It’s all well and good to actively seek new customers, but what happens if you ignore your current customer base? Plot twist: they churn.

In fact, 68% of customers will go elsewhere if they feel the company they’re buying from doesn’t care about their business.

Without strategically thinking about customer retention, you’re undoing all the good work invested in the pre-sales process. Retaining customers is a whole lot cheaper than recruiting new ones, plus it’s a sure way to establish long-lasting, healthy relationships that will increase metrics like your customer lifetime value (CLV) and your overall customer satisfaction score.

In fact, increasing retention by just 5% could drive your profits from 25% to 95%. It seems silly to dismiss a potential profit increase like that, right?

That’s why customer retention strategies are such an important factor when it comes to customer success.

Customer retention definition

By most accounts, ‘to retain’ is to keep in possession of something, which is exactly what customer retention is. However, it isn’t just a SaaS prerogative – far from it. Any business should actively promote and practice customer retention whether they market a physical product or a subscription. If you provide an ongoing service and your clients don’t leave, then you’re retaining customers.

Those who work in customer success, or SaaS, will be all-too-familiar with the concept of retention. It seems pretty straightforward: keeping customers (retain) is good; losing customers (churn) is bad. While this statement isn’t wrong, there’s a little more to it than that.

How do customer success leaders define customer retention?

This dichotomy of retention and churn is a debate examined by Rebecca Fenlon, Head of Customer Success at Cognassist. In her opinion, it’s not all that helpful to view churn and retention as opposites, with retention as the more positive way of reporting it.

“The opposite of losing customers isn’t retaining customers, it’s gaining customers, which is ultimately the realm of sales. Retention is a more proactive measure; you are constantly working towards it. Whereas churn is reactive and focused just on the point of renewal. It’s for both of these reasons that retention is our ‘one metric that matters’ more so than churn."

Rav Dhaliwal, Investor & Venture Partner at Crane Partners believes customer retention is much more than preventing revenue loss:

“[It's] the foundation on which every successful subscription software business has accelerated its revenue growth. It’s far easier to grow a sustainable business from a stable foundation of revenue than it is to try and fix retention issues as you are rapidly scaling.”

Improve your customer retention rate by identifying the cause of churn

You can get ahead of future cases of churn by establishing what went wrong in the first place. Figuring out exactly why clients left your custom is a pragmatic, proactive way of avoiding history repeating itself.

If people are choosing your competitor’s product over your own, and you’re still none-the-wiser after your market research, it’s time to go straight to the horse’s mouth. Asking your customers what went wrong is a straightforward way to avoid making the same mistakes again.

Your product might be great, with all the bells and whistles, everything pushing you in the direction of the market leader, but poor customer service can truly turn the tables. Whether it’s a technical issue or simply bad communication skills from the dedicated customer support team member, poor customer service is definitely a universal issue that everyone’s faced at some point in their lives.

A great way to avoid this? Practice deep listening, and by this, we mean listen to learn.

How do you calculate customer retention rate?

Like most things you invest time and energy in, it’s worth keeping track of it. And customer retention isn’t any different. You can calculate your business’ customer retention rate to gauge how many customers you’re keeping on the books.

When calculating your customer retention formula, it’s pretty straightforward but well worth jotting down:

( [E-N] / S) x 100

The ‘E’ stands for the total number of clients at the end of your specific time period. The ‘N’ signals the number of new customers you acquired during this period. And the ‘S’? This is the number of customers you started out with at the beginning of this period.

Here's a customer retention rate example

Say you run a workshop – let's say it's a taxidermy workshop. At the beginning of the month, you started with 60 enthusiastic customers, and after a networking event for small independent businesses, you’ve come away with 15 new clients. So far so good.

However, after the local cinema’s Thursday night screening of Hitchcock’s 1960 masterpiece, Psycho, you’ve lost 3 customers to churn. 🔪🛁

But don’t panic – you’ve still come away with 72 clients at the end of the month! This is how you’ll calculate your retention rate:

  • E = 72
  • N = 15
  • S = 60

By our calculations, you’ll be formulating the following equation:

( [72-15] / 60) x 100 = 95

Leaving you with a retention rate of a whopping 95%!

Are there any useful customer retention strategies?

As it happens: yes. We have five on the house.

While this list is by no means exhaustive, it equips you with the acumen required to keep a hold of your wonderful customers.

  1. Provide a dedicated customer retention team
  2. Implement a watertight onboarding process
  3. Reward loyal customers
  4. Closed customer feedback loops
  5. Simplify customer interactions