Customer retention is a crucial factor for any subscription business. Let's face it; your business is built on recurring revenue and repeat customers. So, if you have your customer base canceling their subscriptions, pretty soon, your business will be on shaky ground. No, pouring in more money into customer acquisition is not a healthy sign for a subscription business as you'll be spending five times more to acquire more customers that will eventually leave like those before them! Which is sure to take a toll on your bottom line. Plus, an investor will look more kindly on higher customer retention rate versus a higher spend on customer acquisition.
SaaS businesses needs to keep a close watch on this metric, as it is 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.
Additional Revenue: The probability of converting a prospect into a customer is only about 5-20%, while the likelihood of getting additional revenue through an existing customer (expansion MRR) is about 60-70%.
Brand Ambassadors: Customer retention not only increases the customers’ lifetime value, but loyal customers often turn into your brand ambassadors who recommend your product or services to their friends, colleagues, and other prospective customers. This allows your brand to gain new customers for free over an extended period of time.
Customer Upgrades: Around 50% of your loyal customers are likely to snap your new product up when it releases. It is invaluable to have good customer loyalty so you can trust a certain group to not only purchase, but advocate, for any new products.
Before calculating CRR for a particular period of time, a business must first gather the total number of current customers at the end of the period, the number of new customers acquired during this period, and total customers at the start of the period. Once you have an understanding of your total customer base for a given period, you can calculate the rate at which you keep those customers.
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
Let's use an example. Say you had 100 customers at the start of 2020, and through 2020, 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 2020 is, (110-20)/100 = 0.9 or 90%
Here are some retention tactics you could use to increase customer lifetime value, boost customer loyalty, and establish better customer expectations.
Better onboarding experience: If you have an incredible new product that provides value to your customers, but an onboarding process that doesn't point out these values, it will likely result in the customer leaving the platform. Hubspot’s 'Aha moment' is when new customers use five key features within the first 30 days of onboarding. So the lesson is, prioritize the entire customer journey.
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. Having accurate and real time tracking for your key metrics is like having radar that'll keep you course-corrected and help avoid icebergs. With real time metrics and access to 100% accurate data, ScreenCloud was able to reduce their customer churn with the help of RevenueStory.
Talk to your customers: Customer experience is a no-brainer. The only way you'll have loyal customers is to offer customer support that accommodates customer feedback and allows the business to better understand and meet customer expectations. It is always best to keep engaging with your customers as opposed to waiting for them to come to you after there is already an issue. There will always be problems to solve, so be proactive and set up outreach and follow up processes. This will also help spread word-of-mouth about your service.