What is Customer Retention: An Ultimate Guide

In the SaaS and subscription business (our focus here at Akita), your rate of customer retention can be the difference between failing and being wildly successful. In traumatic economic times, when acquiring new business is hard, companies that hold onto their customers and even grow their customer revenues, are the ones that survive and thrive.

So, if you want to learn how to improve your retention rates and (by implication) reduce your rates of customer churn and, even better, start to grow the revenues you earn from existing customers, read on!

Key Customer Retention Metrics

Tracking and analyzing the right retention metrics can determine the outcome of your customer retention strategy.

Here are the key ones each business should take into consideration:

• The customer retention rate measures the percentage of existing customers who stay for a specific period. 
• The customer churn rate is the opposite – it shows the percentage of people who left your business in a specific period.
• Revenue Churn refers to the percentage of MRR (monthly recurring revenue) your business lost over time. This metric calculates how much money you have lost during a given time frame. 
• Customer Lifetime Value (CLV) refers to the profit a business gets from each customer throughout their time with it. 
• Repeat Purchase Rate shows the percentage of customers who made repetitive purchases after the initial one.

1. The first step in obtaining the precise metric is determining the exact timespan you wish to examine. Many companies calculate the customer retention rate on an annual, or monthly basis, but you can adjust the time frame to your preferences. 
2. Then, sum up the number of customers that you already had at the start of the given timespan.
3. Now, subtract the number of new customers that you obtained during that time.
4. Divide the result by the number of customers you had at the beginning of the period.  
5. Finally, multiply it by 100 to get the precise percentage. 

3 Ways to Visualize Customer Retention

We answered the question of what customer retention means, but let’s look at the type of metrics used in retention analysis. 

N-Day Retention measures the number of customers who come back to a service or product after the first purchase on a specific day. The higher the N-Day retention rate, the higher the possibility of improving retention. 

Bracketed Retention is like N-Day retention but with customizable options. Besides splitting up the measurements into specific time frames, you can categorize customers based on their gender, age, or any other trait that you find crucial. 

Unbounded Retention shows the percentage of customers who returned to your product or service on a specific day or any day after that one. This retention rate is mainly tracked by companies that don’t expect their customers to use their products every day. It is often referred to as the inverse of the churn rate. 

Methods to Improve Customer Retention

Having a more human-centric approach to your customers makes them feel heard and valued. This is why offering rapid but tailor-made customer service is crucial. So, what is retention in customer service? It mainly refers to being able to resolve any issue on any device or in person as fast as possible, but also showing regret if the customer feels their needs haven’t been met.

Getting and analyzing feedback from your customers via surveys can help you enhance the customer experience. This is how you’ll learn more about them and adapt accordingly. Communicating with your customers is a great way to learn about the vulnerable points in your business strategy as well. 

The privilege of having a loyal customer is earned through patience and hard work, so showing appreciation will only strengthen the bond. Anything from VIP membership, giveaways, or personalized offers can serve as a reward for customer loyalty. 

Eliminating any disruptions when a customer wishes to purchase your product is what you should constantly aim for.  Besides ensuring a fast page load time and responsiveness, which are both a must, facilitate the signup and mitigate the risks of customers feeling overwhelmed. 

Finally, create exciting loyalty programs that will encourage existing customers to purchase more frequently.  Check our article on improving customer retention to find out more information.

Why Is Customer Retention Important?

Besides increasing the revenue through recurring purchases, existing customers also serve as an effective word-of-mouth marketing engine through reviews and referrals. 

Customer retention analytics show you who the most loyal customers are, which allows you to reward them or act immediately if you notice an undesired change in their behavior.

By tracking the customers’ activity, you can predict and possibly avoid churn by implementing adequate strategies that will prevent them from turning to competition. With customer success platforms like Akita, you can monitor and review customer data at any point and get visualized metrics within seconds. Then, you can segment customers into cohorts, and create a unique approach for each of them. By automating your customer success workflows, you show that your customers’ time and interest are highly valued, which can further affect customer experience positively. 

Finally, the flaws in the customer retention strategy are easier to detect when you have an in-depth knowledge of your customers’ behavior. Based on the given analytics, you can modify its structure along the way and never repeat the same mistake twice!