One of the most important factors to organically grow your business is to maintain high user retention. Many organizations focus too heavily on attracting new customers, but ignoring how to keep existing users can seriously harm your profitability.
The biggest issue many businesses face when it comes to accurately tracking user retention and making meaningful changes is how to measure it. Or, put more technically, what user retention metrics should you track to help you reduce customer turnover (also known as churn)?
Why is user retention an important metric to consider? Good user retention is a solid sign that your business is providing value to your customers and has product/market fit.
Your company can use customer retention metrics to determine how well it can meet your customers' needs over time and convert that into continued, sustainable business.
Common reasons for Churn include:
- Poor onboarding experiences that leave your customers not understanding how to use your product. Without great product support, FAQs and tutorials, not only existing customers will be dissatisfied, they may not be aware of features that could convince them to come back!
- Prices that are too high. Especially after a price hike, high prices are a key reason why customers aren’t coming back. If your competitors are offering your service at a lower price, you’ll be leaking customers at an alarming rate.
- Bugs and bad feature updates. A high churn rate could be due to a bad software experience or a feature update that has hurt the user experience. Development and app testing are crucial to avoid mass exoduses when bugs creep into your software.
At June, we aim to provide businesses with accessible, no BS product analytics and actionable retention insights to help them grow powerful online businesses. In this article, we’ll cover the metrics and user retention KPIs (key performance indicators) your business needs to use in 2022.
Preview:
Here is a list of the best user retention metrics to track:
- Customer Retention Rate
- Feature Retention Rate
- Churn Rate
- Revenue Churn Rate
- Customer Lifetime Value
- Customer Acquisition Cost
- Repeat Purchase Ratio
- Daily, Weekly or Monthly Active Users
- Net Promoter Score
Customer Retention Rate
The basic user retention metric is the aptly named customer retention rate (CRR). Intuitively, CRR measures the number of customers your company is able to retain over any given period of time.
To calculate your retention rate, we’ll need to measure three key sources of information:
- The number of existing customers at the beginning of the time period
- The number of new customers in that time period
- The total number of customers at the end of that time period
Once you’ve gathered this data, calculating your company’s CRR is simple:
For example, if you began a time period with 100 customers, had 50 new customers but ended the period with 125 customers, your CRR will be calculated as following:
What time period should you use for calculating your customer retention rate? That largely depends on what type of business you run, and how often customers use your product.
For example, some SaaS companies and those who offer a service that customers interact with every day might pick a daily time period. Others may choose monthly, or even yearly if business is seasonal. B2B SaaS companies that charge monthly find a time interval of a month extremely useful.
Why is retention so important for your business? It’s simply much harder and therefore much more expensive to attract new customers than to retain existing ones. Research from Harvard Business Review concludes that it can be 5 to 25 times costlier to woo over a new customer than it is to retain an old one.
What is a ‘good’ CRR? Unsurprisingly, the customer retention rate, your business should be aiming for depends entirely on the market sector your company operates in. For most industries, a 20% retention rate is typical. For SaaS providers, a 30% annual CRR is very respectable. Buffer, for example, a popular social media analytics and scheduling platform, has reported an annual churn of 46%!
It can be extremely time-consuming to calculate retention rates, especially if your time interval is quite short. June makes it easy to track your retention and display your data in neat graphs for analysis.
You can automate retention tracking by connecting your segment account to June. Created by Twilio, Segment is a platform for collating your customer usage data into one easy-to-access place. With Segment, you can automatically collect user metrics from hundreds of software tools like Google Analytics and Stripe. With June, you can easily generate attractive and functional retention graphs and reports.
Feature Retention Rate
A badly thought-out feature or sector of your product offerings can be revealed through a feature retention rate. It measures how many customers continue to use a specific feature after a certain period of time. This can help gauge the popularity of a feature update.This is easy to track with June. It will compile a report for both feature adoption and feature retention.
Churn Rate
A customer churn rate is the inverse of a customer retention rate. It describes the proportion of your customers that have stopped using your service or doing business with your company during a certain time period.
A high churn rate is a good sign of a failing business. Often, a spike in churn rate can signify a bad business decision or a controversial update.
How do you measure it?
Firstly, what do we count as a ‘churn’? For SaaS companies, this should be along the lines of ending a subscription. Apps may prefer to count uninstalls as a churn. Brick and mortar stores could count a customer not returning after a considerable length of time as reason to believe they have abandoned the company.
The churn rate formula is as follows:
This formula eliminates the skew effect of new customers joining the service during the measuring period. We are only considering customers that had already begun doing business with your company by the beginning of the time period.
Revenue Churn Rate
The reality is that some customers are more valuable than others, whilst some existing customers may choose to reduce their spending on your products. The net effect of this would be ignored on a churn rate graph.
For many firms, looking at the amount of revenue lost from customers during a period of time may be a more useful metric. This can be measured by the Revenue Churn Rate.
To calculate this, we’re only looking at revenue from existing customers and ignoring revenue generated from new subscribers.
Often, this is measured monthly and describes how much Monthly Recurring Revenue (MRR) is lost each payment period. June makes it easy to spot customers that might be slipping away, helping you reduce customer churn.
This will help you reach out to your churning users so you can make your product better and increase the likelihood they’ll stay.
Customer Lifetime Value (LTV)
A customer lifetime value measures exactly how much each customer is worth a business over the lifetime of their custom with your company.
The most comprehensive way of measuring this is by identifying and summing up each point a unique customer adds value to your company across their lifetime. However, in practice, doing this for every customer is impossible.Therefore, a simple LTV formula is as follows:
It’s important to compare a lifetime value measurement with the customer acquisition cost (CAC). We’ll cover this next. If the cost of acquiring a customer exceeds the added value of that customer to the company over their lifetime, each customer relationship isn't valuable enough to sustain your business.
How can your company increase the lifetime value of customers? The secret is upselling products, packages and new subscriptions to meaningful solve the needs of existing customers, and reducing the amount of customers leaving over time. You could offer incentives for continued spending with your company like loyalty programs and volume discounts.
Customer Acquisition Cost (CAC)
The Customer Acquisition Cost is the average cost of acquiring a new customer. Why is this metric important for user retention analysis? Firstly, it’s useful to compare with the customer lifetime value as to see the net effect of retaining a customer.
Secondly, it dictates how much your company needs to focus on improving customer retention. If it costs comparatively little to acquire new customers, it may be less important to keep on existing customers.
To calculate CAC:
June makes it easy to collate all sources of marketing spend so that it’s easy to calculate and track your customer acquisition cost.
What is a good customer acquisition cost to lifetime value ratio? A 3:1 ratio is a healthy balance – meaning that the revenue gained for each new customer is 3x the amount is costs to acquire them. A higher ratio is a great sign for your business. A tighter ratio than 3:1 may mean you’re not creating enough value from your customers.
Repeat Purchase Ratio
The Repeat Purchase Ratio measures the proportion of your customers that return to your business to repeat purchases during a particular time period. A high repeat purchase ratio signals a loyal customer base, high customer satisfaction and successful retention practices. This is why this measurement is sometimes called a loyal customer rate. How many of your customers are loyal?
Often, the root behind low returning customer rates is low satisfaction. An RPR can therefore be improved by investing in customer support, improving the onboarding process and upselling related products.
Daily, Weekly or Monthly Active Users
For SaaS companies that incentivise repeated and regular use, the active users count is an extremely important metric. It signifies that customers are finding repeated value in your product, and helps show that a spike in growth can be sustained. With June, it’s easy to see your active users at a glance. You can also view your daily active users (DAU) over monthly active users (MAU) ratio wich measures repeated usage.
For B2B SaaS providers, perhaps a daily active companies metric would be more useful.
A large spike in daily active users followed by a period of decline signifies temporary growth. If this occurs, not enough has been done to encourage return business. Conversely, high levels of daily, weekly or monthly active users suggests your company has experienced sustained growth.
How do you improve active user counts? You could employ methods to push new customers back onto your platform. How about push notifications or retainer emails? Services designed to be used daily could use rewards for consecutive daily use to encourage returning business.
Net Promoter Score
A Net Promoter Score measures how likely a customer is to recommend your service to friends, family or colleagues. This is determined by a survey sent out to existing customers to rate the likelihood of promoting the service. The higher the score, the more likely that particular customer will share your company with others.
Why is a high net promoter score important? Word of mouth advertising can be often be the most effective form of marketing, and costs very little to your business. A good score in a promoter survey doesn’t guarantee growth or retention. However, generous referral programs can be sent to those who are most likely to share (i.e. high net promoter scorers) – driving referrals.
A low net promoter score signals low customer satisfaction. Some surveys may offer existing customers to provide text feedback after submitting a low promoter score.
Get Started with Retention Analysis Fast
Retention analysis is vital for a business to identify customer churn and make meaningful changes to retain as many existing customers as possible.
After all, it will cost at least 5x more to acquire a new customer than to convince an existing customer to spend more on your product. Get started today at June.so and access BS-free, accessible and beautiful product analytics for B2B SaaS companies.
