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What is customer retention?
Customer retention is a metric that measures how many customers stay loyal to a company for the long term after the initial purchase.
Its goal is to ensure customers are satisfied with a company’s products and services, become repeat buyers, and not switch to a competitor.
Why is retaining customers important in SaaS?
Focusing on retaining customers can help you understand how satisfied your customers are and if there are potential drop-off points in your funnel.
Some of the benefits of customer retention include:
- Reduce customer acquisition cost: When customers are satisfied, they will likely share their positive sentiments with others. Whether it’s online or through word of mouth, the leads they attract are fairly easy to convert.
- Drive recurring revenue: Loyal customers spend more through repeat purchases over time. When customers are engaged, they are more likely to renew their subscriptions and try new products.
- Drive customer loyalty: As customers associate your brand with positive experiences, including great customer service, they will likely become loyal.
How do you calculate your customer retention rate?
To calculate your customer retention rate, you need three key parts:
- Total number of customers at the start of a given period (S).
- Number of customers at the end of the period (E).
- Number of new customers acquired within the period (N).
Now you can work out your customer retention rate with a simple formula:
[(E-N)/S] x 100
For instance, if a company starts its year with 200 customers, adds 80 new customers, and ends the period with 150 customers, the customer retention rate will be [(150-80)/200] x 100. The company’s retention rate is 35%.
Once you know how to calculate your customer retention rate, it becomes easier to develop customer retention strategies that improve it.
What is a good customer retention rate in SaaS?
There is no universal benchmark for a good customer retention rate in SaaS. It should vary depending on the company’s growth stage and industry.
However, continuous increment over time indicates that you are on the right track.
Small businesses and newer SaaS companies typically have low rates, while established ones would expect their rates to get as high as 90%.
Research by SaaS Capital provides further proof of such high retention rates, reporting a median net retention rate of 102% and a median gross retention rate of 91% across SaaS companies.
As shown in the image below, industries like IT Services and IT & Software record customer retention rates close to the 90% mark.
Key metrics to measure alongside customer retention rates
Tracking customer retention metrics can help you take proactive measures to reduce churn, attract customers, and build a solid customer retention program.
Let us examine the most important metrics for retaining customers.
Customer lifetime value
Customer lifetime value (LTV) measures the total net profit a business expects to generate over the life of its relationship with a customer.
It is an indicator of product-market fit and shows businesses who their most loyal customers are. LTV is valuable because it can help you better understand the value of your existing customers and make informed decisions about the allocation of resources.
To calculate your LTV, multiply the customer value by the average customer lifespan.
Repeat customers’ rate
Repeat customers’ rate measures the percentage of a company’s current customers that have made more than one purchase.
Tracking a company’s repeat customer rate is valuable because repeat customers spend more money and are easier to sell to.
You can calculate the repeat customer rate by dividing the number of customers who have made at least two purchases by the total number of customers and multiply the value by 100.
Product adoption rate
Product adoption rate is the proportion of users who have adopted your product over a given period.
It can help you determine whether you are targeting the right audience and if users are deriving value from your product.
To calculate the product adoption rate, divide the number of new active users over a period by the total number of signups during that period and multiply by 100.
Customer churn rate
This is the percentage of customers lost over a given period.
Tracking customer churn rate can help a business identify customers’ pain points, and develop customer success strategies to improve.
To calculate the rate of customer churn, divide the number of lost customers during a given period by the number of customers at the start of the period, and multiply by 100.
15 Actionable customer retention strategies for driving growth
It is more cost-effective to retain customers than to acquire new ones. The following section discusses practical strategies that can help you improve your customer retention strategies.
1. Create personalized customer experiences for new customers
Ensuring users experience quick time to first value is a way to thank them for trusting your brand. The longer it takes for users to experience value, the more likely they’ll churn.
Personalizing customer experiences shortens time to value as it eliminates unnecessary steps from the onboarding process.
Consider what your customers need to experience a seamless journey from one point to the next. For instance, an intuitive UX design and swift response to customer issues make the process feel more relevant for the user. What’s more, it also prevents churn.
To personalize your customers’ experiences, collect data with a welcome survey. This will help you understand users’ goals and jobs to be done. With this data, you can segment users to create personalized flow steps.
2. Guide users towards key actions with checklists
Onboarding checklists guide users through the steps they need to take to experience value.
What makes a checklist successful is its use of Zeiganrik’s effect, a psychological phenomenon that suggests people are more likely to remember uncompleted tasks than completed ones.
To make checklists even more effective, personalize them for each user segment.
3. Replace generic product tours with interactive walkthroughs
Traditional product tours can feel overwhelming as they reveal too much too soon and force users to learn impractical things. They can turn users off from your product and lead to churn.
On the other hand, interactive walkthroughs are concise and introduce one feature at a time. They handhold users and help them derive immediate value from the feature.
Interactive walkthroughs drive feature and product adoption. Ultimately, they increase a company’s chances of customer retention.
4. Offer excellent customer service to improve customer experience
With SaaS solutions present in nearly every industry today, the market is filled with many similar products. In this ultra-competitive space, providing excellent customer service can be the deciding factor for customers to stick with your product.
Most SaaS users prefer self-service options as it gives them the tools necessary to solve their problems without reaching out to support agents.
Meet their expectations by creating a resource center with multiple formats of resources embedded into it users can turn to when they come across an issue.
5. Gamify user experience to drive engagement
Gamification triggers positive emotions and gives users a dopamine boost as they engage in challenges to achieve a goal. It creates a feeling of urgency and excitement and makes users want to repeat actions that make them feel that way.
As users are motivated to repeatedly engage with your website and products, adoption and retention will increase.
You can incorporate different forms of gamification techniques to keep customers coming. Some of the best ones include fun animations, celebratory modals, badges, leaderboards, and progress bars.
6. Retain existing customers with secondary onboarding
Onboarding isn’t only for new customers. It is an ongoing process that should offer support and guidance to even existing customers so they can derive more value from your product.
For example, newly launched features can also cause friction and lead to churn. Use secondary onboarding to introduce them to hidden features of your product.
As users realize they can do more with your platform, their interest in your product will increase, and you’ll see a rise in customer retention.
7. Unlock consistent value for your customer base with webinars
Face-to-face webinars allow you to show users around, introduce them to advanced use cases, offer industry knowledge, and nurture customer loyalty.
Ensure you send contextual webinars to the right segments to deliver highly personalized experiences and engage attendees.
For instance, it will be unproductive to send an advanced analytics webinar to a new user who isn’t yet used to analytics.
8. Collect customer feedback to improve your customer retention strategy
One of the most important keys to retaining customers is to know how they feel about your products and services.
Measure user sentiment throughout the customer lifecycle to understand their needs, and collect qualitative feedback to understand the reasons behind scores.
Once you are armed with this data, act on it to improve your customer retention strategy.
9. Take measures to prevent involuntary churn amongst current customers
Involuntary churn happens when a customer can no longer continue with a service for reasons out of their control. It can occur due to payment failure or server errors.
An effective way to prevent involuntary churn is to use banners to send reminders of upcoming payments and encourage customers to take action. This creates a sense of continuity and makes them understand the importance of the payment.
You can create a notification banner with Userpilot to increase your chances of receiving timely payments.
10. Implement customer loyalty programs to strengthen customer relationships
Acknowledging customers’ devotion can create an emotional connection between you and your customer. For instance, a congratulatory message that recognizes a customer’s long-term support will make them feel valued and appreciated.
A good customer loyalty program creates a sense of belonging, value, and appreciation.
Your loyalty program should offer valuable rewards to encourage users to engage more with your brand. Dropbox, for instance, drives word-of-mouth referrals and offers more space to users in return.
11. Identify drop-off points with funnel analysis and fix them
Analyze your funnel with analytic tools to identify junctures of disengagement and friction points.
Use UX research methods like user surveys and clickstream analysis to understand the reasons behind the drop-off.
Once you have discovered why customers are dropping off, act on the data to improve customer retention.
12. Track the behavior of loyal customers and replicate their paths for others
Power users are critical to the success of any business. Product usage data of your power users can tell you what features drive value and what events result in conversions.
Your power users also reveal the path to your product’s value. Put other users who share similar traits with these power users on the same path to help them derive optimum value from your product.
13. Analyze retention with cohort tables and improve
Cohort tables can help you understand how different user segments engage with your product over a period.
Look at the data over several periods to pinpoint when you have a churn problem to help you improve your customer retention strategy.
14. Send re-engagement emails to increase customer retention
Re-engagement emails can be one of the most important customer retention strategies for your business.
They remind inactive users of the benefits of your app. So, once you identify inactive users in your funnel, send them win-back emails.
Your email should also include educational content and an offer to help them return to your app.
15. Optimize the offboarding flow to retain customers
A well-designed offboarding flow can leave a positive impression on your customers. Cancellation surveys can also help you reduce churn.
Once a user clicks “cancel”, trigger a survey to understand the reasons behind churn.
Based on their feedback, offer a compelling churn alternative to win them back.
As shown in the image below, Asana provides a 2-person plan alternative since the customer uses only 2 of the 5 seats in their plan.
This alternative saves the user money, which is a compelling enough reason for them to continue with Asana.
How Userpilot can help you in retaining customers
Userpilot is a product growth platform that helps product teams deliver personalized in-app experiences and drive retention.
You can achieve the following with Userpilot:
- Customer segmentation: With Userpilot, product teams can segment users based on attributes like name, ID, signup date, web sessions, and subscription plan to trigger customized experiences.
- Monitor product usage with different dashboards: Userpilot has ready-made analytics dashboards to help you keep track of your product performance and user behavior metrics. The exciting part? You do not need any technical knowledge to achieve this.
- Collect user feedback with customer surveys: Userpilot lets you collect and analyze customer feedback. The platform offers survey templates and conditional logic to help you guide users through your survey based on their previous responses.
Conclusion
If your customer retention efforts have assumed a background role to new customer acquisition efforts, now is the time to switch things up.
The strategies discussed above will give you fresh ideas to turbocharge your customer retention efforts.
If you are looking to track your customer retention rate and keep your customers happy for the long term, book a demo today!
Try Userpilot and Take Your Customer Retention Efforts to the Next Level
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