An interesting fact in the digital economy is that U.S. companies could save over $35 billion every year just by keeping existing customers. Meanwhile, losing them can cost $168 billion.

So, our conclusion here is simple—customer retention is everything.

Even so, it isn’t easy to get a solid understanding of retention itself. One thing you can first do is measure it and track the other retention metrics you need to keep an eye on.

In this blog, we’ll talk about the seven key retention metrics that you need to track in order to genuinely measure your customer “stickiness.”

How can you measure customer retention?

Illustration of customer retention for a subscription business

Customer retention and churn are opposite sides of the same spectrum when it comes to measuring customer stickiness. Most people calculate retention rates based on the inverse of churn rates. What does this mean?

For example, if a company’s annual churn rate is 20%, that means their retention rate for that period is 80% (100% – 20% churn). 

But mathematically,  there’s a direct formula on how to measure customer retention:

Customer retention rate (CRR) = {(Customers at the end of the period – New customers acquired during the period) / Total customers at the start of the *period} x 100

*month, quarter, year

Yet, there’s still a problem. 

Calculating the CRR alone isn’t enough to get the full picture of your customer retention. It doesn’t really provide comprehensive insight into the inner workings and revenue impact. Basically, CRR just treats all customers equally—regardless of their purchasing power. 

The thing is, you can have a high CRR. But you can still lose a huge chunk of revenue if your most profitable clients churn. So, to get the full picture of your retention performance, you have to track the following key retention metrics.

The 7 key retention metrics that matter most

Failed payment recovery team discussing numbers and key retention metrics

For reliable interpretation of SaaS retention rates and nurturing of existing relationships, this section will elaborate on the seven key customer retention metrics that provide invaluable insights into your customer base.

  1. Customer churn rate
  2. Customer lifetime value
  3. Repeat purchase rate
  4. Customer engagement metrics (active users, duration, etc)
  5. NPS
  6. Qualitative feedback
  7. Retention cost

Churn Rate

This is arguably the most critical retention metric. Your churn rate (also known as attrition rate) tracks the percentage of customers who cut ties with your business over a given period. This metric pertains to customers who stop doing business with you. The average churn rate across SaaS customers was found to be 5%.

The lower your churn rate, the better you’re hanging onto your customer base. High churn means you’re losing customers faster than you can acquire new ones—also costs much more. Tracking churn shows you how successful your retention efforts are in hard numbers.

To calculate: Take the number of customers you lost during a period, divide it by the number of customers you had at the beginning of that period, and multiply by 100.

Customer lifetime value (CLV)

Customer retention metric number two is lifetime value. While churn looks at who’s leaving, customer lifetime value shows you how much revenue you generate before they do. It captures the total worth of a customer over their entire relationship with your business.

CLV is gold for measuring the ROI of your acquisition investments.

  • The higher this number, the better you’re keeping customers and squeezing more value out of each relationship.
  • A low CLV may signal a need to improve the customer experience and reduce churn.

To calculate, you must take into account the customer’s initial purchase, repeat purchases, and the average length of their relationship with you. LTV = (Average Purchase Value) x (Purchase Frequency) x (Customer Lifespan)

Repeat purchase rate

For eCommerce, the repeat purchase rate is directly related to retention. It shows what percentage of customers are coming back to buy again or make more than one purchase. It’s normal for eCommerce businesses to have 25-30% returning customers. On the other hand, for companies with a recurring revenue model, this SaaS customer retention metric signifies customer loyalty and satisfaction.

To calculate the product retention metric: Divide the number of customers who make more than one purchase by the total number of unique customers during the same period. The result is then multiplied by 100 to get a percentage.

Customer engagement metrics

From platform logins to app session duration, engaged users who are actively using your product or service are much less likely to churn. Monitoring engagement metrics like active user counts, session length, functionality usage, and other behavioral data paints a clear picture of retention strength.

These user retention metrics are essential to track and measure to ensure you’re providing the best possible customer experiences. A caveat—you’ll need to segment and analyze these depending on your business model.

For example, if you’re a SaaS company, you may define an active user as someone who logs in at least once a week. But for a mobile app, it may be someone with daily sessions.

Net Promoter Score (NPS)  

You’ve definitely seen a customer satisfaction survey to get NPS. It’s one that asks “How likely are you to recommend our product/service?” and scores responses from 0-10. 

  • Promoters (scores of 9 or 10): These are enthusiastic and loyal customers who are likely to recommend the company.
  • Passives (scores of 7 or 8): These users are satisfied but not enthusiastic enough to promote the company.
  • Detractors (scores of 0 to 6): These are unhappy customers who are unlikely to buy from the company again and may even discourage others from doing so.

Your final NPS is the percentage of promoters (9-10 ratings) minus the percentage of detractors (0-6). So, if 10% of respondents are detractors, 20% are passives, and 70% are promoters, the NPS score would be 70-10 = 60.

While NPS is controversial for really measuring loyalty, it’s still a worthwhile benchmark. A positive NPS means more promoters than detractors—a good sign you’re keeping customers happy and an effective way to gauge customer sentiment.

Qualitative customer feedback

Sometimes numbers just don’t tell the full story. How to be more accurate then? Be sure to combine your quantitative metrics with qualitative voice-of-customer feedback from customer surveys, reviews, support convos, social media, and any other channel that sheds light on the customer experience.

Retention cost  

What are you spending on your retention efforts? From customer success team payroll to premiums and loyalty discounts, track your investments to make sure your customers stick around. If your retention costs are increasing but your customer retention rate isn’t, your retention strategies aren’t working effectively. As a rough rule of thumb, retention costs should be lower than average customer acquisition costs.

To calculate the average retention cost per customer, divide the total retention costs by the number of active customers: Retention Cost = Total Retention Cost / Number of Active Customers

Tip: You can reduce retention costs without compromising customer experience by investing in self-service resources like knowledge bases.

5 actionable retention-boosting tips

Metrics alone won’t move the needle – you need to use those insights to take action too. Here are five tips for improving retention at your company:

Tip #1. Admit that churn Is Inevitable

No matter how awesome your business is—churn will never be zero. Every business will lose some customers, whether it’s because of budget cuts, changing needs, or switching to a competitor. 

Plus, a lot of churn happens for reasons completely outside of your control. Yes, we’re talking involuntary churn. They’re not jumping ship because they’re dissatisfied or found a better option. These are the customers whose payments just straight-up failed without warning.

🔥 But here’s the good news: you don’t have just to accept all that churn as a loss. Solutions, like Recover Payments, can help you fight back and recover failed transactions that would otherwise turn into churned customers.

Tip #2. Know where your biggest drop-off points

Where are your biggest churn risks and drop-off points in the user experience? Maybe it’s the implementation phase or renewal time. Or when customers outgrow your product tiers? Whatever it is, fix those gaps ASAP. Map out the customer journey and monitor your retention rate metrics.

Tip #3. Educate your customers 

A customer who feels empowered will see the value of your product and will continue to stick with it. Thus, you should develop robust self-service resources like tutorial videos. Consider hiring a customer success manager who can proactively own the relationship and is responsible for increasing adoption, preventing churn, and driving expansions. Those with better alignment between customer success and product management experience less churn, with lower than 1% churn rates.

Tip #4. Create a VIP experience  

First, identify your highest-value, long-term customers. One of the most effective ways to retain them is to roll out the red carpet like a true VIP experience. But this VIP treatment doesn’t have to be complicated or break the bank, just be thoughtful and differentiated.

Try having a shortcut for your best customers to get special attention and expedite issue resolution. Also, it’s “VIP feels” to access features that aren’t available to the general public. Most loyal customers buy at least once a month from a brand.

Tip #5. Gather feedback before they churn

A mistake you can make is waiting until a customer has already left before gathering feedback on what went wrong. By that point, it’s too late. You’ve already lost a customer that’s not easy to win back. So, routinely survey customers to check their current perceptions and experiences. Remember, the majority (85%) of customers prefer companies that do their best to understand their needs.  And pay close attention to those showing decreased usage or other warning signs of potential churn.

Win the retention game

Failed payment recovery specialist looking very happy with the results of the call

You can pour money into acquisition, but if that bucket has tons of leaks, your efforts will be in vain. So, equally, nail your customer retention game too—and you’ll create a goldmine of repeat business. Consider tracking these retention metrics as your new BFFs for an absolute measure of your retention performance. Then (of course! ), implement actionable strategies to give those numbers a boost. 

Another way to ace your retention game (especially critical for subscription-based businesses involving recurring fees) is to win involuntary churn due to failed credit card payments. A best-in-class recovery solution like Recover Payments can be your powerful retention asset here. Book a call and see how we’ll stop your churns caused by payment failures.