Retention KPIs: 10 Metrics To Measure Customer Retention and How To Improve Them?
Looking for the right retention KPIs to track and improve your customer retention rates?
Customer retention is the key ingredient when it comes to growing your SaaS product without having to acquire new customers.
Forbes claims that it’s 5 times cheaper to invest in retaining existing customers than in trying to attract new ones, while The Economics of E-Loyalty suggests that even a mere 5% increase in customer retention can boost profits anywhere between 25% and 95%.
So let’s find out what retention KPIs you should start tracking!
- Customer retention is a SaaS metric that measures the ability of a product to retain customers over a long timeframe.
- There are 10 retention KPIs you should look out for.
- These include customer retention rate, monthly recurring revenue, customer lifetime value, DAU to MAU rate, repeat purchase rate, expansion MRR, customer satisfaction score, net promoter score, customer health score, and the revenue churn rate.
- The typical monthly churn rate for SaaS products is between 3 and 8%, and annual churn is between 32 and 50%.
- You can improve your retention rates by improving user onboarding, and providing interactive walkthroughs and in-app help centers.
- You can also collect feedback on user sentiment and act on it.
- With a tool like Userpilot, you can create all of these without a single line of code.
What is customer retention?
Customer retention refers to a product’s ability to turn new clients into repeat customers. It occurs when customers find your product valuable enough to stick with it for a long period of time.
What are retention KPIs in SaaS?
Customer retention metrics or KPIs are numeric measures that allow you to identify the number of retained customers your product has. In this way, you can measure the total value these customers deliver to you over a period of time.
Customer retention rates, customer lifetime value, customer churn rates, and Net Promoter scores are some examples of retention KPIs.
Why is tracking retention KPIs important?
The majority of revenue in a subscription-based business model is derived from repeat customers, not from new ones.
When you calculate the customer retention rate, you take proactive measures to reduce churn and determine whether your customers will remain loyal to you or leave.
In order to improve your product’s customer engagement, you can further analyze this information and identify friction spots. You cannot measure the effectiveness of your customer retention strategy without retention metrics.
Customer retention benchmarks
If you’re unsure of what a decent customer retention rate is for your product, you should start by looking at industry averages.
Given that the typical monthly churn rate for SaaS products is between 3 and 8%, the target average retention rate should be between 92 and 97%.
Additionally, as the typical annual churn is between 32 and 50%, the average retention rate should fall between 50 and 68 percent.
However, you shouldn’t always compare your performance to that of the industry standard. Start by setting goals and measuring your performance against them.
10 Customer retention KPIs and metrics to measure retention
Here are 10 of the most important KPIs and metrics that help you measure customer retention rate.
Retention KPI #1 Customer retention rate
Customer retention rate is the percentage of users who continued to use your product after their initial purchase. You can use it to determine if your product keeps customers after you acquire them for a long time. As a rule of thumb, the higher your customer retention rate, the more profits you’ll realize.
To calculate customer retention rate, you need to find the total number of customers at the beginning of a period and the number of customers present at the end of the period:
For example, at the beginning of 2019, your product had 12,500 subscribers. By the end of the year, the number dropped to 9,700. So, your customer retention rate is:
(9,700/12,500) * 100% = 77.60 %
How to improve customer retention rate?
Interactive walkthroughs are an effective method of increasing customer retention. In this way, customers gain a better understanding of how the product works. Users are more likely to engage with the product and adopt new features when there is less confusion.
Personalized onboarding flows are another option. But to do so, you’ll need some information about your new users and then segment them.
You can use welcome screens to greet new customers and understand their jobs to be done.
Here’s how Kontentino does it.
After collecting information about new customers and segmenting them accordingly they offer personalized onboarding flows tailored to their specific use cases. In turn, this will increase engagement and boost retention as customers will be able to find value more quickly without getting confused.
Retention KPI #2 Monthly recurring revenue
MRR refers to the revenue your product generates in a month, typically through subscriptions. This metric is used for forecasting, financial planning, and measuring a product’s growth rate and momentum.
To calculate the MRR, you need to first determine the average revenue per active account. Then, multiply this value by the total number of monthly active users.
For example, if you have 6,500 active accounts and the average revenue per active account is $25, then your MRR is 6,500 * 25 = $162,500.
How to improve monthly recurring revenue
A higher MRR indicates higher customer retention and lower customer churn. You can improve it through:
- personalized onboarding
- product tutorials
- loyalty programs and incentives that encourage users to stick around
- upgrade prompts via tooltips, modals, banners
This is how Mailchimp encourages its users to upgrade their accounts.
Retention KPI #3 Customer lifetime value
Customer lifetime value refers to the amount of revenue you can expect from a single customer over the lifespan of your relationship. It shows how much a customer is worth and how much you should spend to keep them.
To calculate the CLV, you have to divide the average revenue per account (ARPA) by the customer churn rate within a specified time frame.
A high lifetime value shows that your customers find value in your product in the long run, so they will continue to use it.
Customer retention is crucial for any SaaS company because it lowers the average customer acquisition cost. Also, you can determine who your most profitable customers are.
How to improve customer lifetime value?
Although primary onboarding can increase your Day 1 retention, you need secondary onboarding strategies to increase the CLV. With secondary onboarding, your clients can become more familiar with new features and relate them to their use cases.
To develop an engaging secondary onboarding process, you may leverage UI components like checklists, experience flows, and Native tooltips. You can create all these code-free with Userpilot.
This is how Calendly uses tooltips to announce new features and educate customers.
Retention KPI #4 DAU to MAU rate
The DAU to MAU rate is a good measure of product stickiness — the rate at which users return to your product regularly.
This is a key product metric you should measure to understand whether your product creates value or not.
To calculate the DAU to MAU ratio, simply find your daily and monthly active users and then divide them, as shown in the image below.
How to improve the DAU to MAU rate?
To improve the DAU to MAU rate, focus on improving your product stickiness. You can do so by:
- developing engaging user experiences
- improving feature adoption rates
- creating proactive upsell strategies and introducing existing users to more valuable features
- using customer satisfaction surveys to collect feedback, identify friction points, and improve your best features
Retention KPI #5 Repeat purchase rate
This KPI measures the number of repeat purchases from customers as a percentage of your total customer base.
To use the repeat purchase ratio formula, find the number of customers who purchased more than once and the total number of customers in a specified time frame first. Then, divide them, as shown in the image below.
For example, in 2021, from a total of 25,000 customers, 8,000 renewed their subscriptions every month. So, the repeat purchase ratio here is 8,000 / 25,000 = 0.32.
How to improve repeat purchase rate
To encourage repeat purchase frequency, you can offer incentives, discounts, and small rewards to boost loyalty and turn them into loyal customers.
You can also use modals to improve your relationship with existing customers by greeting them, sending personalized messages, and giving them rewards.
Retention KPI #6 Expansion MRR
Expansion MRR is the additional revenue your product generates from existing customers through cross-sells, upsells, or add-ons.
Growing this KPI is important on the grounds that it is more cost-effective to increase the customer lifetime value of existing users rather than acquiring new ones, which enhances your LTV:CAC ratio.
To calculate this, you need to first find out the expansion MRR at the beginning and the end of the month and calculate their difference. This value is then divided by the Expansion MRR at the beginning of the month.
For example, if your expansion MRR additional revenue is $14,000 at the beginning of the month and $19,500 at the end of the month, then your expansion MRR rate would be:
(19,500–14,000)/14,000 x 100 = 39.29%
How to improve Expansion MRR?
The best way to improve expansion MRR is to prompt customers to upgrade their accounts using tooltips, modals, banners, or emails.
Here’s how Miro communicates with their users and invites them for an upgrade.
Retention KPI #7 Customer satisfaction score
The customer satisfaction score (CSAT) is one of the most effective customer satisfaction metrics to measure.
With it, you can gain insight into how satisfied your customers are with numerous aspects of your product, ranging from its features to the helpfulness of customer support.
To calculate this, create a survey asking customers about their satisfaction levels. You can ask a customer, “How satisfied were you with this session?” after a session with a customer service representative.
After that, divide the number of ‘happy’ customers by the total number of customers asked to calculate the CSAT score.
How to improve customer satisfaction score?
You can improve customer experience by collecting direct responses from users since you’ll know what aspects of your product need improvement.
Here’s how Hubspot uses a survey to measure customer satisfaction when they visit their site.
Retention KPI #8 Net Promoter Score
The Net Promoter Score (NPS) measures the likelihood of your customers promoting your product. It is also a measure of customer loyalty.
To calculate the Net Promoter Score, you need to use a survey. Here, you ask your customers a question on a scale of 1 to 10: How likely are you to recommend us to a friend or family?
Your NPS score is the difference between the percentage of promoters and detractors.
For example, in your survey, 60% of the respondents chose 9 or 10, while 30% chose 6 or below. So, your NPS score is 30%.
A high NPS score can encourage customer advocacy. It shows that your customers are extremely satisfied with your product, and are willing to actively promote it.
How to improve Net promoter score?
To improve your Net Promoter Score, you can add a qualitative question to the survey and understand users’ logic behind the score. This can help you identify exactly why your customers might or might not promote your product.
Once you have these answers, you can even follow up with the respondents. You can contact them via email or invite them for a call to learn more about their issue.
Retention KPI #9 Customer health score
The customer health score is a metric used to determine whether a customer is likely to grow, remain loyal, or leave. Keeping track of this allows you to identify potential churning customers, power users, account expansion opportunities, and customer success and failure patterns.
To calculate the customer health score, you have to determine the customer actions impacting the health score and assign an impact score to each action. These are known as action values.
For example, you can measure how many features your customers are using, the number of resolved or unresolved tickets in a day, or the frequency at which customers use your in-app help center and assign numeric scores to these elements.
Finally, you sum up the individual action values to get the customer health score.
How to improve customer health score?
You can improve your customer health score by offering in-app guidance and in-app help centers so that customers can get on-demand support and overcome friction points on their own.
Retention KPI #10 Revenue churn rate
The monthly recurring revenue your product loses from existing customers over a given time frame is known as revenue churn.
Your product is no longer valuable to your customers, so they switch to free plans or stop using it.
To calculate the revenue churn rate, you need to first identify your MRR at the beginning and the end of a specified period. This difference is your net revenue churn. Then, divide this by the MRR at the start of the period.
For example, your MRR at the beginning of January is $17,000. By the end of the month, your MRR has decreased to $14,600. For the one month, your revenue churn is:
(17,000–14,600) / 17,000 * 100% = 14.12%
How to reduce revenue churn rate
With churn surveys, you can ask customers what made them cancel their subscription. This will help you identify the friction points so you can fix them before the churn rate increases.
4 Best customer retention tools to reduce churn and drive loyal customers
Now let’s see what tools you can use to reduce churn and boost customer loyalty.
Userpilot — for user onboarding
Userpilot is a product growth platform that focuses on improving user onboarding through welcome screens, checklists, tooltips, interactive walkthroughs, banners, and in-app help centers.
Getting started is easy, and there is no need to know how to code. It can be set up in minutes and is extremely fast.
Subscription packages start at $249 for Traction, $449 for Growth, and $1,000 for Enterprise.
Zendesk — for customer support automation
Designed to create better customer relationships, Zendesk is customer relationship management software.
It offers features such as past ticket information, smart ticket management, and custom notification settings to remind you about unaddressed tickets.
Prices range from $19 to $99 for Zendesk Sales and Services, respectively.
Amplitude — for product analytics
Amplitude is a comprehensive product analytics platform that enables you to leverage product and digital marketing behavioral insights.
Through numerous graphs and charts, you can explore your customers’ behavioral data. The event segmentation feature is fully customizable, allowing you to set as many different filters as you like.
There are three plans available with Amplitude. The Starter is free, while Growth and Enterprise require direct contact for a quote.
Qualaroo — for feedback collection
Qualaroo is a handy tool for collecting customer feedback. A variety of survey templates are available, enabling you to launch feedback surveys quickly.
By segmenting the feedback and analyzing the sentiment, you can get detailed insights into your customers’ preferences. It can be used to create exit intent surveys, NPS surveys, and user experience feedback surveys.
Qualaroo starts at $80 per month. Depending on which package you choose and your product’s monthly pageviews, the price can exceed $200.
How many loyal customers your product has determines its health and profitability. Therefore, identifying customer journey problems and focusing on customer retention are crucial.
Want to track your retention KPIs and improve them? Get a Userpilot Demo and see how you can reduce the number of churned customers and grow your customer base.