It goes without saying that customer retention is important.
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 won't gain the traction needed to create a healthy business if your customers don't stick around.
In this guide, you'll find 30+ links to original articles and resources to help you create a successful customer retention program with proven strategies that will have a long-term impact on your revenue.
What is customer retention and why does it matter?
Customer retention is the process of retaining your current customers and getting them to return to your product for subsequent purchases, user sessions, or engagement.
Customer retention reflects the ability of a company to deliver value within its competitive market. A good customer retention program stretches across teams and departments.
Increasing your customer retention rate can have a big impact on a business’ bottom line. Harvard Business Review found that by raising retention rates by 5%, the average business will increase profits by 25% to 95%.
Improving customer retention can not only help you keep revenue recurring in the future, but it can also extract additional dollars for your business.
This wonderful state of customer retention achieves what is known as negative churn. It’s not strictly a unicorn phenomenon, but it’s very hard to achieve and takes a lot of experimentation and success. But it's worth the effort! We've even created a nifty growth tool for you to calculate the value of a retention lift—try it out and see for yourself.
Once you feel confident in your ability to measure your retention rate, it's time to start improving it.
How to improve customer retention
A SaaS business simply isn’t sustainable if it doesn’t retain its customers. Negative retention—aka churn—is bad. That much we've covered. But if you're experiencing high churn rates, there's some comfort in the fact that you're not alone.
When it comes to mobile apps, only 24.9% of users revisit an app the day after download, and that number drops to 9.4% after 2 weeks. In other words, the 2-week retention rate for mobile apps is less than 10%. And by the 90-day mark, a whopping 71% of app users will have churned completely. Many SaaS apps don't fare much better.
The good news is that it's absolutely possible to improve these abysmal numbers.
To improve customer retention, you're going to want to break your approach into stages, and treat each segment of customers differently.
Why? Think about it: 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 as they progress along their journey.
We recommend breaking down your approach to customer retention into 3 stages:
Early-stage retention: During this stage, focus on getting new users to use your product more than once. For this to happen, new users need to be onboarded, engaged, and developing proficiency with your basic use cases without too much hand-holding.
Mid-stage retention: During this stage, you should focus on establishing a pattern of repeated product use. You want to engage proficient users and help them feel confident and inspired to dive deeper into your product and explore additional use cases and functionality.
Late stage retention: At this point, you want to keep your power users invested by providing ongoing value and empowering your customers to provide feedback about continual product improvements.
By breaking things down, you'll be better able to tailor your retention strategies to the needs of your customers at any given point in their journey.
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.
There are places outside of your product from which you can engage your seasoned customers. Consider building communities and using different mediums for communication. Check out our list of 10 user and customer engagement strategies for leveling up in 2020 to see if there are any ideas you missed when you were crafting your customer engagement strategy earlier this year.
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.
You may also be interested to learn about how real companies use Appcues to create customer feedback loops within their product. If so, check out our case study with Norwegian healthcare platform PatientSky.
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.
If, at the end of the day, 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.
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.