Advanced Guide to Customer Retention Analytics - Strategies and 10 Metrics

If you want to reverse failure, you don't focus on failure, you focus on success.

If you want to reverse the loss, you focus on winning.

Just so, if you want to reverse churn, you focus on retention.

And to correctly focus on retaining your lovely customers, there are a few steps that you should take in the correct order - we call the collection of those steps customer retention analytics.

In other words:

🖼 Customer retention is the art of keeping users by your side for longer.

🎨 Customer retention metrics are your tools.

👼 And Customer Retention analysis is your inspiration, your guardian angel.

Without inspiration, even the wheel wouldn't have been invented...

‍

So. Enough of chit-chat.

Let's get into it with:

What Is Customer Retention Analytics?

Customer Retention Analytics is determining how many of your customers are loyal customers that are likely to keep purchasing your services, and the reasons behind it. Different aspects of user behavior such as customer lifetime, customer satisfaction, and churn cohort are affected by and affect customer retention, therefore, analyzing it can help you grow in every aspect possible.

Being able to keep the relationship between your customer base and your product tight is the best signal that your marketing efforts weren't in vain, and the satisfied customers are more likely to bring in more customers.

Aka, you are a few steps closer to creating a successful product virality program.

The analysis process could include many variables such as the percentage of customers that make more than one purchase, or the average time it takes for users to make a plan upgrade.

Which aspect you are going to analyze is totally up to you and depends on the variety of your customer segments.

With that being said, you might ask "why go through such burden when statistics tools calculate my retention rate already?"

Here is the answer to that question:

Why does customer retention analytics matter?

Analyzing customer retention is the key to understanding churn reasons, seeing your product market fit, and helping you make on-point calculations about the actions you should take in the upcoming quarter. And of course, this whole process ultimately results in higher MRR and a better-valued company.

Also, if you want to keep increasing your growth, you should either acquire new customers or retain existing ones.

And trust me, customer acquisition costs are 7 times higher than retention costs.

It is no coincidence that people specialize in customer retention and build their whole careers around it.

👉 Prioritizing customer retention is one of the first steps towards becoming more customer-centric, and putting an extra effort into analyzing retention metrics helps you sustain your growth.

Fun fact: there is more than one type of retention analysis:

Different Types of Customer Retention Analytics

Depending on your product type and your OKRs, you can choose to select one of the two retention analytics types:

1. Periodic analytics allow you to have an overall idea about your rates over a long period of time.
2. Retrospective analytics help you pinpoint which other metrics you should focus on within a certain time period.

Here are the details:

Periodic customer retention analytics

As the name suggests, periodic retention analytics are recurring regular retention analytics. This type of analysis helps you identify the average customer lifetime and set expectations for churn rates.

The time period and the frequency of the analysis depend on what you expect to understand:

• If your goal is to have a base for retrospective analytics, you should do periodic analyses monthly, quarterly, and yearly.
• If you are trying to set a yearly budget, a monthly analysis won't be much of a help.
• You can set different periods for different cohorts or segments of users in order to help your marketing and sales strategies. 

Daily Active Users (DAU), Monthly Active Users (MAU), Activation rate, Completeition rate, Net Promoter Score, and Customer Health Score are metrics that can help you with the listed things above, along with periodic analytics.

But if you are trying to determine churn or revenue loss reasons, the next analysis will be more helpful:

Retrospective customer retention analytics

Instead of relying on long-term analytics of current customers, you could also take a look at previous customer behavior and detect what your user base has had in common by far. This type of analytics is called Retrospective Analytics.

👉 For instance, by analyzing previous data about the average inactivity time of one specific segment or cohort, you can have a clearer idea about where to focus your retention efforts on.

This way, instead of spamming people or leaving them alone until they forget you, you will have the liberty to reach out to them at just the right time.

👉 Retrospective analysis can also help you detect and avoid possible delinquent churn.

Here is what this sounds like in my head:

"Did something unusual happen in a single customer account? 🤔 Don't worry, you are right on track with them thanks to retrospective customer retention analytics!"

The one thing both these methods have in common is the fact that you need actual data to track.

Actual data from your most beloved metrics:

10 Customer Retention Metrics to Track

These ten key Customer Retention Metrics will help you understand churn reasons, and behavioral patterns of different customer segments, and reduce customer acquisition costs.

1- Customer Retention Rate

CRR is probably one of the most obvious helpers when it comes to detecting churn.

It is the ratio of customers 

Here is the formula:

Or simply put, it is the ratio of customers who decided not to churn for another month/quarter/year.

Knowing your CRR will give you a headstart in knowing how you compare to the rest of the market.

An average SaaS company usually has a CRR of 93-97%. If you are below the average, then you should start investigating churn reasons. If you are above the average, you should make sure that customer acquisition and dollar retention are high as well.

This actually brings us to our next metric:

2- Net Dollar Retention

Net Revenue Retention (NRR) or Net Dollar Retention (NDR) is just like CRR, but this time you are calculating how much revenue has been retained instead of counting customers.

The formula is quite similar to the one above:

NDR can be mostly a misguiding KPI, since the percentage aimed for it is higher than ever.

Here is what I mean:

If NDR is over 100%, there is an increase in revenue from existing customers. It means that your company can grow without gaining new customers.

Otherwise, if NDR is less than 100%, it means that there is a decrease in revenue from downgrades and churn. In this case, you need to make changes in your business; focus on customer support and customer success.

Top-performing SaaS companies have 120%+ NDR and the approximately median is 106%. So anything above 100% means you’re on the right track.

3- Customer Lifetime Value

Customer Lifetime value has many abbreviations, the most common ones are CLV, CLTV and LTV.

It helps you calculate how much revenue each customer brings to your company during the time they keep purchasing from you.

Let me share the formula:

CLV helps you determine whether each customer has been worth your acquisition expenses.

The longer a user keeps using your services, the higher their CLV rate is.

If the CLV is too low, it means:

• You either spend too much on acquisition,
• Or you need a booster to increase retention.

76% of companies agree that customer lifetime value is an important concept in their organization. 

However, only 42% of companies can accurately measure the lifetime value of their customers. 

Which leads to:

4- Customer Churn Rate

Customer Churn is the number of customers that stopped using your product or services.

And the customer churn rate is calculated by dividing the total number of customers by the number of churned customers.

As obvious as it is, keeping the churn rates low is the best way to increase customer retention.

And unlike determining "why customers stay," it is easier to determine "why customers churn."

The ideal monthly customer churn rate for a SaaS company is below 1%. Of course, this rate can rise up to 3% for startups and small businesses.

So here is a guide on how to handle and reduce customer churn.

5- Revenue Churn Rate

Revenue Churn is the evil sibling of customer churn.

There are three reasons why it's evil:

1. It can be misleading if it is mistaken as "customer churn",
2. It can cause more damage,
3. And it is a metric that determines your company's worth, but still, many companies don't even pay attention to their revenue churn.

If you have a negative customer churn rate (which happens when you acquire more customers than the lost ones), but if your revenue churn rate isn't negative as well, it means that your CLV is dropping.

In other words, it means that you are losing big deals while only getting small deals.

Here is a guide to detecting and preventing revenue churn.

6- Involuntary Churn

Involuntary Churn (or Delinquent Churn) happens when the payment or account information doesn't respond for some reason.

Usually, customers don't update their payment and account info once they enter it, and if you don't warn them when their credit card or email is irresponsive, they will stop paying you without even noticing.

And you will have lost a customer who might not have churned if they realized the problem.

Keeping an eye on the involuntary churn rate could be a lifesaver when it comes to customer retention since it is preventable and a good reason to get in touch with users.

You could offer deals in return for updating their payment methods, which will eventually get them to trust you more and become loyal promoting customers.

And then, they will contribute to your:

7- Repeat Purchase Ratio

The Repeat Purchase Ratio (RPR) is the percentage of customers who decided to make more than one purchase from you.

The calculation is simple:

For SaaS companies, a returning customer could mean users that purchase:

• Upgrades,
• Add-ons,
• Additional support,
• Additional design or customization,

And any other re-purchasable feature that you offer.

If you manage to get your customers into a loyalty program or encourage them enough to earn their trust with further purchases, your customer retention will automatically skyrocket, because existing customers are 50% more likely to try your business’s new product.

While we're at loyalty programs, let's talk about:

8- Loyal Customer Rate

The Loyal Customer Rate is very similar to RPR. The only difference is that this time, the time period to make another purchase is shorter. In other words, the loyal customer rate calculates the ratio of customers who are likely to make repeat purchases more frequently.

The benefit of calculating this ratio is that 58% of customers belonging to a brand’s loyalty program buy from that brand at least once per month. 

And 57.4% of customers join loyalty programs to save money, while 37.5% do so to receive awards.

In other words, loyalty programs are retention magnets in a sense.

9- Net Promoter Score NPS

Net Promoter Score (NPS) is the score that helps you determine which customers are more likely to remain loyal to you, and which ones are having trouble with trusting you.

To calculate your NPS score, you should conduct an NPS survey which looks like this:

The people that rated 0-6 are the detractors, and those are more likely to churn. They could even write a negative review about you and decrease your social value.

Those who rated 7-8 are neutral. They are content with your services, and won't probably write a bad review, but they could switch to a competitor since they don't "love" your product.

Those who rated 9-10 are your promoters. Those people are willing to recommend you to anyone, write good reviews about your product, and give you honest feedback because they want the best for you since you provide the best for them.

When you take out the number of detractors from the number of promoters, you get your NPS score.

Having a high NPS score means that you are on the right track in terms of customer retention.

10- Customer Health Score

A customer Health Score is a way of putting together meaningful data regarding your customers and predicting how they will behave in a given period of time.

The good thing about customer health score is that once you figure out how to increase it, all the other metrics above will be affected positively.

The bad thing about customer health scores is that there is no one certain way of calculating it.

Here is a great guide about CHS that will help you get through the process without friction.

Setting Up Your Customer Retention Analytics in 6 Steps

Now that you know what metrics will be your best weapons in this war against low retention rates, it's time to set up your game plan.

1- Get Help From an Analytics Tool

No data collection results in 100% success unless there is someone or something to help you interpret what the numbers are saying.

Most analytics and data tools do not only track your numbers but also give you insight and ideas about how you could strengthen your OKR plan.

Here are some tool ideas that will be 100% worth your investment.

2- Analyze Your Product-Market Fit

Customer retention statistics will assist you in determining which buyer types to target in the first place.

You'll be able to better understand which groups are most likely to spend with your company if you can follow the whole buyer's journey, from initial contact through conversion or drop-off point.

For example:

👉 You may notice that a given age group responds well and converts effectively through Facebook advertisements, but visitors brought in through Google SERP ads are less likely to buy. You'll therefore know that you should devote more of your marketing budget to Facebook advertisements while decreasing your spending on Google ads.

That is why you should analyze where you and your customers stand - your product-market fit regularly and detect slight changes as early as possible.

3- Segmentate Your Users

In the same line as the previous point, customer retention analytics will help you to understand which parts of your existing customers are the most beneficial to the growth of your business, and hence where you should be devoting the most resources.

If one segment of users only buys from you once or twice in their lifetime, but another group has the potential for recurring purchases and even upsells, you should prioritize maintaining this group and do everything you can to improve their customer experience.

4- Define Your Strengths

Customer retention is all about incorporating your strengths into your marketing strategies and convincing the users that you fulfill your promises.

• Which feature is used the most?
• Where do most of your traffic and signups come from?

-> The answer to those questions will help you see what customers expect from you and allow you to focus on those aspects.

• Which customer segments retain more?
• Which customer persona is more likely to make another purchase?

-> These questions will show you the stronger side of your user base and help you make sure to spend more time on them.

4- Define Your Weaknesses

As much as your strong sides, you should also be aware of your weaknesses.

• Which users are more likely to churn?
• Which features are less used?
• What do people most complain about?

-> The answer to these questions will open two different doors for you:

1. The improvement door, basically means that you choose to strengthen your weaknesses.
2. The avoidance door, which could have dramatic outcomes if you can't correctly handle it. Going through this door means that you decide to admit defeat in your weak spots and want to focus on the happy picture only.

One of those doors leads to the top, and another to a pitfall. Could you guess which is which?

6- Rinse And Repeat

Two things never end: a good quality customer journey and a good quality customer retention analytics strategy.

Fighting churn is not a once-in-a-lifetime occurrence, unfortunately.

So, rinse and repeat every quarter. Every year. Whenever you go through a big change.

Conclusion

What I like most about customer retention analytics is this:

The factors that affect customer retention are affected by customer retention. More basically, once you analyze one customer retention metric, you get an idea about several other things.

Customer retention measurement is not difficult, but the fact that you need long-term data makes it even more obvious that investing in analytics tools from the get-go is the most logical thing to do.

So, getting help from tools and correct KPIs could be your medicine.