Customer Retention is the repeat of purchases after the subscription period of the people who purchased your product. The opposite of the Customer Retention Rate is Churn Rate. The Churn Rate is the non-renewal or cancellation of subscriptions of accounts that have previously subscribed.
If you are a B2B SaaS company, the ideal retention rate ranges from 60% to 80%, depending on how big your customers are.
If you’re an early-stage company that hasn’t any customers, you can calculate user retention. User Retention is a number that measures how many people return after trying your product.
Many Product-Led Growth companies define user retention, based on core activities. In early-stage startups, the number of returning users is even more important than the number of paid users.
If you want to measure usage-based user retention rate, first you need to determine whether this activity will be done daily, weekly, or monthly.
In Producter, we measure retention on a weekly basis. Using a product management tool does not require people to log in every day. However, they must enter at least once a week.
Despite continuing to subscribe, users may stop using the product at times. That's the subtle difference between customer retention and user retention.
Furthermore, Customer Retention is the best indicator for understanding the product-market fit. Marc Andreessen said ‘The only thing that matters for startups is Product-Market Fit.’
You can know whether you can reach 'product-market fit' by using the retention chart we will mention below.
Also, Customer Retention is one of the 2-3 metrics that VCs pay the most attention to. A product with a good retention rate is very likely to receive investment.
Calculating Customer Retention
There are 3 common ways to view customer retention.
- Retention Rate Formula
2. Retention Graph
3. Retention Cohort Table
Improving Customer Retention
- Encourage customers to continue renewing their subscription
- Investigate what the returning and paying users are returning for and what activity they are doing in common. Find a way to make that feature stand out more.
- Put your product's value proposition in the spotlight.
- Communicate more with customers and ask for more feedback.
- Provide 7/24 and fast customer service.
- Send emails that will trigger users to do core activities.
Conclusion
Every startup should focus on Customer Retention Rate as one of its north star metrics. Using Customer Retention Rate, you can determine whether your product is what users want. You should try to improve this metric by making some changes. It may be time to pivot if you have failed to achieve the desired Customer Retention Rate for a long time.
Producter is a product management tool designed to become customer-driven.
It helps you collect feedback, manage tasks, sharing product updates, creating product docs, and tracking roadmap.
