Table of Contents
Key takeaways:
- A good customer retention rate will vary from business to business
- Great customer retention rates should be as close to 100% as possible, but a good retention rate for SaaS brands may be around 90-92%
- Proactive strategies, churn and customer analysis processes, and customer success content may help improve customer retention rates
- Track and optimize retention rates with Baremetrics’ reporting and cancellation insights, discovering why customers churn and how to prevent it
Your customer retention rate is the percentage of customers that stay with your business over a given period.
Since it is ultimately about customer relationships. The better the relationship, the more you have at your disposal to reduce churn and maintain a high retention rate.
Holding onto customers is an essential part of building and sustaining a successful SaaS business.
The key to understanding customer relationships lies in the data, which tells you why customers are leaving — or staying — to begin with.
Understanding Customer Retention
To better understand your customer retention rate, let’s first define how customer retention rates are different from other metrics, like customer acquisition or churn metrics.
Customer Acquisition vs. Retention
SaaS businesses usually focus on customer acquisition. This is always important, but as your company gains traction, the shift to retention is even more important.
At launch, you may spend all of your resources on acquisitions. However, once you’ve reached maturity, resources should be split evenly with about 50 percent covering acquisition and 50 percent covering retention.
Retained customers cost less than new ones, which means your margins are greater with loyal customers. Things like customer expansion can make existing customers even more profitable.
Additionally, forgetting about your existing customers will lead to dissatisfaction and a high rate of attrition. This leaves you in a never-ending cycle of constantly having to acquire new customers just to stay afloat.
As a note, there are different types of retention rate metrics outside of customer retention. These include:
- Net revenue retention
- Net dollar retention
- Gross revenue retention
Retention Rate vs. Churn Rate
Churn rate is the percentage of customers you have not retained.
In the above example, the churn rate (also called the “attrition rate”) is 100 percent minus the retention rate of 97 percent, giving you a 3 percent churn rate.
How to Calculate Your Customer Retention Rate
Retention rate is expressed over a given period.
You can get specifics in our guide on how to calculate customer retention rate, but here are the basics.
- Start with the number of customers at the end of the period.
- Subtract the number of new customers gained during that period.
- Then take that number and divide it by the number of customers at the start of the period.
For example, if you ended a period with 2000 customers, acquired 200 during the period, and started the period with 1850, your retention rate would be (2000-200)/1850, or 97 percent.
You can also learn more about how to calculate other retention rates, or use a tool like Baremetrics to do the heavy lifting for you!
What’s a Good Customer Retention Rate?
Since a “good” churn rate falling at around 8% for SaaS companies, a good monthly customer retention rate would be around 90% or higher.
In an ideal world, a company would have no attrition. While that’s simply impossible, your retention rate should be as high as possible.
Low retention is a red flag for any business, as it signals poor customer satisfaction. A good rate is as close to 100 percent as you can make it.
How to Improve Customer Retention Rate
Since the ideal retention rate is 100 percent, there’s always work to do to achieve a churn rate of zero. Here are some ways that you can get the retention rate you are looking for.
1. Conduct a Churn Analysis
A churn analysis involves determining why customers are leaving, and includes getting direct feedback from customers, leveraging behavior data, and looking for common cancellation reasons so you can intervene. In this process, you simply ask old customers why they left. You can send them a quick survey with potential reasons.
Baremetrics offers a cancellations insights tool that automatically calculates survey results on your behalf, so you can immediately begin delving into the data.
2. Track Retention by Audience Cohort
To gain more insight into why customers churn, narrow down your attrition results according to a particular cohort. A cohort is just a way of categorizing a group of customers by a common characteristic; this is also known as audience segmentation.
Examples of different audience cohorts may include:
- Date of sign-up
- Type of onboarding they received
- Products purchased
- Marketing strategies or referral traffic sources they came from
- Lifetime value (LTV)
You can use a tool like Baremetrics to compare these audience segments to retained audiences, looking for key differences. See how to conduct a customer retention analysis for more information.
3. Ask for Feedback
Getting customers to return —and potentially preventing others from leaving— is as simple as asking how you can improve your product or service offerings.
Accepting (and listening to) customer feedback can improve customer relationships and help you identify potential opportunities for improvement before they cost you customers.
4. Create Strong Content
Regular download options, updates, and product information can help current clients get the most value out of their SaaS subscription.
Create strong content that’s designed to improve customer success, ranging from help desk articles, industry research, and original insights.
This can help users get more out of your product, and it may even help you to nurture a community.
5. Start a Referral Program
Bringing on new customers always helps your bottom line, and your current customers are your best advocates in helping you attract new businesses.
If you receive a new customer via referral, they may be more likely to stay with you, as they have a tendency to retain longer than non-referred customers.
There are many other ways that you can tweak your sales strategy to get a high retention rate (including these five customer retention strategies), but starting with this shortlist will already put you many steps ahead of other businesses that overlook these critical strategies.
And don’t forget the seven R’s of customer retention!
What High Customer Retention Rate Means
Remember high customer retention means you’re doing your job right and that people like your product and the overall customer experience.
We’ve been able to see spikes in our revenue churn and were able to adjust immediately before it was too late!
Baremetrics is a powerful tool for determining who’s staying, why people are leaving, and what you can do better. Our cancellation insights and transparent reporting data on key subscription metrics that matter— including retention rate metrics— can help you reduce churn and improve both customer and revenue retention.
Tired of wasting time on spreadsheets? Get a free trial of Baremetrics today!
