Bountiful data can be a blessing or a curse for your company. Looking at customer retention specifically, there are many different retention rates (user/customer/MRR), and keeping each of them high helps you keep your churn rate low and your business growing. Finally, you can reduce long-term churn by upgrading current customers to larger plans that give them more of your company's core value.These opportunities are all lost if you only ever consider total retention. The practices you put in place to retain cancelled—but not churned—customers could ultimately increase your overall user retention rate month to month. Amplitude is a registered trademark of Amplitude, Inc. Recurring revenue is what fuels the business, so you certainly need to know if you are on the right track. If you could recover some of those cancelled customers, you'd accrue significantly more revenue over time in those retained customers' recurring revenue. The # of active users continuing to subscribe divided by the total active users at the start of a period = retention rate. (See graph below which depicts LTVs for a $4,000 ACV, 80% gross margin, SaaS company across various retention rates.) Customer success can be thought of as proactive customer support before the fact—before they reach out with a problem. For SaaS companies selling into small and medium businesses (SMBs), a good Net Retention Rate is 90%. You can calculate it with the following formula: (Total MRR from renewing customers) / (Total MRR from customers of the previous period) x 100 = Monthly Recurring Revenue Retention [expressed as percentage]. According to our study of 941 SaaS companies, customers with 4-digit ARPU had almost 50% less churn than customers with 1 to 2-digit ARPU. If you had only looked at user retention, you would have assumed you were doing better in the second scenario. Even a small loss from this pool of customers would therefore represent a sharp loss in revenue. That 95% retention rate may be artificially supported by customers who are locked into multi-year contracts and have no choice but to renew. As startup advisor and investor Andrew Chen points out, acquiring users looks like the ultimate growth solution because it “seems to be the very definition of growth.” This is what leads SaaS companies to misguidedly focus too much on customer acquisition and not enough on customer retention, even though customer acquisition is actually one of the least effective growth levers.In a study of 1,432 SaaS companies, C-level executives and founders overwhelmingly placed more emphasis on “gaining more logos” (customer acquisition) than on keeping customers around longer (customer retention). The best customer success plans are programmatic from the start, and taking care of the following areas is vital for success. Unfortunately not every SaaS company discloses this information — we know of 40 companies that shared the data including Crowstrike and Fastly, the most recent SaaS companies to go public. Want to see product intelligence in action? Though you'd probably agree that the concept of customer retention is important, you're probably not taking the time or effort to calculate it right and try to improve it. Understanding the four common mistakes below and the resounding effects they can have on your SaaS company will help you make solid calculations that inform smart decisions. With so much riding on your retention rate, it's absolutely essential that you calculate it consistently and correctly. And it hurts. If all of those users actually churned, you'd have a scrawny 88% monthly retention rate. Any degree of user churn will drag down your company and sink your revenue. Understand different kinds of retention rate to keep your customers happy and your company healthy. Many SaaS companies believe their current retention rate is acceptable, even when it’s not. Monthly Churn Rate = 1 - (1 - Annual Churn Rate)1/12 0.34% = 1 - (1 - 0.04)1/12. Experiment with price adjustments and consider encouraging more annual plans.Breaking retention down by the users on each plan helps you further understand where and how your SaaS company can make changes that increase bottom-line retention and bottom-line revenue. An 80 percent renewal rate is the equivalent of a 20 percent churn rate. Whatever number is left over from your retention rate is churn, and churn rates that are even above a few percent can be harmful for your company growth over time. A 90% retention rate would mean a 10% attrition rate. Knowing how to calculate retention rate has always been at the core of SaaS’s commercial philosophy. Just as cohorts of customers who sign up at different times will have different retention rates across the span of their cohort's lifetime, customers on different plans will typically show different rates of user retention.Enterprise-tier customers, or those customers on your most expensive plans, are likelier to have higher user retention. For very high Annual Contract Value (ACV) products, Enterprise SaaS companies should benchmark themselves to … Instead, set retention benchmarks for various different cohorts and stages of the lifecycle.Retention rates of customer cohorts are often different in the early stages of those customers' lifetimes, the middle stages, and the later stages. For example, if your SaaS retains all of its customers for a year, but they all downgrade to lower plans and spend less compared to the previous year, your revenue retention will be lower, but your customer retention metric will remain the same. By understanding the nuances of your customers' retention, you'll gain valuable feedback about the decisions you make for your SaaS company.Don't focus on gains to grow. Counting cancelled customers as churned is a huge mistake that eliminates this opportunity for improvement. Kate is an Associate Product Manager at Amplitude focused on improving customer adoption. Click Here. Access all the content Recur has to offer, straight in your inbox. That's a 5.6% MRR churn rate and 94.4% MRR retention rate. Retention can also be calculated with respect to employees, but our focus in this article is on the retention of users, customers, and revenue. There is no “correct” retention rate benchmark to aim for that holds across all SaaS industries. After 6 months, you'd have 22% more retained customers than if you had let all of those customers churn. It’s worth mentioning that some people, especially those within B2B SaaS companies, find it more helpful to calculate dollar retention rate (DRR), which looks at the dollars that renew as opposed to the customers who renew. In those industries, a good week may see a retention rate of around 20%. Formula for calculating monthly churn rate. Across all SaaS companies, the median Net Retention Rate is ~100%. User retention rate measures the percentage of users that stay on with your service from week to week, month to month, et cetera. For SaaS companies selling into small and medium businesses (SMBs), a good Gross Retention Rate is 80%. We ... the net monthly revenue churn rate would be -6.6% . Churn. It represents the most important form of retention for your business’s financial health. Here is the full formula for calculating user retention rate: (Number of active users across period/Total number of active users in the previous period) x 100 = User Retention Rate [expressed as percentage]. Interested in going a step farther to understand your product’s retention? Look beyond simple churn rate to best understand your sales. Download this packet of six worksheets to understand, improve, and calculate retention rate. (Learn more about e-commerce customer service.) The various kinds of retention rates act as a good measure of how well your product is working for users. Customers churn for different reasons at different stages of their lifetimes with your company—therefore encouraging them to retain requires different tactics at every stage.Consider a cohort of customers that began on or by January 1st. 4. This presents less opportunity to churn. Join the 18,000 companies following the next release. Get a weekly round-up of articles about building better products. Around 70% of SaaS leaders said that acquisition was their biggest goal, while about only 20% believed customer retention was their most important goal. The most straightforward way to calculate retention rate is by dividing your active users that continue their subscriptions by the total number of active users in a time period. There is no way to run a sustainable business without a focus on user retention calculations. For SaaS professionals, retention rate can be what your company lives or dies by. How Engagement Leads to Retention, Customer Retention: Complete Guide to Retaining Customers, Average Customer Retention Rate by Industry. It’s often calculated by a daily, weekly, or monthly time band. Since this is a crucial concept for success in SaaS, if you are not already familiar with it, we would highly recommend that you read this blog post: SaaS Metrics 2.0 .) Editorial Lead at ProfitWell, helping ProfitWell take its content to the next level. If you're not considering short-term, mid-term, and long-term churn for different cohorts of customers, your user churn rate will only tell you the total monthly churn. A few months later in April, when the percentage of active users from that cohort only drops from 80% to 78%, you'll see a 2.5% user churn rate. 130%+ in the enterprise, and for top B2D products. To grow by just 1 customer at this rate, if Salesforce started the year with 1,000 customers and lost 630 over the course of the year, they would have to acquire 631 new customers from a now-smaller potential market in order to achieve any growth at all.Companies in this position have to scramble to fill a leaky bucket. If you know why customers are sticking with you, you can better optimize your strategies for future customers. For example, churn in a subscription company is measured differently from churn in a sporting goods company. With user retention rate at 98% instead of 93%, this might look like a much better scenario for your company. Step 5: Compare your retention rate to industry standards. Of course, if you’re in B2C, or other industry sectors like gaming, you’ll have a different benchmark for really good weekly retention rates. It goes without saying that the service you’re offering should build adequate brand affinity so … A quick reminder churn rate definition. Monthly recurring revenue (MRR) is the lifeblood of SaaS. The high ARPU value that they present to your SaaS company also increases the likelihood that a lot of customer service time and effort is spent on retaining them.Your highest churn is likely coming from your low-tier plan customers. When customers retain, you know to double down on your efforts. SaaS and other subscription businesses have unique metrics that apply mainly to them. You’ll get an idea of this hidden danger within your aggregate numbers by comparing your monthly renewal rates against your aggregate retention rate. Focus on white-glove service for all customers by communicating with them frequently and taking action on their frustrations.Conversely, if you realize that you have a problem with low retention among your enterprise-level customers, you'll see a significant portion of your revenue leaking from your MRR every month. One SaaS metric we monitor closely is net dollar retention. Now consider a second cohort that starts in April. For Enterprise SaaS, 125% is considered a good Net Retention Rate. Unfortunately, ... Any good churn rate calculation should give some actionable advice. (It’s a little lo-fi, but it works!) If your MRR at the beginning of the previous month was $9,000 ($2,500 from 50 low-tier plan customers paying $50/month, $4,000 from 40 mid-tier plan customers paying $100/month, and $2,500 from 10 enterprise-tier customers paying $250/month), your MRR churn rate is 3.9% and your MRR retention rate is 96.1%. The various types of retention rate actually perform an important job when used together. But failing to actively try to increase your retention rate (the percentage of the total numbers of customers that continue with your service over time) and correspondingly decrease your churn rate (the percentage of customers that discontinue with your service over time) can mean a swift and painful death for your company.Salesforce realized this the hard way in 2005 when their user churn rate was 8% per month. See how Amplitude helps you use customer data to build great product experiences that convert and retain users. 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