For SaaS and subscription companies, metrics like customer retention rate, and the closely related churn rate, are critical for monitoring the amount of revenue you’re losing, as well as flagging trends that might be responsible for it.
The reality is that increasing customer retention and reducing churn is the key to sustainable business growth.
In this post, we’ll discuss five customer retention strategies that help you keep customers around, and give tips for accurately tracking customer retention and churn for your SaaS business.
What is Customer Retention?
Customer retention is a metric that tracks the percentage of customers that stay with a business for a certain period of time.
The opposite of this is the churn rate, which is the percentage of customers that end their subscription in a given time period. Both of these metrics significantly impact monthly recurring revenue (MRR), arguably the most important indicator of future business success.
A good monthly customer retention rate is generally above 90%, but the closer to 100%, the better. It’s obviously impossible to retain every single customer, but if your retention rate is extremely low then you’ll know that your business has a problem.
These live benchmarks can help you understand where your customer retention rate (and other metrics) stand compared to similar SaaS and subscription businesses.
For most companies, it costs more to acquire new customers than it does to keep existing ones, so it’s a more sustainable growth strategy to invest in customer retention.
That’s why it’s important to conduct customer retention analysis, and then implement strategies for improving retention over time.
Customer Retention Strategies
Now that we’ve covered how customer retention impacts SaaS and subscription businesses, let’s look at some strategies for improving this metric.
1. Provide top-notch customer support
The quality of customer support that your business provides can make or break a customer experience.
Customers want to know that you’ll be able to help them overcome any issues they have, whether it’s a product bug, failed payment, or network failure.
Effective customer support includes answering customer inquiries quickly, helping with onboarding (more on this later), and troubleshooting any problems in a timely manner.
In addition to providing reactive customer support, investing in proactive outreach can make a meaningful difference, too.
By regularly checking in with customers, even if they’re not looking to leave you, can create more opportunities for engagement and value from your product.
2. Implement a customer onboarding process
The customer onboarding process is another key aspect of your customer experience, so getting this right ensures you don’t lose customers early on in their subscription.
A great onboarding experience involves showing customers how to effectively use your product to achieve what they’re trying to accomplish.
An effective customer onboarding process includes an intuitive signup process, a compelling welcome email, and guidance during their initial login.
By tracking the performance of your trials, you can also gain insights into the initial impressions new users have of your company, product, and overall onboarding experience.
You can use these insights to stop losing customers before they even sign up.
3. Build useful education resources
If customers don’t get enough value out of your product, they won’t stick around for long. Through strong education resources and training programs, you can help customers maximize their ROI for your product more quickly.
Getting started guides can help answer many initial questions, but a help center is also a great way for customers to resolve additional issues that might come up.
Similar to creating a strong onboarding experience, you also want to offer resources and build community around your product.
Resources like workshops and webinars give customers even more value from their subscription, and in turn, increase their incentive to stay long-term.
4. Track and Measure Churn
By understanding which customers are leaving and why, you informed strategy to get them to stay.
For example, tracking and measuring churn for different customer segments and performing cohort analysis can help you spot reasons that some customers might churn over others.
Based on this information, you can alleviate mismatches in customer expectations, poor onboarding experiences, bad acquisition strategies, and other broader business issues.
Diving into the data about cancellations, downgrades, failed payments, and more will also help you identify overall customer behavior trends that are leading to churn.
These insights can reveal if there are other factors that are contributing to either voluntary and involuntary churn. Measuring and reducing churn will lead to increased customer retention over time.
5. Make it easy for your customers to share their feedback
Getting customers to share their feedback is a great way to discover issues with your product or customer interactions that are pushing customers to cancel.
To take this a step further, collecting cancellation insights and actioning them helps you mitigate disloyalty and improve customer retention in a lasting way.
A convenient way to gather feedback is a timely email or in-app notification when customers decide to cancel their subscription.
With cancellation insights, you’ll be able to identify and overcome pricing issues, lack of certain features, poor support, or any other factors that are contributing to customer churn.
How to Calculate Customer
Retention and Churn
Another crucial aspect of increasing customer retention and reducing churn is accurately calculating these metrics. Here’s how to calculate retention rate and churn:
- Retention rate is calculated by subtracting the number of newly acquired customers from the total customers at the end of the period. This gives you the number of customers that were retained for that period. Then you divide this by the total number of customers there were at the beginning of the period to get the retention rate.
- Churn rate can be calculated in many ways, depending on whether you want to track revenue churn or customer churn. Customer churn is calculated by dividing the number of canceled customers by the number of active customers for a given period, then multiplying by 100 to turn it into a percentage.