It’s not only cheaper to retain existing customers than it is to gain new ones, it’s usually easier too. On top of that, it’s estimated that an increase of just 5% in customer retention can lead to a revenue increase of no less than 25 to 95%.
In this post, we’ll look at key customer retention metrics to track and share a list of things that influence them – and that you can improve on if needed.
For a deeper dive into metrics to track for success, read our article on SaaS metrics.
What Is the Customer Retention Metric?
The customer retention rate (CRR) refers to the percentage of users that keeps using your SaaS month after month. It’s the opposite of your customer churn rate.
7 SaaS Customer Retention Metrics that Require Your Attention
CAC – Customer Acquisition Cost
Your customer acquisition cost tells you how much it costs you on average to gain a new user, whether they’re a paying customer, on a free trial, or signed up to the freemium version of your SaaS. The lower your CAC, the more quickly you’ll be able to break even.
That’s why it’s important to not just know your overall CAC but also your CAC per acquisition channel. Once you realize that some marketing and sales channels are much more cost-efficient in bringing in new users, you can focus on those and discard or lower your efforts on others.
CCR – Customer Churn Rate
Your customer churn rate indicates how fast users are canceling their subscriptions within a given period. A high or increasing customer churn rate points to either a decrease in customer satisfaction or a weak position in regards to your competitors.
CLTV/LTV – Customer LifeTime Value
Customer lifetime value is the retention metric that indicates the average revenue a customer brings you across the entire time that they’re signed up with you.
If it goes down, that can point to
- increased customer churn.
- new users signing up to your freemium or lower plans.
- existing customers downgrading rather than buying add-ons.
If it goes up, that can mean
- you’ve established your brand well and people are willing to pay for the value you offer.
- existing users are happy and willing to pay for an upgrade.
- existing users are happy and stay on for longer.
CCR – Cumulative Cohort Revenue
A common way to calculate whether you’re making enough from your customers to offset your CAC is to divide your LTV by your CAC. The higher the number, the better – or so it goes. However, OpenView has made a good case for calculating cumulative cohort revenue instead as the LTV/CAC formula assumes that customer churn rate is constant and that every user will eventually churn.
RCR – Repeat Customer Rate
The repeat customer rate is also referred to as the loyal customer rate (LCR) as it indicates customer loyalty. It’s the percentage of all of your customers that has made a repeat purchase from you within a given period. This could be as simple as someone renewing (or not canceling) their monthly subscription.
For SaaS, this is a better metric to track than repeat purchase rate (RPR) which is more commonly used in eCommerce to indicate the percentage of customers that come back to the store for a new purchase once they’ve already bought something from that store in the past.
MAU – Monthly Active Users
Getting people to sign up is one thing, having them actively use your product is still another. Don’t we all have subscriptions to things we haven’t looked at in months?
Happy customers are active customers. They use and choose to continue to use your product.
Dixon Jones, CEO and founder of Inlinks.net recommends to “look at the number of “paying” and “monthly active” users (which includes free users) but looking at “registered users” is not a good metric. That’s like looking at a pile of dead batteries to measure how much energy you’ve put in.” – from our article on SaaS Metrics.
NPS – Net Promoter Score
Net promoter score is calculated by pro-actively asking your customers to tell you, on a scale of 1 to 10, how likely they are to recommend your product. While it can be a good indicator of customer (dis)satisfaction, it’s important to note that someone who says they’d recommend you won’t actually do so, and someone who is one of your biggest advocates might not take the time to fill in a survey.
Factors That Influence Customer Retention
- Pricing structure.
- Quality of your product.
- Quality of your customer support.
- Whether or not you have a loyalty program.
- Whether or not your cart system saves payment details.
- Your reputation in comparison to that of your competitors.
Tracking the customer retention metrics in this post will help you quickly see whether you’re losing customers you could be keeping. Combine them with our list of factors that influence customer retention to figure out where you can make improvements.
Want to know what else to track to grow your SaaS in a profitable yet sustainable way? Check out our guide on SaaS metrics.