User retention is typically viewed as a rate, which is the percentage of active customers from one time period who are still customers in the next. User retention also can represent the steps that a company can take to encourage continued use of a product, lowering the chances of churn.
When the median gross retention rate — the percentage of revenue coming from repeat customers — is approximately 90%, it is clear that B2B SaaS companies can live or die by how well they are keeping existing customers happy. Throw in the fact that it costs anywhere between five times more to bring on a new customer than to keep an existing one, and the stakes are clear.
What Is User Retention?
User retention measures the percentage of active product users who are still active after a certain time period. Typically, this metric is used to find out whether first-time users are continuing to use a product. Retaining users is important because acquiring new customers is expensive, and if a customer quickly churns due to low usage, their customer lifetime value (CLV) may represent a loss instead of a profit. User retention can track usage in a number of different ways, including log-ins, downloads, or other specific activities performed within a product.
Why is user retention rate important?
Your product’s retention rate is a good measure of how well your customers believe your service or product is working for them, resulting in repeat business or subscription renewal. According to one analysis, B2B SaaS companies targeting small- and medium-sized businesses should see 80% as a good benchmark, while those supporting large enterprise companies should look for that 90% mark.
While a retention rate of 100% is obviously the ideal, churn is unavoidable and can occur for voluntary and involuntary reasons. Therefore, it is important to identify and analyze any of the reasons behind churn to determine what can be done to prevent the things in your control and mitigate those that are out of your hands. Given the costs to bring in new customers and the potential for long-term recurring revenue, there is plenty of incentive to do so.
What are some steps to improve user retention rate?
Feel like you have some space to improve when it comes to your company’s user retention rate? While you certainly are not alone — at least 61% of companies say that it is one of their biggest challenges — there are some key steps that you can take to deliver for your customers and bring down churn:
- Accelerate your efforts with a customer success platform, which has built-in tools to help monitor customer activity, prevent churn, communicate internally and externally to put feedback into action, and more.
- Incorporate product operations and product management functions to facilitate continuous product improvement and handle daily support.
- Take advantage of engagement metrics and other user analytics to quantify the customer’s experience so you can track performance and monitor trends to spot potential problems early.
- Rethink your customer onboarding process and smooth any bumps that could delay tool adoption or reduce the customer effort score.
