Customer Retention

What is Customer Retention?

For SaaS businesses, customer retention is a measure of how many customers renew their contracts at the end of their subscription term. It is the inverse of customer churn and is also known as logo retention rate. The key to maintaining a high customer retention rate (CRR) is to create a high concentration of engaged and successful customers.

Customer retention starts with the first contact an organization has with a customer and continues throughout the entire lifetime. Successful retention efforts take lifecycle as this whole into account. A company's ability to attract and retain new customers is related to its product or services and how it services its existing customers, the value the customers perceive as a result of utilizing the solutions, and the reputation it creates within and across the marketplace.

Successful customer retention involves more than giving the customer what they expect. Generating loyal advocates of the brand might mean exceeding customer expectations. Creating customer loyalty puts' customer value rather than maximizing profits and shareholder value at the center of business strategy'.The key differentiation in a competitive environment is often delivering a consistently high standard of customer service. Furthermore, in the emerging world of Customer Success, retention is a significant objective.

How to measure Customer Retention?

Customer retention refers to a company's ability to turn customers into repeat buyers and prevent them from switching to a competitor. As a performance metric, it indicates whether your product and the quality of your service please your existing customers. It's also the lifeblood of most subscription-based companies and service providers.

To calculate it, pick a period you want to measure the following:

Number of customers at the start of a given period (S) Number of customers at the end of that period (E) Number of new customers added over the duration of that period (N) Customer retention rate (X):

((E - N) / S) * 100 = X

For example, a company that begins the year with 100 customers, acquires 20 new customers, and loses ten of the initial customers by the end of the year is considered 80% retention. Even though the number of customers remained the same—meaning growth is flat—only 80 customers are retained. Robust customer acquisition does not cover up low retention.

Some Customer Retention Examples:

  • Rapid response to customer support queries: Quick replies result in higher customer satisfaction. Setting time frame expectations upfront helps with that. Customers are more than willing to wait if they know you're actively working towards a solution.

  • Consistently gather customer feedback: User feedback is the most valuable resource to increase customer retention and reduce churn rates. If you want to know what is and isn't working for your customers, listen to their feedback.

  • Better customer experiences: Improving customer retention and building customer loyalty takes time and effort to grow your relationship with them and earn their trust. Provide high-class customer experience.

  • Understand your customers' problems: Even the most stunning product can't survive if you don't know what problems it solves. Understand customer's issues and listening will benefit most.

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