Successful SaaS businesses typically require excellent customer retention rates to flourish. This retention is highly dependent on loyalty, which must be fostered by the relationships and experiences you offer to your clients. There are many ways to track it, and from doing so, you’ll discover the best ways to boost that loyalty.
We’ve got ten metrics for this coming up. First, let’s quickly go over why loyalty and retention are so important.
Why and how to Track Your User Retention Metrics
Managing retention is the key to growing a subscription model business, and as such, it should be a primary focus of most SaaS companies. Retention is what saves you money on customer acquisition, drives better product-market fit, and boosts revenue coming in from existing customers.
There are countless ways in which to measure retention, and many can show you where your customer success efforts are working or where they aren’t. The trick is to cover as much of the customer experience as possible when tracking loyalty, so you get a high-resolution insight into what makes people churn.
The successful accomplishment of this leads to improved commitment, advocacy, net promotion, and account expansions, ultimately boosting your customers’ value over their lifetimes.
Knowing which customer retention metrics to track is the first step. Here, we’ve laid out ten of the most useful user retention metrics available that should go some way toward a comprehensive overlook of your customer journey.
Top Customer Retention Metrics to Track
These metrics are effective at several points along the customer journey. Consider them in any order you’d like, and as part of a bigger series of KPIs that will come in handy for tracking your customer loyalty in the bigger picture.
1. Customer Churn Rate
As the inverse of retention, the churn shows you whom you’re losing, when, and how.
In SaaS, churn is a certainty, and while this probably won’t ever change, the level of churn you experience over time likely will. A monthly churn rate of about 5% or 7% in most cases should ring alarm bells, but early startups should expect to be nowhere near this.
While in some contexts you may expect to experience healthy churn rates of up to one quarter, this doesn’t make it a metric worth ignoring, and making sure you know the level you’re supposed to be experiencing based on your industry, maturity level, and business model is what will make this such an important metric to track.
This metric responds to countless different efforts along the customer journey but one of the best and earliest strategies for improving it is to make sure that you’re onboarding customers who actually want and need your solution.
This might sound simple, but if you’re feeding poorly-fitting leads to your sales team and they’re handing them over as poorly-fitting customers, it’s only a matter of time until the customer moves elsewhere.
2. Customer Lifetime Value (LTV)
This one is a summary of everything you’ll get out of each customer for as long as they’re in a relationship with your product. This is a great metric for SaaS because it has huge implications within the subscription model, and directly shows you the impact of loyalty on retaining your customers over time, in terms of financial value.
Figuring out your LTV for each customer can help you identify the very impact of your churn rates and figure out how much time and money you should be spending on acquiring new ones, too. And this is what makes it so important.
When measured alongside your Customer Acquisition Cost (CAC), our next metric on this list, it can really help to figure out your ratio of income between new and current customers, and this gives you great opportunities to know where to direct your outreach.
For example, once you’ve identified your LTVs, you can send feedback requests to those most loyal to you to gather more information on how you might extend the LTVs of other customers. You can also compare LTVs between segments, and factor in your churn rates mentioned above to figure out both how much each segment is offering and how long they’re typically sticking around.
This leads you to the factors affecting your customer loyalty and offers you insights into how to mitigate them.
3. Customer Acquisition Cost (CAC) to LTV Ratio
CAC is a metric that shows you just what’s going into finding and bringing in your new customers. This should include ads, marketing, salaries, bonuses, etc., and about as many overheads as are relevant (though there are times when simplifying this is a good idea). As such, it gives you an average cost per customer.
The immediate benefit of this is that it illuminates your ROI when compared with how much money you’re getting out of them, which comes from the LTV above. If your LTV is lower than your CAC, you’re losing money on each customer.
But it also allows you to strive for common benchmarks. For example, some may say that your average LTV: CAC ratio should be 3:1. As in, each customer you onboard should return your CAC threefold over the course of their lifetime.
And this can be measured across all segments, or, more applicably, used to segment your customers themselves. If you have various tiers of subscription, for example, it can be useful to identify which one is the most loyal and then act upon that.
Say, for example, your basic tier has a poor LTV: CAC ratio but your middle tier is very profitable, you might realize ways of making the basic tier more transitional to the next, using it more as a stepping stone than a final goal. Alternatively, you may use this information to figure out how to make the basic tier more profitable.
You can improve your CAC:LTV in several ways, too. Better targeting your ads and marketing content goes a long way to bringing more and better customers your way for the same output, and as a general rule, improving your entire sales funnel should boost your LTV too.
4. Revenue Churn Rate
When you’re looking at churn, there’s more to losing money than simply losing customers. Revenue churn comes from the downgrading, canceling, or changing of accounts in many ways that don’t necessarily mean lost customers.
Focusing solely on customer churn overlooks the possibility that you’re losing revenue from these factors, which is where revenue churn comes in. Revenue churn can be an early warning sign that something is wrong; that your customers aren’t satisfied with the value they’re getting from your product.
Benchmarks for this continuously change much in the way they do for customer churn, as the business evolves. Again, startups may have higher percentages of revenue churn than well-established businesses as they’re still navigating their product-market fit.
Improving revenue churn can be as simple as optimizing your pricing; making the cost of your product more closely reflect the perceived value. It can also involve putting more work into the onboarding process to better assimilate each customer with the product, and help guide them to better value points, faster.
5. Renewal Rate
Similarly, a good renewal rate should suggest that your customers have high health scores and are happy with what you’re offering for the price you’re offering it.
On the other hand, if your product is a means to an end in itself, a high renewal rate might be a sign that it’s not doing the job fast enough.
For example, if you’re running an app for sellers and buyers to find brokers, you’d expect the best outcome for those sellers and buyers would be a short-term usage that results in your customers finding what they want quickly. This would lead to them ending their time on the app and reducing your renewal rate in those segments.
However, if you’re running some B2B solutions that are designed to fuel a company’s success, you’d be looking for a higher renewal rate and a much longer relationship with your users. As such, each time a customer doesn’t renew, this is a reduction in recurring revenue and affects your bottom line directly.
So, as a metric of retention, the renewal rate is a useful one with many implications. You can Improve it in many of the same ways you improve revenue churn; by fixing your pricing schemes, rewarding loyalty, and generally boosting customer success scores.
Getting onboarding right is another great way to ensure your customers will come back for more. Sometimes, it can take more than one subscription cycle for a client to reach their main value points with your product, and if you’re noticing retention dropping before they do, this could be an issue with your onboarding process.
6. Net Promoter Score
This one relates to customer satisfaction, and since satisfaction is a key component to retention, it’s critical to pay attention to it. Essentially, it gives you a look at how loyal your customers are likely to be, based on how satisfied they are with your product.
This metric is not only useful for tweaking the customer experience with referrals in mind, but as a metric of retention, it’s a great way for catching churn before it happens. Collecting feedback is the best way to feed data into this metric, and this allows you to rank individuals or segments by their affinity with your solution.
From here, you can hone in on the areas you need to improve and redistribute resources accordingly. There are two main ways to approach this metric when looking to improve it. The first is to focus on better data collection. Since this metric uses surveys and questionnaires to gather data, if your approach here isn’t tight, you’ll be getting low response rates and weak data. This will make it hard to get any useful information out of the metric itself.
Secondly, once you have the data, you need to know what to do with it. Customer satisfaction is closely tied to the onboarding process too since it’s the job of onboarding to break the journey into a series of value points for the customer. Knowing exactly what they want and need helps you design the process in a way that better accomplishes this, boosting their understanding of your product and how it can generate an ROI for them.
7. First Response Time (FRT)
This is a support metric that measures the gap between when a customer submits a case and when the case is addressed by your support team. As long as you have customers, you’ll need customer support to help retain them.
Customers regularly leave a business due to poor support, and the way you react to a case could make the significant difference between a satisfied customer and a completely satisfied customer.
There are so many support metrics that should be measured to find out how to minimize this. We’ve gone for FRT because it’s simple to track and easy to improve, but your entire support process should be optimized to maximize retention.
Support needs to be both proactive and reactive, so to improve this metric, make sure that there is a continued presence for your customers to feel safe, and for your teams to be on the ball whenever something comes up.
Once again, good onboarding practices will help with the continued support, but to boost the FRT you need to be well-equipped, anticipate common issues, and set some policies in place that can be referred to in almost any context.
This will allow issues to be fixed quickly, and studies have shown that even when there’s a serious problem with a product, a customer’s good experience with a respectful and effective support team can boost retention significantly.
To reduce FRT, automate support where possible, make sure everyone is well-trained ad up to date with these policies, and create a relationship with your customer that allows you to be omnipresent and available at all times. Your support should be available wherever the customer is looking, be it on social media, your website, or over the phone.
8. Gross Revenue Retention Rate
Gross Revenue Retention (GRR) represents the recurring revenue you’re getting from current customers as a percentage of the best possible scenario (full retention). GRR doesn’t include any revenue earned due to expansion, or lost by contraction, it’s simply a measure of your ability to retain the customers you’ve got.
As such, it’s possibly the most direct metric to use when measuring retention and will give you a score out of 100 to show you how well you’re doing. Benchmarks for this metric will vary depending on several factors such as your market, your business model, and your maturity level, so it’s important to know what you should be aiming for in your specific context.
If you find that your GRR is lower than it should be, there are ways to boost it. Again, customer loyalty programs and comprehensive onboarding practices are key here. If you want to use a metric that takes into account contraction, then you may want to look into your Net Revenue Retention.
9. Net Revenue Retention Rate (NRR)
Much like GRR, NRR measures your recurring revenue from existing customers, but this one includes the impact of expansions and contractions of accounts. This makes it more comprehensive and can give more of an insight into the effects or retention, rather than just the measure of it.
So, with NRR you’ll get a better understanding of what your retention strategies are doing, and how they’re affecting your revenue. You should also be able to catch churn early by identifying where and when customers are downgrading, and this can help you figure out how to improve your percentage.
Support, onboarding, feedback, and better upsell triggers are all primary focuses of companies looking to improve their NRR. Since this metric considers contractions, look to optimizing your value plans by taking in plenty of feedback and designing pricing systems accordingly.
10. Stickiness, or Monthly Active Users to Daily Active Users Ratio (MAU: DAU)
Finally, these engagement metrics can give you a great sign of things to come as they relate to retention. Higher engagement suggests higher retention, and in models with tiered subscription options, it’s particularly useful.
Your monthly active users are simply those who have used your product in the last month, which might not be of much use to you on its own. Someone who uses your product on the first day of the month may have completely disengaged from it by the last, so the strength of MAU comes from combining it with DAU.
Your DAU gives you something to weigh your MAU against and this ratio is what determines the “stickiness” of your product. This stickiness is the tendency for your users to repetitively engage with your product, and it’s a key measure of retention and implies ongoing loyalty.
Improve this metric by making sure you have a clear definition of what an active user is. It’s important to measure activity by the value derived by the customer and to achieve this value, it’s critical to have engaging user experiences.
If you aren't tracking these 10 retention metrics, you should definitely start ASAP. Remember, it's often said you "manage what you measure" so the first step in improving these metrics for your business is actually tracking them.