1,200 hours of research and writing has culminated in this expert guide to customer retention best practices. Within the overview below, you’ll find 30+ links to original articles written on the topic. For highest impact, click through to what you feel is most pertinent. Read them now or save for later.
Customer retention is crucial. It’s a leading indicator of your business’ health and a key metric to determine its ultimate valuation.
You may have heard the metaphor already, but trying to build a business with poor retention is like trying to fill a leaky bucket. No matter what you do, you can’t gain traction to create a healthy business.
But with the appropriate programs and strategies in place you can have a long-term impact on your revenue.
What is customer retention?
The definition of customer retention is the business’ ability to keep customers returning to a product for subsequent purchases, sessions, or engagements.
Customer retention reflects the ability of a company to deliver value within its competitive market. Therefore a customer retention program reaches across teams and disciplines to retain money for a company.
How important is customer retention?
Increasing your customer retention rate can have a big impact on a business’ bottom line. Harvard Business Review researched the value of customer retention and found that by raising retention rates by 5%, the average business will increase profits by 25% to 95%. For more data around why retention matters, here's research to help you put your metrics into perspective.
At its extreme state, increasing your customer retention rate can not only help you keep revenue recurring in the future, but it can also extract additional dollars for your business in the future.
See this happy retention from Evernote that’s referred to as a smile retention curve:
This wonderful state of customer retention achieves what is known as negative churn. It’s not a unicorn phenomenon, but it’s very hard to achieve and takes a lot of experimentation and success.
Unfortunately, the state of customer retention for software products today looks pretty grim.
Within the first day of a mobile app’s download, 84% of those who download never return and only 2.7% stick around after day 30.
The good news is that it's absolutely possible to improve these abysmal numbers. But first, we need to know how to accurately measure them.
How to measure customer retention
Every product manager should know the basic customer retention formula:
Customer retention = # of customers at end of period / total # of customers
But not all product managers know how to get the most out of the formula. To help, we wrote this guide on how to measure customer retention so that you can:
- Have a benchmark or goal to hit
- Measure retention correctly with the right tools
- Quantify and understand progress
An in-depth understanding of customer behavior is crucial to getting to the bottom of a retention problem. As we’ve outlined in this post, all too often, revenue churn is mistakenly taken as the main indicator of churn issues.
Cohort analysis can be your best friend. Our guide on using cohort analysis can help answer the 3 W’s of customer retention:
- Who is and isn't engaging with your app
- When (and if) they churn
- Why they lose interest
Product teams who have a strong grasp of retention can go beyond the basic customer retention formula and try measuring four more advanced customer retention metrics here. We've also created a nifty growth tool for you to calculate the value of a retention lift.
Now that you can measure your retention rate, let's work to improve it.
How to improve customer retention
You don’t treat your significant other the same on your first date as you do on date 50 or date 250. In order to improve retention and make your relationship with your customers last, it is important to address the problems specific to each customer along their journey.
To simplify the evolution of a relationship, we break retention into three stages:
Here’s a deep dive into retention strategies by stage.
Stage 1: Onboard new customers
Data says user onboarding is the most important part of the customer journey by 2.6x. The better you can engage customers on day one, the more likely they are to stick around for the long haul.
If you’re new to retention, spending time studying some user onboarding best practices is a worthy investment. We’ve put together the ultimate user onboarding resource to help you master this stage of the customer journey.
Alternatively, If you’re looking for a shorter guide on best practices for user onboarding, we have you covered too. Or if you’d like some user onboarding inspiration, see the list from renowned SaaS companies.
Many companies have an onboarding experience that gets new customers activated. But even if you have something implemented that may be working, have you considered iterating on this process? It took Sidekick more than a dozen growth experiments before they improved their new customer retention.
Stage 2: Engage seasoned customers
If you have your user onboarding motion down, don’t make the same mistake dozens of software companies make—don’t quit onboarding at your customers’ first activation event. Keep pushing customers towards activating subsequent features and modules of your platform.
To keep customers motivated as they deepen their engagement with your product, celebrate whenever they reach important milestones. Little things can go a long way.
New feature releases are an important place to educate and retain new customers. New features often provide a blast of value to seasoned customers, and communicating that value is key. Take a look at this excellent guide on communicating new feature releases to learn more.
There are places outside of your product from which you can engage your seasoned customers. Consider building communities and using different mediums for communication. We present dozen of ideas for better customer engagement.
Stage 3: Empower power customers
Your power users are a special group. Customers who get consistent value out of your product and stick around for years will have a lot to say about your business. Their perspective on your product can be amplified to bring in more customers like them. Sean Ellis has a growth framework to do exactly this. It’s a great read.
But in order to empower your power users, you can’t forget these important lessons on sourcing customer feedback.
How to reduce churn
Despite your best efforts to reduce churn, you may still have a whole graveyard full of dead—or inactive—customers. It’s a mistake to think these customers are gone forever. It’s easier—and more cost-effective—to re-ignite that initial spark than to acquire brand new customers.
We found some great techniques for bringing customers back from the dead.
We’ve also seen that relying on your customer support, sales, and marketing teams will help you fine-tune a holistic strategy going forward. We’ve written about a few cross-functional efforts to get users back in this post.
While it may be tempting to try any and all techniques for reducing churn, applying product focus will help you prioritize which areas to tackle first. As Hiten Shah advises in this post on product focus, find a unified goal to rally your team around.
If you have to let customers go, why not design the cancellation process to be as smooth as the onboarding process? While it’s counter-intuitive, improving your offboarding process can actually help combat churn. Here are some ideas for designing offboarding to create the best last impression possible.
For more ways to uncover what customers really think of your product and reduce churn in the long-run, give our post on user frustrations a read.
Retention tools you should know about
There are thousands of tools that you could choose to help you with retention. We talked to a number of smart SaaS companies who shared the strategic and surprising ways they chose their retention stack.
To help you choose your stack, we’ve broken down 50 of the best customer retention tools here, so that you can choose the best ones for your business.
That's it for now! Let us know on Twitter if you have any other resources we should add to this list.