Consumers can be fickle, and it doesn’t take much for them to walk out the door. According to the Zendesk Customer Experience Trends Report 2022, 61 percent of customers would leave a company for its competitor after just one bad experience—a 22 percent jump from last year.
It’s now more important than ever for support teams to track customer retention metrics. You want to ensure you’re putting your best customer service foot forward so buyers continue doing business with you.
We surveyed top SaaS support teams to identify the most important customer retention metrics to measure. Read on to learn why these KPIs are powerful retention indicators, how to calculate them, and ways to leverage them to boost customer retention.
How to measure customer retention: 11 metrics to track
1. Customer churn rate
Customer churn rate is the percentage of buyers that stop purchasing products or services from your company within a given time frame.
“Churn is the ultimate indicator of a failure to retain customers,” says Scribe’s customer success lead. “The impact of a customer churning is not just the loss of [a company’s] current revenue, but also all of their potential expansion revenue.”
How to measure customer churn rate
To determine your customer churn rate, select a specific time frame to measure and identify the following values:
- Number of customers at the start of the chosen time period
- Number of customers who left during the time period
Then, plug in the relevant values to calculate the percentage.
For example, if a company has 100 existing customers on the first day of the month and loses 10 customers by the last day of the month, then the company has a monthly churn rate of 10 percent.
(10 ÷ 100) x 100 = 10%
Why is customer churn rate important?
A company with a high churn rate can’t grow. This metric alerts businesses if and when they need to adjust their customer retention strategies. Calculate your churn rate regularly to ensure you’re not consistently losing customers and, if needed, take action to keep buyers happy.
Pro tip: Look at churn rate alongside new customers and upsells to get a complete view of company health.
2. Customer retention rate (CRR)
Customer retention rate (CRR) measures the percentage of customers that stay with your business over a certain period of time. CRR is often considered the most straightforward metric for assessing how much customers support your company.
“By identifying the CRR, you can understand how effective your retention efforts and strategies are,” says a Zendesk SEO specialist.
How to measure customer retention rate
To calculate your customer retention rate, you first have to identify a time frame, whether that’s one month or one year. Next, you need three pieces of information:
- Number of existing customers at the start of the selected time period
- Number of total customers at the end of the time period
- Number of new customers acquired during the time period
Say a business has 100 customers at the start of the week. The business also ends the week with 100 customers. During the week, the business gains 10 new customers. The CRR for the week is 90 percent.
[(100-10) ÷ 100] x 100 = 90%
Why is CRR important?
Retention rate is a powerful indicator of whether your company is likely to hold onto customers and the revenue they bring in. According to a study by Bain & Company, a 5 percent increase in customer retention yields—at a minimum—a 25 percent increase in profit.
Pro tip: Measure retention rate by cohort (users with similar characteristics) to see which customer groups you’re resonating with and which ones you may need to work harder to keep around.
3. Net Promoter Score® (NPS)
A company’s Net Promoter Score® (NPS) measures customer loyalty by presenting buyers with one simple question: How likely are you to recommend us to someone you know? Customers rate their likelihood on a scale of 0 to 10, with 10 being “extremely likely.” NPS surveys often include an open-ended question or comment box for respondents to write supporting details about their ratings.
“NPS provides comprehensive, clear, concise input,” says Tinuiti’s director of SEM.
How to measure NPS
NPS is calculated by first separating respondents into three customer groups:
- Promoters: These customers left a rating of 9 or 10 and are likely loyal fans.
- Passives: These customers left a rating of 7 or 8. They’re satisfied with your product or service but probably aren’t loyal to your brand.
- Detractors: These customers left a rating between 0 and 6. They’re unhappy with your company’s offerings, unlikely to purchase from you again, and may discourage others from doing business with you.
The percentage of passive customers is not used in the NPS calculation because their sentiment isn’t strong enough.
For example, if 15 percent of your respondents are detractors, 25 percent are passives, and 60 percent are promoters, your Net Promoter Score® is 45.
60 – 15 = NPS
Why is NPS important?
NPS surveys help your team get the information they need to improve the overall customer experience. With NPS surveys, you can monitor product or service quality, segment consumers, and identify buyers who are at risk of churning. Collecting NPS data can help your company take the necessary steps to keep—or win back—valuable customers.
Pro tip: Follow up with detractors to see what you could do to improve their experience. Reach out to promoters to thank them for their business and introduce them to your loyalty programs.
4. Customer lifetime value (LTV)
Customer lifetime value (LTV) is the amount of money an individual will spend with a company for as long as they remain a customer.
How to measure LTV
The customer lifetime value formula isn’t as straightforward as some of the others on this list, as companies use different variables to calculate the metric.
Here at Zendesk, we determine LTV by first calculating the average total revenue (ATR) generated over a customer’s lifetime. Then, we subtract the amount of money spent to gain a new customer—or the customer acquisition cost (CAC)—from the ATR.
Say, for example, Company X generates $500,000 annually. Company X’s average customer lifespan is 10 years, and the CAC is $25,000. Company X’s customer LTV is $4.975 million.
(500,000 x 10) – 25,000 = 4,975,000
Why is LTV important?
LTV is a way for support teams to gauge whether they’re offering helpful customer service. While revenue isn’t exclusively tied to customer service, reps play a major role in keeping buyers happy and loyal to a brand. If LTV drops as churn increases, it’s time to rethink retention efforts as a support team.
This metric is also a helpful factor when prioritizing tickets in your team’s queue. Some ticketing systems can prioritize inquiries from high LTV customers rather than ranking them chronologically.
Pro tip: Companies with a limited customer base may not necessarily want to use LTV. Due to the small sample size, the estimated value of each customer will likely fluctuate from month to month.
5. Revenue churn rate
Revenue churn rate is the percentage of monthly recurring revenue (MRR) your company lost over a specific time frame. This metric is typically calculated monthly.
How to measure revenue churn rate
To calculate your revenue churn rate, start by selecting a time period to measure (one month is a good place to start). Then, identify the following:
- Amount of lost revenue during the chosen time period
- Amount of total revenue generated during the time period
You can determine your revenue churn rate by plugging the values into the formula.
Let’s say your company wants to determine its monthly revenue churn rate. Your lost revenue for the month is $30,000, and your amount of total revenue generated is $120,000. That means your revenue churn rate is 25 percent.
(30,000 ÷ 120,000) x 100 = 25%
Why is revenue churn rate important?
This metric provides a better snapshot of your company’s financial health. If a business only tracks customer churn rate, it doesn’t tell the whole story. You could have a small amount of customer churn—say 2 percent. But because different offerings bring in varying amounts of revenue, it wouldn’t be clear how much value this 2 percent customer churn truly represents.
Pro tip: Use revenue churn rate alongside customer churn rate, especially if your products and services aren’t priced equally. For example, a SaaS platform may offer customers different tiers of service: free, premium, business-level, or enterprise-level subscriptions.
6. Daily, weekly, and monthly active users (DAU, WAU, MAU)
The metrics for active users measure the number of unique customers that interact with your products or services during a given time frame—typically daily, weekly, or monthly.
To calculate these metrics, determine your criteria for “active.” It can mean anything from clicking on a link in a campaign email to downloading a document from your website.
How to measure DAU, WAU, and MAU
DAU, WAU, and MAU evaluate the health of your product or service by assessing whether your customers are (or aren’t) actively using it. These measurements can also help predict customer churn by revealing complications, drop-off points, and features that users don’t find necessary.
- Daily active users (DAU): the number of consumers that meet your criteria for being active within the last 24 hours.
- Weekly active users (WAU): the number of consumers that meet your criteria for being active within the last seven days.
- Monthly active users (MAU): the number of consumers that meet your criteria for being active within the last 30 days.
You can track these metrics individually, or you can use the DAU/MAU ratio, which measures the proportion of monthly active users who interact with your product or service within a 24-hour window.
For example, if Company Y has 100,000 daily users and 500,000 monthly users, Company Y’s DAU/MAU ratio is 20 percent.
(100,000 ÷ 500,000) x 100 = 20%
You can also swap out MAU for WAU to find the DAU/WAU ratio, if that’s more helpful for your tracking purposes.
Why are DAU, WAU, and MAU important?
The DAU/MAU ratio helps companies understand how valuable their products and services are to their audience. The DAU/WAU does the same thing, only for a shorter period. The higher the ratio (percentage), the “stickier” your product or service. The DAU/MAU ratio is particularly helpful for early-stage companies, as it allows leadership teams to evaluate traction and predict revenue.
Using the ratio (rather than DAU, WAU, or MAU alone) provides you with context—a comparison point—so you can better understand the level of engagement with your products or services.
Pro tip: Rather than waiting for problems to arise, your team should offer proactive support. This will help increase DAU and reduce churn. Regular communication with your users will enable you to better understand their goals so you can optimize their experience.
7. Existing customer revenue growth rate
This is the rate at which your company is generating revenue from your current customers—typically due to loyalty and retention efforts.
How to measure existing customer revenue growth rate
As we mentioned earlier, MRR stands for monthly recurring revenue. To measure your existing customer revenue growth rate, you’ll need to determine two MRR values:
- MRR at the start of the month (from existing customers)
- MRR at the end of the month (from existing customers)
Once you identify these numbers, you can use the following formula to find your existing customer revenue growth rate.
Imagine you begin February with an MRR of $50,000. But within that same month, you lose $5,000 to churn, and your MRR at the end of the month is $45,000. Your existing customer revenue growth rate is -10 percent.
[(45,000 – 50,000) ÷ 50,000] x 100 = -10%
Why is existing customer revenue growth rate important?
A climbing rate suggests your customers are becoming increasingly aware of the value of your products or services. A stagnant or falling rate, on the other hand, should be cause for concern. If your existing customers aren’t generating revenue, it’s probably time to reevaluate your retention strategy.
Pro tip: This metric may be misleadingly high during the early stages of your startup, so pay attention to long-term trends.
8. Repeat purchase rate (RPR)
Repeat purchase rate—also called repeat customer rate or loyal customer rate—is the percentage of consumers that buy additional products or services from a business after their first purchase.
How to measure RPR
Companies without fixed contracts (i.e., retailers) typically use RPR, but the metric can still be used with services like subscriptions and renewals. RPR is a powerful indicator of customer loyalty, and you can calculate it for any time period: weekly, monthly, quarterly, or annually.
Let’s say a meal-kit company begins March with 5,000 customers who subscribed to deliveries for the month. By the end of March, 4,500 of these customers renewed their subscriptions. The company’s repeat purchase rate is 90 percent.
(4,500 ÷ 5,000) x 100 = 90%
Why is RPR important?
RPR helps you gauge whether you’re encouraging repeat shoppers—a key source of revenue. According to Bain & Company, clothing buyers spend 67 percent more once they’ve shopped with a company for at least 31 months.
Pro tip: Track RPR by customer segment. Once you discover the types of consumers or client companies making the most frequent purchases, modify target buyer personas as needed. Your support team should relay the information to marketing and sales, so the two departments can ramp up or adjust their efforts accordingly.
9. Customer Effort Score (CES)
Customer Effort Score (CES) measures how easy (or difficult) it is for customers to get what they need—whether that’s resolving an issue, getting an answer, or completing a task.
“Customer experience is our North Star, and we focus on reducing friction and making it easy for our customers,” says Extend’s senior vice president of customer experience.
How to measure CES
To determine your CES, send out a survey asking customers to rate the ease of their support interaction on a scale from “very difficult” to “very easy.” If you’re using a standard 10-point scale, use the following formula.
If you use a simple “agree/disagree” or emoji/emoticon scale, subtract the percentage of customers who responded negatively from the percentage who responded positively (you can ignore neutral responses). The resulting total will be your CES.
Include an open-ended question, too, so customers can describe the elements that made their experience challenging or simple.
Why is CES important?
If you track CES across different types of support interactions, you and your agents can determine which experiences are causing friction and which are seamless (and worth doubling down on).
For example, a CES survey can highlight which customer service channels are easy or difficult for consumers to use. Or, you may discover that most customers struggle with product returns but don’t have problems updating their contact information. People might find it “very easy” to call your contact center but “somewhat difficult” to navigate your help center—this information allows you to make the necessary adjustments within your team or customer service software.
Pro tip: Pay attention to customer comments to understand why your CES is what it is. If needed, follow up with customers to ask about their challenges so you know where to make improvements.
10. Product return rate
Product return rate is the percentage of total units sold that were eventually sent back—essentially, it’s the rate at which products are returned to your company. Unlike the rest of the metrics on this list, product return rate is only applicable to businesses that sell tangible products.
How to measure product return rate
You want this rate to be as close to zero as possible, but that’s rarely the case. According to Retail Dive, online retailers experience an average return rate of over 20 percent, while brick-and-mortar stores experience an average return rate of 9 percent.
Keep your sales volume in mind when calculating your product return rate. You must set and stick to rules that contextualize your rate’s measurement—your data will be skewed if you don’t adhere to consistent time frames.
Imagine you’re a home and garden retailer selling patio furniture sets. Last August, you sold 325 sets, but 210 of them were returned later in the month. Your product return rate for these patio sets is nearly 65 percent.
(210 ÷ 325) x 100 = 64.6%
Why is product return rate important?
A high product return rate is a clear sign that there may be issues with your inventory. In the example above, the 65 percent return rate may lead the support team to discover the patio chairs are wobbly, based on customer feedback. You can then alert your product team so they can investigate the issue further.
Pro tip: Send an automated survey to every customer who makes a return asking them why they returned the product. Analyze the feedback alongside the product return rate to understand the trends that may be leading to returns.
11. Time between purchases (TBP)
Time between purchases (TBP) measures the average amount of time that passes before a customer makes a repeat purchase from your company.
How to measure time between purchases
To calculate TBP, you first have to determine purchase frequency (PF). For simplicity’s sake, let’s use one year as our time frame.
Number of orders (within a year) ÷ Number of unique customers (within a year) = PF
To find TBP, divide a year (365 days) by PF. Let’s put it all together.
Say your company received 500,000 orders last year and gained 10,000 unique customers during the same period. First, find PF: 500,000 ÷ 10,000 = 50
Then, plug PF into the formula to find TBP: 365 ÷ 50 = 7.3
Your average TBP is 7.3 days.
Why is TBP important?
If you sell products with a short life span, TBP illustrates how satisfied your customers are with your offerings versus those of your competitors. If there are long periods of time between customer purchases, it may suggest your product isn’t “differentiated” enough from similar offerings in your industry.
A long TBP could also mean your product is well-built and users don’t need to buy it again just yet.
Pro tip: By comparing TBP with other metrics like NPS and customer satisfaction (CSAT), you can identify strengths and weaknesses in your products or services.
Keep tabs on customer retention metrics with the right software
Get a handle on your customer retention metrics to slow churn, lower acquisition costs, and boost loyalty. Use several of the expert-approved metrics described above to fill in data gaps that you may not catch with a single metric.
To collect, manage, and organize that data, your team needs the right tool. Customer retention software keeps all customer information organized and readily available in one place, making the process of finding and comparing customer retention metrics efficient and effective. Investing in a solution like Zendesk enables you to deliver the best experiences at every touchpoint.