User Retention 101: The Complete Guide for Retaining Loyal Users

If you’re in SaaS, you need to absolutely nail user retention as keeping hold of users is vital to the survival of any business.

This comprehensive guide will explore how to appeal to existing and new users, share best practices that’ll help boost user retention rates, and discuss the best tools for the job.

Let’s get into it!

TL;DR

• User retention measures how successfully you keep hold of your customers over a given time frame.
• Retention is essential for a number of reasons: it is cheaper than user acquisition, helps you lead users to a high overall lifetime value, ensures you retain users past the payback period, and transforms active users into your best, most loyal marketing tool.
• Measuring user retention rate is all about focusing on the individual user (i.e., how many users are actively logging in and using your product).
• To measure customer retention, focus instead on specific accounts paying for access to the product (i.e., a business account might have many users).
• The flipside of measuring retention is understanding user churn (the percentage of users who stop using your product).
• Part and parcel of your retention strategy should be focusing on different stages of the user onboarding journey.
• Those stages are primary onboarding (when first-time users sign up), secondary onboarding (helping existing customers discover new features and unlock more value), and tertiary onboarding (when you want to transform users into loyal customers).
• You measure user retention by dividing the ‘drop’ in users by the original quantity of users over a given time period. But to do that, you need to work out an appropriate period of time and define what ‘usage’ really means in the context of your product.
• Some specific best practices to try out when it comes to boosting retention: personalize the onboarding experience, use gamification to increase engagement, announce relevant features to drive attention, and understand user behavior with churn surveys.
• To conduct a detailed retention analysis, start by monitoring in-app behavior, perform cohort analysis to find months when users churn, and look at engagement scores over time to identify trends.
• Of course, none of this is possible without the right tool for the job: Userpilot is a powerful product adoption platform that’ll help you drastically improve your retention.

What is user retention?

In essence, user retention measures the number of users who continue using your product over a given time frame.

It’s a critical metric for product and customer success teams to grasp as user retention rates will give you valuable insight into how much value users are getting from your product.

Why is user retention important?

Why does retention matter? Why should you focus on how many users are continuously using your product? Because retention informs several other key product decisions and impacts a range of other dimensions, a few are discussed below:

1. The cost of acquisition. User acquisition is far more expensive than user retention. From a business perspective, it makes sense to keep hold of existing customers rather than constantly having to win over new ones.
2. Customer lifetime value. Retained users typically have a higher customer lifetime value.
3. Payback period and profitability. To ensure your SaaS makes a profit, you need to retain customers past the payback point.
4. Customer loyalty. You can turn new users into your most effective marketing tool if you show them enough value. Retained users become loyal customers who’ll spread positive word of mouth to their networks.

User retention vs. customer retention

These are similar metrics, but there’s a subtle distinction:

• User retention is focused on the individual (i.e., how many users are actively logging in and using your product). This is a usage metric.
• Customer retention looks at the specific accounts paying for access to the product (a business account might have many users). This is primarily a financial metric.

For consumer companies, these metrics will likely be the same as typically there’ll be one account for one user. However, it’s a different picture for B2B organizations – with enterprise accounts, there could be many users for one account.

User retention vs. user churn

You could think of retention and churn as two sides of the same coin – they’re opposites, but they’re linked.

Retaining customers means keeping hold of them and making sure they continue to use your product. Churn is a figure that tells you the percentage of users who stopped using your product or service during a given time period.

Some amount of churn is inevitable, but you’ll want to minimize it where you can.

Here’s a key takeaway:

The lower your churn rate, the better your user retention rate.

The 3 user journey stages to focus on to drive retention

Part and parcel of forming your retention strategy should be focusing on different stages of the user onboarding journey. The better you understand what each stage is for, the more equipped you’ll be to craft experiences that drive retention.

Primary onboarding

What is it? Primary onboarding is mostly focused on new users, and showing them how to get value from your product as quickly as possible (i.e., reaching the customer activation point).

How does it help retention? The better your onboarding, the faster your users obtain value – and the more likely they are to stick around. Poor onboarding will frustrate your users, cause friction, and ultimately lead to churn.

Secondary onboarding

What is it? Secondary onboarding is about driving repeated usage and helping your existing users discover how to unlock extra value with feature discovery.

How does it help retention? A user who properly understands how to navigate your product will be able to solve their problems more effectively and therefore, they’re more likely to keep on using it.

Tertiary onboarding

What is it? The most advanced stage of onboarding is focused on building loyalty, encouraging habitual use, and taking advantage of upselling opportunities.

How does it help retention? You can boost the user retention rate by converting already retained users into advocates – they’ll drive positive word of mouth and influence people in their networks.

How to measure user retention?

On the face of it, the user retention rate seems simple. However, there are two important facets of it you need to understand before you can calculate it for your own product.

1. Time range. How long would you like to look at retention over?
2. Product use. How do you define ‘using your product’ – is it just logging in, staying within your product for X number of minutes, or engaging with a specific feature?

You can calculate the user retention rate through the below formula:

Another important distinction here is NRR vs GRR:

• Net Revenue Retention is the percentage of revenue you retain from existing customers within a particular period. The higher the NRR, the greater the probability of scalable growth.
• Gross Revenue Retention is the percentage of revenue you retain from customers without taking expansion MRR (monthly recurring revenue) into account. The lower the GRR, the higher your revenue loss from downgrades and churns.

There are a number of other retention metrics you might want to explore to build a more holistic view of your user retention:

• Churn rate: the percentage of lost customers during a time period.
• Customer lifetime value (CLV): the amount of money a business earns from each customer over their relationship with your company.
• LTV to CAC ratio: measures the lifetime value of users over the cost of acquiring them.
• Net promoter score: measures how likely a customer is to recommend your company to their friend/colleague.

Important user retention benchmarks to look out for

Let’s look at four key user retention benchmarks one should remember.

1. Average retention rates. Across most industries, the average eight-week retention is below 20%. There are some industry-specific relationships: in media or finance, a retention rate of over 25% is considered elite. For a SaaS, it’s a little higher: anything over 35% retention is elite.
2. The impact of onboarding. 74% of potential customers will switch to other solutions if the onboarding process is complicated.
3. Customer loyalty. 86% of customers say they will remain loyal if onboarding and continuous education are provided.
4. NRR and GRR. For public companies, the median net revenue retention rate is 114%, whereas, for private companies, the rate is between 60% and 148%. The median gross revenue retention rate for private companies is between 88% and 90%.

4 ways to increase user retention and drive users to become brand advocates

Next, we’re going to unpack some specific and actionable tactics – with examples – you can draw on to improve retention within your own product.

Personalize the onboarding process to guide new users’ activation

A personal touch always makes a difference in the onboarding process.

You can craft a more personalized flow by using data you’ve gathered during the sign-up process and welcome surveys. This will help you target distinct user segments with appropriate techniques (i.e., checklists, interactive walkthroughs, and more).

Apart from creating a personalized onboarding, you should reduce the number of steps in the flow to achieve a shorter time to value.

Userpilot uses an interactive checklist to onboard users – it’s a proven route to faster value.

Use gamification to increase the number of active users

Gamification is a concept taking the SaaS world by storm: introducing elements of gamification will help encourage users to engage and interact with your product, ultimately improving retention. You could:

• Use rewards and incentives to motivate users to keep going
• Reward ‘good’ in-app behavior with badges and encouragement
• Use onboarding gamification to convert free trial users

Salesforce uses gamification to encourage users to keep growing their product expertise, with an engaging progress bar and badges to give users a sense of achievement.

Announce new features to relevant users and help them get more value

You can let your customers know about new features in a number of different ways: with banners, eye-catching modals, or contextually relevant tooltips.

Use segmentation to announce features to the relevant user groups – that means those who’ll get value by adopting them. Why does that matter? Because the more value users get from your product, the ‘stickier’ their behavior becomes- and the better your user retention.

Kommunicate announces a new feature through a tooltip: a great way to share information without overwhelming the screen with detail.

Use churn surveys to understand why users churn

You can’t make effective product decisions without understanding the reasons behind your customers’ decisions.

Use churn surveys to gain that understanding: it’ll help you figure out why users leave your product. This data will show you where your opportunities for improvement are.

Additionally, if you offer clear alternatives to help users tackle the most common issues, you’ll almost certainly decrease potential churn… and boost retention.

Here’s a great example. Asana offers users the chance to move to a cheaper plan with a cancellation survey (rather than leaving altogether).

How to perform user retention analysis to improve retention rates?

“Data is a precious thing.”

Tim Berners Lee, inventor of the World Wide Web.

In this section of the article, we’re going to explain how you can undertake user retention data to make more effective product decisions (and improve your user retention rates fast).

Monitor in-app activity to understand user behavior

You should track when specific events are occurring – you can use these data points to figure out exactly which points users are dropping off in the journey, and make targeted improvements that fix issues.

Over time, you’ll start to identify clear patterns – for example, which features your power users are engaging with the most? You can then use what you learn to forge a path for all new users. This will help them discover features and get value sooner.

Perform cohort analysis to track retention

The key to figuring out user retention is defining clear time periods.

Performing cohort analysis – tracking customer lifecycle over a time period (usually 12 months) can be incredibly useful. The seasonality in the data will help you identify ‘sensitive’ months when users might stop paying. A typical example is near the end of the tax year.

This sort of detailed analysis will also uncover trends in user retention: if you see rates dropping off, you can take appropriate action.

Track customer engagement scores to predict churn

You can’t make informed decisions unless you understand how healthy your relationships with your customers are and a customer engagement score will help you figure that out.

Assign a score to particular levels of engagement to identify signs of churn early. A drop in engagement signals a clear problem: you can then proactively reach out to distinct groups of customers and help improve user retention.

The customer engagement score can be calculated using the below formula.

Best user retention platform tools for SaaS

Of course, none of this is possible without the right tool for the job. Let’s explore some of the best user retention tools on the market.

Userpilot

Userpilot is an easy-to-use user onboarding and analytics platform.

It offers advanced segmentation capabilities, which gives you the option to craft personalized and engaging onboarding that appeals to distinct customer segments.

You can pick from a multitude of different UI patterns (tooltips, modals, banners, and more) and create them without writing a single line of code.

To top it off, you’ve got a range of powerful analytics options to help you analyze (and better understand) user behavior. Userpilot offers a range of pricing options to suit organizations of all shapes and sizes.

Amplitude

With multi-platform tracking, behavioral analytics, enterprise-level security, and great customer support, Amplitude is another powerful tool designed to help meet the needs of modern, agile teams.

One great feature offered is the Historical Count. You can dive into in-depth insights about why your users are (or in some cases are not) converting, retaining, and engaging.

Hotjar

Hotjar is a powerful platform that helps you understand user behavior, and delve into a range of analytics.

Hotjar’s heatmaps help you view your users’ clicks, taps, and scrolling behavior. You can also view session recordings, a great way to put yourself in the shoes of your users. Both heatmaps and session recordings show user behavior and can assist you in retaining them.

Conclusion

That sums up our comprehensive guide on user retention!

Hopefully, you now have a rock-solid understanding of what retention is, how you go about measuring retention, and the best practices and tools for the job.

So, what are you waiting for? If you want to get started with tackling user retention today, get a Userpilot Demo and see how you can craft engaging product experiences.