Customer Retention Rate
Lower is better
How is Customer Retention Rate calculated?
To calculate customer acquisition, divide the total number of paying users within a given period of time and divide that by the total number of users within the same time period. The time periods commonly used for retention rates are weekly, monthly, or quarterly.
What is Customer Retention Rate?
Customer retention rate is the inverse of customer churn rate. You can think of your business like a big bucket; the more money you put in, the more your business grows. But if you have holes at the bottom of your bucket, you'll lose the money you just put in. If your business has high customer acquisition costs, or your time to break even is longer than the lowest subscription period, this metric will be critical. If you cannot retain your customers before you make a profit, you're just lighting money on fire. It's unreasonable to expect every customer to stay with you forever, but you'll still want your retention rate to be as close to 100% as possible.
If your retention rate isn't where you want it to be, try focusing on the core problems that your users are facing. One way to get great insight is to collaborate with your customer success and user research teams.
Customer success often has amazing insight into what makes it difficult for users to start using your product. They also often have insight into what features users may be asking for. To get proactive feedback, consult your user research teams. Understanding whether or not your users are getting value out of your product or service is essential not only for your retention rate but your LTV as well.
Why is Customer Retention Rate important?
According to Harvard Business School, a 5% increase in retention rate can increase net revenue by 25% to 95%. Any impact made on this KPI, however small, can lead to the exponential growth of your bottom line.
Start tracking your Customer Retention Rate
Create a KPI for Customer Retention Rate to monitor it over time and an OKR to track your impact against it in Commonality.
Customer Churn Rate
Measure the number of subscribers that unsubscribed or stopped paying in a given period of time.
Lifetime Value (LTV)
Ensure that you're delivering value that customers are willing to pay for by measuring the average revenue that a customer will generate throughout their lifespan as a customer.