What is Customer Retention?
The Importance of Customer Retention
Customer retention drives predictable revenue growth for subscription businesses. Acquiring new customers often costs more than retaining existing ones, making retention a cost-effective growth strategy. High retention rates signal strong product-market fit to investors and reduce your cost of growth.
SaaS businesses should monitor this metric closely because it serves as an excellent proxy for customer satisfaction. If there's a constant dip in your customer retention rates, you can be sure there's an underlying problem in the product or service.
Benefits of Customer Retention
Additional Revenue: The probability of converting a prospect is only 5-20%. In contrast, the likelihood of earning expansion revenue from an existing customer is 60-70%.
Brand Ambassadors: Customer retention increases lifetime value. Loyal customers also become brand ambassadors who recommend your product to friends and colleagues.
Customer Upgrades: Your loyal customers are more likely to try new products. This makes them valuable early adopters for product launches.
Calculating the Customer Retention Rate
To calculate your customer retention rate (CRR), you first need three numbers for a given period. Gather the total customers at the start, new customers acquired, and total customers at the end.
Customer Retention rate = [(number of customers at the end of the period - number of new customers during this period) / Total customers at the start of the period] x 100
Say you had 100 customers at the start of 2025, and through 2025, you added 20 more customers, but you also lost 10. You have the original 100 customers, plus 10 (20-10), equalling 110.
Your customer retention rate for 2025 is (110-20)/100 = 0.9 or 90%. This indicates strong performance, as retention rates above 90% are considered excellent for B2B SaaS companies.
Key Customer Retention Metrics
While customer retention rate is a primary indicator, it doesn't tell the whole story. RevOps teams need a complete metrics framework to understand revenue dynamics fully.
Customer Churn Rate: The inverse of retention rate, measuring cancellation percentage
Net Dollar Retention (NDR): Revenue changes from existing customers including upgrades and downgrades
Customer Lifetime Value (CLV): Total revenue expected from a customer relationship
Gross Revenue Retention: Recurring revenue retained excluding expansion
Industries and Retention Benchmarks
Customer retention benchmarks vary by business model and market segment:
B2B SaaS (SMB) | 85-90% | 90%+ |
B2B SaaS (Enterprise) | 90-95% | 95%+ |
B2C Subscription | 60-80% | 80%+ |
Enterprise retention rates are typically higher due to longer contract cycles and switching costs.
Customer Retention Strategies That Make Loyal Customers
RevOps teams can use these proven strategies to improve retention. Focusing on these key areas creates a better customer experience.
Optimize onboarding: Guide customers to value realization within the first 30 days
Use data-driven insights: Track leading indicators like product usage and engagement scores
Proactive customer engagement: Regular check-ins prevent issues before they cause churn
Value-based pricing: Align pricing with customer outcomes and ROI
Better onboarding experience: Your product may provide incredible value, but customers will leave if onboarding fails to highlight it. A poor onboarding experience often leads to churn.
Metrics can help you retain customers: We're living in the age of data and automation. These numbers can tell you a story before it's too late for your business to react. Investing in a subscription analytics platform will help you keep a close watch on your key metrics. Accurate, real-time tracking of your key metrics helps you identify and address potential problems before they lead to churn. With real-time metrics and access to 100% accurate data, ScreenCloud was able to reduce its customer churn with the help of RevenueStory.
Talk to your customers: A positive customer experience is essential. To build customer loyalty, you must offer support that actively uses feedback. This helps your business better understand and meet customer expectations.
Getting Started With Customer Retention
Improving customer retention is a continuous process, not a one-time project. It begins with understanding why retention matters and how to measure it accurately. From there, you can add targeted strategies that align with your business goals.
Companies with advanced billing infrastructure are better equipped to use hybrid pricing models. This capability is strongly correlated with high growth. A scalable revenue management platform unifies billing, subscription management, and analytics to support retention strategies. See how Chargebee helps you monetize with confidence — book your personalized demo today.
Frequently Asked Questions About Customer Retention
The three R's of customer retention
The three R's of customer retention are Recognition, Rewards, and Relationships. Recognition acknowledges customer loyalty, while rewards provide tangible benefits for their continued business.
Good customer retention rates by industry
This varies, but for B2B SaaS, a rate above 90% is strong. For B2C subscription services, rates can be lower and often fall between 60% and 80%. The best benchmark is your own historical performance.
Cost-effectiveness of retention vs. acquisition
Retaining a customer is cheaper than acquiring a new one.
Frequency of measuring customer retention
Track retention monthly for operational insights and quarterly for strategic planning. RevOps teams should monitor retention alongside other SaaS metrics in monthly business reviews.
Additional reads
What is Customer Churn? Definition, Metrics & Reduction Strategies
Customer Lifetime Value: How to Calculate and Optimize CLV
Annual Recurring Revenue: Understanding Subscription Metrics
SaaS Metrics: Tailored Metrics for Your Executive Team
Antifragile Revenue Operations Workflow for SaaS
