Mastering Customer Retention with 14 Essential Metrics

What exactly is Churn?

Churn is a dreaded word that gets every growth-inclined SaaS company worked up. It is like a loud and alarming fire alarm that can get every employee running helter-skelter. It is a clear sign that something is wrong!

As a SaaS company that wants to keep users, it is important to go beyond examining the “what” of churn and explore the “who,” “when,” and “why.”

In this article, we will explore 14 vital customer retention metrics that will help you understand all there is to know about churn. These metrics can tell you who is leaving your product, when they are churning, and why. But they don’t just help you measure; they help you act. Let’s break it down.

How To Measure Customer Retention Rate

If you want to understand how to track customer retention, you need to first know the numbers. Measuring the Customer retention rate should tell you how well you’re maintaining customer relationships throughout the customer journey.

The formula is quite simple:

Customer retention rate = (number of customers at the end of a given period – number of new customers) / number of customers at the beginning of that period.

It is not as hard as it looks. Let's look at an example:

Imagine your company had 200 customers at the start of the quarter and 230 customers at the end of that same quarter. Assuming 50 new customers joined during the quarter, your customer retention rate will be calculated as follows:

(230–50) / 200 = 0.90 or 90%.

This implies that of the 200 customers who began the quarter with your product, 90% stayed, while 10% churned.

Taking advantage of this metric over time will help you measure how well your retention strategies are working and if they are working at all. If you end up with a high churn rate at the end of two consecutive quarters, that signals an issue in your customer journey that needs immediate action.

While the retention rate can show you that customers are leaving or staying, it alone cannot explain why customers leave, and that’s where our other metrics come in:

The 14 Customer Retention Metrics You Should Be Measuring

Having these metrics and knowing how to measure them is very important if you want to build a loyal customer base. Digging deeper into the “why” helps you transform your business's high churn rate into a high growth rate.

These metrics will help you understand what’s happening and why it is happening, which would allow for informed decisions needed to grow your business. It will also help you to nurture your customer relationships and keep returning customers satisfied.

Let’s dive right into it!

1. Monthly Customer Churn Rate

The monthly churn rate is the complete opposite of your customer retention rate. It indicates what percent of your customers are churning each month. It is calculated using the monthly churn rate formula which has been written below:

Monthly churn rate formula:

(customers churned in a month / total customers at the start of the month) × 100 = Monthly customer churn rate.

Example:

If Disney+ has a million paid subscribers at the start of the month and 10,000 subscribers churned, its churn rate would be 1%.

(10,000/1,000,000) x 100 = 0.1 or 1%

2. Customer Retention Rate by Cohort

You can break down your customer retention rate using cohort over time. This will give you a clearer picture of your product’s total customer retention.

Cohort retention rates focus on users who started using your product during the same time period. It is calculated using the formula below.

Customer retention rate formula by cohort:

(customers in a cohort at the end of a period/customers in a cohort at the beginning of a period) × 100 = Retention rate by cohort.

Example:

If Trello, a business organization, starts with 150 customers on May 4th and has 110 customers remaining after a week, its first-week retention rate is 73%.

3. MRR and Revenue Churn Rate

Monthly recurring revenue (MRR) is the total of all your recurring revenue in a month. Your revenue churn rate shows how much of your MRR is lost each month and can be calculated using the formula below.

Revenue churn rate formula:

[(MRR at the start of the month – MRR at the end of the month) – upsells] / MRR at the start of the month × 100 = Revenue churn rate.

Example:

If Buffer’s MRR at the start of the month was $1 million, and they had $50,000 in upsells, but ended with $900,000, then the revenue churn rate would be 5%.

{[($1 million – $900,000) – $50,000]/$1 million} × 100 = 5%

4. Reactivation MRR

Reactivation MRR tracks how much recurring revenue comes from previously churned and returned sources. It can be calculated using the formula below.

Reactivation MRR formula:

The sum of all monthly revenue from customers that returned = Reactivation MRR.

Example:

If a service has 12 reactivated customers, that is 4 customers on a $50 plan and 8 customers on a $80 plan, the total reactivation MRR is $840.

5. Customer Lifetime Value (CLTV)

CLTV indicates how well you’re keeping customers. The longer they stay and the more they pay, the higher their lifetime value. To calculate your CLTV, you can use the formula below.

CLTV formula:

The average value of customer × average customer lifespan = CLTV.

Example:

If Netflix’s average customer value is $15 per month and these customers stay an average of 12 months, their CLTV would be $180.

6. Cumulative Cohort Revenue (CCR)

CCR is the total amount of revenue that you can get from a group of customers acquired within a specific time period.

It helps you understand the value of your users over time. Your CCR can be calculated using the formula below.

CCR formula:

Total cumulative revenue for a specific cohort/sales and marketing spent = CCR.

Example:

If Semrush earns $500,000 from a cohort and spends $100,000 in the first month, its 12-month CCR ratio is 5x. This means that the cohort is earning the company 5x on its initial investment in a year.

7. Daily/Weekly/Monthly Active Users (DAU/WAU/MAU)

This metric will help you track not just your retention rate but also the behavioral analytics for user activity, depending on your product. It will give you a sense of who is active and who has not just gotten around to unsubscribing.

Users do not just decide to leave your app. Their decision must have been preceded by a decline in activity. To help you track the user activity levels, monitor your DAU, WAU, or MAU and work to re-engage your users before it’s too late.

8. Net Promoter Score (NPS) and Customer Satisfaction Score (CSAT)

NPS and CSAT are metrics that are used to measure customer satisfaction. They tell you how much a customer likes your product. NPS measures how likely a customer is likely to recommend your product to others while CSAT measures how satisfied a customer is with your product. They can both be calculated using the formulas below.

NPS formula:

% of promoters(score of 9 or 10) – % of detractors(score of 6 or less) = NPS score.

CSAT formula:

(number of 4 and 5 responses) ÷ (total responses) × 100 = CSAT.

9. Average Session Duration

Average session duration reveals user engagement. It keeps track of how engaged your users are with your product. You can track it to see which features drive longer user sessions and engagement. You can calculate it using the formula below.

Average session formula:

Total time across all sessions / total number of sessions = Average session duration.

10. Feature Adoption Rates

Feature adoption rates measure how many users engage with your features. This metric helps identify underutilized features. When you know which features are underutilized, it helps you to push them out to draw the attention of users to them and also you can put top features in the spotlight. You can calculate this using the formula below.

‍Feature adoption rate formula: (number of users of a specific feature in the last month/total number of product users) × 100 = Feature adoption rate

11. Renewal Rate

The renewal rates metric allows you to track what percentage of your customers choose to renew their contracts. This metric provides direct insight into how successful your product’s user retention capabilities are. It can be calculated using the formula below.

Renewal rate formula: (number of customers who renew that month/total number of customers up for renewal) × 100 = Renewal rate

12. Engagement Rate by Channel, Segment, and Cohort

Tracking your engagement helps you see just how actively users use your product. An engaged customer who engages with your product regularly is probably getting value from the product and there would be a better chance of such a user sticking around longer. Engagement rate can be measured using channel, segment, or cohort using the formulas below.

Engagement rate by channel formula: (Total number of active users from a specific channel over a defined period/total number of users from a specific channel) × 100 = Engagement rate by channel

Engagement rate by segment formula: (Total number of active users from a specific segment over a defined period/total number of users from a specific segment) × 100 = Engagement rate by segment.

Engagement rate by cohort formula: (Total number of active users from a specific cohort over a defined period/total number of users from a specific cohort) × 100 = Engagement rate by cohort.

13. Repeat Purchase Rate

Repeat purchase rate metrics help to track the percentage of customers who make repeat purchases. A high rate of repeat purchase rate indicates high customer satisfaction and loyalty. This metric can be calculated using the formula below.

‍Repeat purchase rate formula: (number of customers who made more than one purchase/total number of customers) × 100 = Repeat purchase rate

With this metric, you can find out which customer groups are most loyal to your products and you can find out what keeps them coming back. This will help you to tailor your marketing strategies and offers to the taste of your loyal customers to keep them coming back.

14. Customer Revenue Growth Rate

The customer revenue growth rate is an indicator of customer loyalty and engagement. It shows how much or less revenue your existing customers are generating for your product over time. It indicates customer loyalty. It can be calculated using the formula below.

‍Customer revenue growth rate formula:

((revenue from existing customers in the current period - revenue from existing customers in the previous period) / revenue from existing customers in the previous period) × 100 = Customer revenue growth rate

How To Boost Customer Retention Rates

If after you have set your customer retention metrics, you notice that your customer retention rate isn’t meeting your expectations, then you need to take deliberate actions.

Here are four actions you can take deliberately to boost customer retention rates:

Personalized Onboarding

Personalized or customized onboarding can help you to create a memorable first impression on your users thereby increasing your customer retention rate.

In-app Messaging and Email Campaigns

You can never go wrong with proper user engagement. The use of in-app messaging and emails can help keep your customers always excited and informed about your platform.

Great Customer Service

Customers never forget bad customer service. Investing in customer service is very critical for improving your customer retention rate and lowering the churn rate of your product.

Better Customer Retention Tools

Customer retention tools can help you streamline your strategies to improve your overall customer retention rate.

Using Qualitative and Quantitative Insights Together

While it is important to keep track of your number, unfortunately, they do not tell the whole story. They tell you what is happening but qualitative feedback helps you to know the why. It reveals the full story. To get better customer retention, you need to combine both your quantitative and qualitative feedback.

Diagnose Before Treating Symptoms

Now that you have gotten 14 customer retention metrics, do not get too excited that you start to throw every retention strategy at your problem without knowing the root cause.

Instead, you can use the outlined metrics to understand your product strengths and weaknesses. Place your focus on the key aspects of your products, and watch how your customer retention rates climb, turning your users into dedicated fans. That is the real win!