrics are metrics that measure the ability of a business to retain its customers over time. These metrics are used to track customer loyalty and engagement and to identify areas where a business can improve its customer experience. You can use this information to make data-driven decisions that drive growth and success.

2. How do you measure customer retention, and which KPIs track customer retention?
You can measure the customer retention rate using the following formula:

Customer Retention Rate = ((# of customers at end of period — # of new customers during period) / # of customers at start of period) x 100

Consider a business with 100 customers at the start of a quarter and adds 20 new customers over the quarter while losing ten customers during the same period.
The customer retention rate would be calculated as follows: ((100–20 + 10) / 100) x 100 = 90%. It means the business retained 90% of its customers during a quarter.

Some of the KPIs used to track customer retention include the following:

• Customer churn rate
• Net promoter score
• Customer lifetime value
• Repeat purchase rate
• Renewal rate