Retention rate is the percentage of customers that stay with your business over a given period.
Churn rate is the flip-side of retention rate: it’s the number of customers who cancel or do not renew their subscription during a given period. It is commonly expressed as a percentage.
Since it is ultimately about customer relationships. The better the relationship, the more you have at your disposal to reduce churn and maintain a high retention rate.
Holding onto customers is an essential part of building and sustaining a successful SaaS business.
The key to understanding customer relationships lies in the data, which tells you why customers are leaving — or staying — to begin with.
Baremetrics is your go-to source for actionable information on customer churn. Sign up today for a free trial of our services.
SaaS businesses usually focus on customer acquisition. This is always important, but as your company gains traction, the shift to retention is even more important.
At launch, you may spend all of your resources on acquisitions. However, once you’ve reached maturity, resources should be split evenly with about 50 percent covering acquisition and 50 percent covering retention.
Retained customers cost less than new ones, which means your margins are greater with loyal customers. Things like customer expansion can make existing customers even more profitable.
Additionally, forgetting about your existing customers will lead to dissatisfaction and a high rate of attrition. This leaves you in a never-ending cycle of constantly having to acquire new customers just to stay afloat.
Retention rate is expressed over a given period.
For example, if you ended a period with 2000 customers, acquired 200 during the period, and started the period with 1850, your retention rate would be (2000-200)/1850, or 97 percent.
Baremetrics can give you quick access to these figures through the active customers dashboard. Learn more about Baremetrics’ features today with a free trial.
Churn rate is the percentage of customers you have not retained.
In the above example, the churn rate (also called the “attrition rate”) is 100 percent minus the retention rate of 97 percent, giving you a 3 percent churn rate.
In an ideal world, a company would have no attrition. While that’s simply impossible, your retention rate should be as high as possible.
Low retention is a red flag for any business, as it signals poor customer satisfaction. A good rate is as close to 100 percent as you can make it.
Since the ideal retention rate is 100 percent, there’s always work to do to achieve a churn rate of zero. Here are some ways that you can get the retention rate you are looking for.
1. Do a churn analysis.
2. Track retention by cohort.
3. Ask for feedback.
4. Create good content.
5. Start a referral program.
There are many other ways that you can tweak your sales strategy to get a high retention rate, but starting with this shortlist will already put you many steps ahead of other businesses that overlook these critical strategies.
Remember high customer retention means you’re doing your job right and that people like your product.
Baremetrics is a powerful tool when it comes to figuring out who’s staying, why people are leaving, and what you can do better.
Learn more about what we can offer your growing business by signing up for a Baremetrics free trial today!
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We’ve been able to see spikes in our revenue churn and were able to adjust immediately before it was too late!