12 Must-Track Customer Retention Metrics for Growth (2023)
Customer retention metrics serve as an essential check into your business’ health. These data points provide insights into how much revenue your business retains each month, whether it can survive at its current churn rate, and how well your organization converts contract renewals.
The most obvious way to measure customer retention is to calculate direct retention metrics, such as retention rate and customer churn.
But these metrics only tell you the rate at which you retain and lose customers — they fail to paint a more detailed picture about the revenue attached to those customers, why customers do and don’t churn, and other important factors related to retention.
In this article, we’ll explore the essential customer retention metrics to measure your product’s stickiness, your business’s growth potential, and the value of your existing customers.
What are the most important customer retention metrics to track?
- Customer churn rate
- Customer retention rate
- Net MRR churn rate
- Gross MRR churn rate
- Net dollar retention rate
- Gross revenue retention rate
- Customer lifetime value (CLV)
- Expansion MRR rate
- Daily/weekly/monthly active users (DAUs/WAUs/MAUs)
- Net promoter score (NPS)
- Customer satisfaction score (CSAT)
- Customer renewal rate
What Are Customer Retention Metrics?
Customer retention metrics are a set of KPIs that businesses use to track the number of customers they retain over a given period of time. These metrics can help businesses understand how well they are retaining their customer base, identify potential issues that may be causing customers to leave, and develop strategies to improve retention performance and upselling.
The Importance of Tracking Customer Retention Metrics
Customer retention is an important indicator of the overall health of a business. If a business is losing several customers, it may not be providing the products or services that customers want, or users may be experiencing problems with its customer service. On the other hand, if a business has a high customer retention rate, it’s likely meeting customer needs and providing a positive customer experience.
Customer retention metrics can also help businesses identify areas of opportunity for improvement. For example, if your customer retention rate is low in a particular region or among a particular demographic, you may want to focus on improving your products or services in that area to meet the needs of those customers better.
Tracking customer retention metrics can also help to identify high-value customers. These customers are loyal to the business and significantly contribute to the bottom line. Businesses can increase their revenue and profitability by identifying and targeting these customers.
Overall, tracking customer retention metrics is an important part of managing and growing a business as it can help businesses understand their customers and make data-driven decisions to improve their products, services, and customer experience.
12 Important Customer Retention KPIs and Metrics to Track in 2023
Let’s explore twelve of the most important customer retention metrics to track, with examples, formulas, and how to improve each metrics.
1. Customer churn rate
Customer churn rate is the percentage of customers that cancel their product subscription during a given period.
High churn rates indicate your product isn’t sticky or valuable enough for customers. Churn is also a barrier to business growth — no matter how many customers you acquire, a high churn rate means you’ll quickly lose most of them.
How to calculate customer churn rate
(Number of churned customers during a given period / Number of total customers at the start of the time period) * 100
Example of customer churn rate
Let’s say you have 50 customers at the start of the month and 25 at the end of the month. This means your churn rate is 50%.
This is one of the simplest ways to calculate churn. However, your business may calculate churn differently depending on how you define a churned customer, the time period you consider, the seasonality of your business, and the difference in the behavior of different customer segments.
The average churn rate is highly dependent on industry and product type. For example, a mobile app has a much higher churn rate than a B2B software-as-a-service (SaaS) platform. However, a healthy churn rate is typically between 2% and 8%.
How to reduce customer churn rate
To reduce your churn rate, you need a solid customer retention strategy. Here are five steps to help you retain more customers and reduce churn:
- Improve your customer onboarding experience with in-app guidance such as product tours, walkthroughs, tooltips, and task lists.
- Monitor customer adoption with user behavioral analytics and data tracking.
- Continuously improve user proficiency with on-demand self-help and moment-of-need guidance.
- Create open communication channels with your customers
- Gather and incorporate customer feedback into your product roadmap.
2. Customer retention rate
Customer retention rate is the percentage of customers that continue paying for your product for a given period. Customer retention is also called logo retention or user retention.
A high customer retention rate indicates your business can grow revenue month over month because churn is less of an issue.
How to calculate customer retention rate
(Total customers at the end of a time period – New customers acquired during that time period) / Existing customers at the start of the time period * 100
Example of customer retention rate in practice
Let’s say you have 50 customers at the beginning of the month and 46 customers at the end of the month. Out of these, six are new customers you recently acquired. This means your business retained 40 customers in the month. Thus, your retention rate becomes 80%.
Software companies targeting enterprises must have a logo retention rate of 90%, while those targeting small and medium-sized businesses must retain at least 75% of their customers.
How to improve customer retention rate
Interactive walkthroughs are an effective way of increasing customer retention. Customers gain a better understanding of how the product works, and are more likely to engage with the product and adopt new features when there is less confusion.
Personalized onboarding flows are another option. You can use welcome screens to greet new customers and help them understand their responsibilities and tasks.
With Whatfix, drive retention with in-app guidance and product-led growth strategies. With Whatfix’s no-code editor, product teams are empowered to create, analyze, and test onboarding flows, feature launches, user flows, and product experiences to reduce time-to-value, improve customer adoption, and create product evangelists.
3. Net MRR churn rate
Net monthly recurring revenue (MRR) churn rate is the percentage of revenue you lose in a month from cancellations and downgrades after considering revenue from existing customers through upgrades or expansions.
Net MRR churn rate tells you how much revenue you lose in a month after considering account expansion. Your net MRR churn also helps you understand if growth in your existing customer base is strong enough to offset losses from churn.
How to calculate net MRR churn rate
(MRR churn in a month – Expansion in the same month) / MRR at the start of the month * 100
Ideally, your net MRR churn rate should be zero or negative. If net MRR churn exceeds zero, you’re losing revenue faster than your existing customer base adds revenue.
How to reduce net MRR churn rate
To reduce your MRR churn rate, you need to understand the reasons behind it. With churn surveys, you can ask customers what made them cancel their subscriptions. This will help you identify the friction points so you can fix them before churn rates increase.
4. Gross MRR churn rate
Gross MRR churn rate is the percentage of revenue lost due to total cancellations or downgrades in a month. Gross MRR churn rate is usually greater than net MRR churn rate, as it doesn’t factor in expansion from existing customers.
Your gross MRR churn rate gives you an unfiltered view of monthly revenue loss.
How to calculate gross MRR churn rate
Total MRR churn in a month / Total MRR at the start of the month * 100
As per investor Alexander Bruehl, “if the Gross MRR Churn is above 1% to 2%, there seems to be an issue with the product or the ROI [return on investment] story.”
INVESTOR, BM ADVISORS
How to reduce gross MRR churn rate
Have a product development process in place to help identify reasons for churn. Churn surveys work well for many SaaS companies as they ask customers to choose the most significant reason they’re churning and the most minor reason. These are extremely powerful because they allow you to pinpoint your biggest areas of opportunity.
5. Net dollar retention rate
Net dollar retention rate, also called net revenue retention rate, is the opposite of net MRR churn rate. Net revenue retention rate is the percentage of recurring revenue retained from customers for a given period after factoring in upgrades, cancellations, downgrades, and pause requests.
Net dollar retention helps you gauge how well your business retains revenue from existing customers and how well your upselling and cross-selling strategies are working.
How to calculate net dollar retention rate
(MRR at the start of a given period + upgrades during that period – downgrades – churn) / MRR at the start of a period * 100
Ideally, the net dollar retention rate should be greater than 100%, which means your business retains more revenue than it loses in a given month.
Here are some common net dollar retention rates for SaaS businesses:
How to improve net dollar retention rate
To improve your net dollar retention rate, focus your resources on increasing account expansion through upsells and cross-sells and reducing churn. Some ways to get started may include:
- Prompt users to upgrade
- Use contextual in-app messages
- Use NPS surveys
- Provide an in-app customer help center
6. Gross revenue retention rate
Gross revenue retention rate measures the percentage of revenue retained over a given period without factoring in upgrades. Gross revenue retention is also called gross dollar retention or gross MRR retention.
Gross revenue retention tells you how well you can maintain existing revenue, even if none of your customers upgrade to higher plans. If gross revenue retention is low, churn and cancellations are eating into your monthly revenue, and you need to ramp up your retention efforts.
How to calculate gross revenue retention rate
(MRR at the start of a given period – downgrades – churn) / MRR at the start of a period * 100
Example of gross revenue retention rate in practice
If you start with $1,000 in a month and lose $300 due to churn and downgrades, you’re left with $700 in MRR in the end. So, your gross MRR retention rate is 70%.
If you don’t lose any recurring revenue in a month, your gross MRR retention will be 100%, which is the maximum value for this metric. The median gross revenue retention rate for SaaS is 80-90%.
How to improve gross revenue retention rate
You can influence your customers’ decisions in ways that can prevent them from canceling or downgrading their subscriptions or contracts.
Consider the following tips to improve your GRR:
- Improve the overall experience of your customers
- Build trust in your brand and your product
- Add more value to your product to make it more valuable to your customers
- Have an active customer success team
7. Customer lifetime value (LTV)
Customer lifetime value (LTV) represents the amount of money you expect customers to spend throughout their relationship with your business.
Your business may cater to wide-ranging customer segments, and lifetime value helps you gauge which customer groups are most profitable for your business and, thus, most worthy of your retention efforts.
How to calculate customer lifetime value (LTV)
Average revenue per account during a time period / Customer churn rate during the same time period
Since customer churn isn’t always linear and you may also experience expansions along the way, this is only a simplified formula that gives you a rough estimate of customer LTV.
How to improve customer lifetime value
A strong customer onboarding process helps to increase customer lifetime value. With thorough onboarding, customers can become more familiar with new features and relate them to their use cases.
With Whatfix, product and customer success teams are empowered to create in-app guidance such as product tours, interactive walkthroughs, tooltips, and more – all in a no-code editor.
8. Expansion MRR rate
Expansion includes upsells, cross-sells, add-ons, and reactivation. Expansion MRR rate is the percentage of additional revenue you gain from existing customers for a given month.
High expansion MRR helps you offset losses from cancellations and downgrades.
How to calculate expansion MRR rate
(Expansion MRR at the end of the month – Expansion MRR at the start of the month) / Expansion MRR at the beginning of the month * 100
Expansion MRR should ideally be greater than churn MRR for a given period to build a sustainable business.
How to improve expansion MRR rate
Upselling is a fundamental tactic behind increasing your expansion MRR. If you do it right, upselling can also increase your brand loyalty because customers who buy more are those that already love your product.
9. Daily/Weekly/Monthly active users (DAU/WAU/MAU)
Daily active users (DAU), weekly active users (WAU), and monthly active users (MAU) are user engagement metrics that tell you how many customers use your product regularly. By keeping a pulse on DAU, MAU, and WAU, you can proactively monitor product usage, nudge inactive users to use your product more often, and prevent churn.
To calculate DAUs, MAUs, and WAUs, define what “active user” means for your SaaS business. For example, for a business chat app like Slack, an active user could mean someone who opens the app, clicks on unread chats, and sends messages.
Once you define active users for your product, calculate engagement metrics depending on how often your app should ideally be used.
For instance, for a social media app that could be used daily, DAU is an ideal measure of retention, while for a grocery shopping app that may be used weekly, WAU is a perfect measure of stickiness. MAU is a good metric to track for an app with monthly usages, such as an employee payroll app
How to calculate DAU, WAU, MAU
- DAUs: Number of users who use your product daily
- WAUs: Number of users who use your product weekly
- MAUs: Number of users who use your product monthly
Use DAUs, WAUs, and MAUs to track retention trends for your business. If your active users decline from one month to the next, proactively help inactive users to find value in your product to boost usage.
How to improve DAU/WAU/MAU
To improve your DAU, WAUs, and MAUs, focus on improving your product stickiness. You can do so by:
- Developing engaging user experiences
- Improving feature adoption rates
- Creating proactive upsell strategies and introducing existing users to more features
- Using customer satisfaction surveys to collect feedback, identify friction points, and improve feature offerings
10. Net promoter score (NPS)
Net promoter score is the percentage of customers likely to recommend your product (or promoters) minus the percentage of customers unlikely to recommend your product (detractors).
An NPS survey includes a single question, “How likely are you to recommend us to a friend?” Customers must choose from a scale of one to 10, where one means they’re unlikely to recommend a product, while 10 indicates they’d be happy to recommend it.
A positive NPS score means your current customers are satisfied with their overall product experience and likely to become product advocates.
How to calculate NPS
% of promoters (customers who give you a score of 9 or 10) – % of detractors (customers who give you a score of 0 to 6)
For B2B software and SaaS companies, the average NPS is 30.
How to improve NPS
To improve your net promoter score, add a qualitative question to the survey and uncover users’ logic behind the score. This can help you identify why your customers might or might not promote your product.
Once you have these answers, follow up with the respondents by contacting them via email or inviting them for a call to learn more about their concerns.
11. Customer satisfaction score (CSAT)
Customer satisfaction score (CSAT) is the percentage of customers who are happy with your product or customer service experience.
CSAT surveys ask customers to rate a business on a scale of 1 to 5 based on the following question: “How satisfied were you with our product/service?”
Like NPS, CSAT is another metric to get a pulse on customer experience and gauge retention.
How to calculate CSAT
Number of customers who rate your company 4 or 5 on a CSAT survey / Total number of customers who take the survey
How to improve customer satisfaction score
Customer satisfaction means meeting – and ideally exceeding – customer expectations throughout their entire customer journey. When you prioritize learning your customer’s needs, you can provide them with the best customer service possible.
Here are some ways to improve your customer satisfaction score:
- Be responsive
- Launch an omnichannel customer service strategy
- Train staff to understand your products and services
- Collect customer feedback
- Invest in self-service tools
12. Customer renewal rate
Customer renewal rate is a highly relevant customer success metric for SaaS businesses that follow a subscription-based model. It measures the percentage of customers who renew their subscription at the end of the subscription period.
A high customer renewal rate implies stable, recurring revenue from current customers. In turn, this allows you to focus more on acquiring new customers.
How to calculate customer renewal rate
Number of customers who renewed their contract / Number of customers up for renewal
How to improve customer renewal rate
To encourage repeat purchase frequency, consider offering incentives, discounts, and other small rewards to boost loyalty and turn them into loyal customers.
You can also use modals to improve your relationship with existing customers by greeting them, sending personalized messages, and giving them rewards.
The goal of tracking customer retention metrics is to use them as a compass to guide your customer retention efforts and retain more customers and revenue over time.
For instance, if you find product usage declining over time, you know your customer success team needs to spend more time helping users find value in your product. If your customer retention rate remains steady but your revenue retention rate declines, your existing customers are downgrading to lower-priced plans. Thus, you need to ask customers why they choose to downgrade and modify your offerings or provide customers additional incentives to stay. If your CSAT scores are low, you’ll need to improve the overall customer experience to boost retention.
Track customer retention metrics over a period of time to check if your retention improves over time. If you serve a broad customer base, track retention for each customer cohort separately, and compare retention trends across customer segments for greater accuracy. Here’s a complete guide to customer retention strategies to get you started.
With Whatfix’s Digital Adoption Platform, improve your customer retention rates by providing contextual, in-app guidance and self-service support – improving digital adoption and user proficiency.
Learn more about Whatfix now!