Ultimate Guide to Customer Retention + 12 Strategies and Tactics to Keep In Mind

Did you know that 9 out of 10 start-ups fail? Do you know why? Well, it's not necessarily because they can't get new customers, it's often because they can't keep them. In a world where every customer counts, mastering customer retention is your golden ticket to triumph.

Imagine, you put your heart and soul into attracting new customers, but what happens next? It's not just about acquiring customers, it's about nurturing those relationships into lifelong partnerships. After all, your loyal customers aren't just buyers. They're the champions that drive word of mouth and bring in more potential customers.

In today's hyper-connected marketplace, every business is in a race to captivate its audience, making the need for strategic retention all the more important.

In this article, you will learn the meaning and definition of customer retention, why it is important for your business, how to track it with the Retention Rate Formula and 12 strategies and tactics you can use to improve your customer retention right now. (If you are only here for the 12 tips, click here)
What is customer retention and what does it mean
Retention means that customers use your service regularly and stay subscribed
Customer retention is particularly important for SaaS businesses because they rely on recurring customers

What is customer retention and what does it mean?

Customer retention means that customers use your service regularly and stay subscribed. At its core, customer retention is about nurturing and maintaining relationships with your existing customers over time. It's about turning that initial spark of interest into an enduring flame of loyalty.

If you cannot deliver value on an ongoing basis, people will eventually churn. Customer retention is one of the most important metrics for SaaS businesses in particular, as they rely on recurring payments.
Customer acquisition or retention? What should you focus on.
SaaS companies focus on getting the retention part right
Acquisition is much more expensive than retention
Focus on retention instead of acquisition
Compare customer lifetime value to customer acquisition cost
3:1 ratio is recommended
Successful business
Unsuccessful business

Customer acquisition vs customer retention. What should you focus on?

Real growth lies in customer retention, not in customer acquisition. Most SaaS companies and Startups therefore focus on getting the retention part right, and there is a simple reason for this: it is much more expensive to win new customers than to keep existing ones.

Customer acquisition cost describes the total amount you spend to acquire a customer, including all marketing and sales expenses like salaries, headcount-related fees, charges for running ads, creating content, technical costs, etc. To get a decent understanding of whether your company will fail or succeed, you should always compare your customer acquisition cost to the customer lifetime value (how much customers spend with your business).

A good rule of thumb is to have a CLV to CAC ratio of 3:1. This means that customers bring in 3 times what it cost you to acquire them. If this ratio is closer to 1:1, that means you are not making any profit on customers. If it is closer to 5:1, think about ways to invest in new opportunities to get more customers and not miss out on new marketing opportunities.
Build your successful saas business
Why is customer retention important for your business
The ripple effect of retention

Why does customer retention matter and why is it important for your business's success?

1. Loyalty
Acquiring new customers can be exciting, but often short-lived. Retained customers, on the other hand, are loyal companions who understand your value, trust your offerings and keep coming back for more. This loyalty translates into consistent revenue streams - the foundation of your business's stability.
2. Cost-effectiveness
Suppose you're hosting a big party. Inviting new guests takes effort, time, and resources—justs like acquiring new customers. However, what if some of your former guests decided to stay? The effort to engage them again would be significantly lower, and the party would continue to flourish.

Similarly, retaining customers is more cost-effective than chasing new ones. That's why most SaaS companies focus on getting the retention part right, rather than focusing on acquisition. It's like investing in relationships that pay off in the long run.
3. The ripple effect of retention
Here's a staggering truth: just a 5% increase in customer retention can lead to a staggering 25-95% increase in your company's revenue. How's that for a return on your investment?

Retained customers not only spend more over time, they also become powerful promoters of your brand. Their word-of-mouth recommendations spread through the marketplace, attracting new customers without the need for intensive acquisition efforts.

According to studies, companies lose more than $136 billion annually due to customer churn that could have been avoided through effective customer retention strategies.
How to measure and calculate the customer retention
Use the customer retention rate formula
The customer retention rate formula
85% and above
Below 70%

How to measure and calculate the customer retention with the customer retention formula

The customer retention rate tells you how many customers your company has retained over a given period of time. Understanding the customer retention formula is key to developing a successful customer retention strategy. This formula is a simple yet powerful tool that provides insight into the health of your customer relationships.

Customer retention is a measure of how many customers stay with your business over a given period of time. In mathematical terms, the formula is as follows:
Customer Retention Rate (%) = ((Customers at the End of the Period - New Customers Acquired During the Period) / Customers at the Start of the Period) × 100
Imagine you started the quarter with 200 customers. During the quarter, you acquired 50 new customers. At the end of the quarter, you had 220 customers.

Using the formula: Customer Retention Rate = ((220 - 50) / 200) × 100 = 85%

This means your customer retention rate for the quarter is 85%.

Hold on! Don’t start crunching numbers, let's understand the implications, first.
The customer retention rate tells you how many customers your company has retained over a given period of time.

What is a good customer retention rate?

Think of customer retention as a health indicator for your business. A high retention rate indicates strong customer relationships and a robust retention strategy. On the other hand, a declining rate could signal potential issues in your customer experience that need to be addressed. Here's how to decipher the numbers:

• 85% and above:
Congratulations, an 85% or higher retention rate suggests that your customers are not only sticking around, but spreading positive vibes about your brand.

• 70-85%:
You're on the right track, but there's room for improvement. Dive deeper into your customer interactions to identify opportunities for improvement.

• Below 70%:
It's time to hit the alarm button. A retention rate below 70% indicates that your customers are churning faster than you'd like. It's time to dissect the reasons and course-correct your strategies.

Customer retention is a journey, not a destination. Your retention rate is a dynamic number that reflects the evolving nature of your customer relationships. Therefore, you should regularly revisit and track your retention rate formula.
Resources to build a successful saas business
What are the important retention metrics and kpis
Customer retention rate
Churn rate
Customer lifetime value
Net promoter score

What are the important Retention metrics & KPIs?

Tracking key performance indicators (KPIs) in customer retention is about using metrics to navigate your business towards customer loyalty and success. Here are the key retention metrics and KPIs you need to measure:
1. Customer retention rate
This shows the percentage of customers who continue to do business with you over a period of time.
2. Churn rate
It's the percentage of customers who have discontinued their relationship with your brand.
3. Customer Lifetime Value (CLV)
A measure of the revenue generated by a customer throughout their relationship with your company.
4. Net Promoter Score (NPS)
Reflects customer satisfaction and loyalty by measuring their willingness to recommend your brand.
The factors that influence customer retention
Customer experience
Service quality
Customer support
Pricing and value perception
Competition and market trends
Communication and engagement
Emotional connection

The factors that influence customer retention

1. Customer experience
User Experience (UX) focuses on the end-to-end user experience as they navigate your digital product. It involves optimizing all aspects of your product to achieve maximum user satisfaction by providing fast responses, directing users to the right page, providing support, delivering accurate results, solving their problems and helping them achieve their goals.

Who doesn't love a seamless, delightful experience? After all, it creates lasting memories that keep customers coming back for more.
2. Service quality and value
Your platform and the value it delivers is the cornerstone of customer loyalty. If you consistently deliver value and meet or exceed expectations, customers are more likely to stay. Conversely, if your platform falls short, customers may look for better solutions. Quality and value are the cornerstones of customer loyalty!
3. Customer support
When customers encounter issues, their interactions with your support team become defining moments. Quick, empathetic resolutions can turn frustrated customers into raving fans.

On the other hand, poor support can drive customers away. Remember, every support interaction is a disguised retention opportunity.
4. Pricing and value perception
Pricing can be a mixed blessing. While competitive pricing can attract customers, pricing that's too low can raise questions about the value of your offering.

Conversely, high prices can cause customers to look for alternatives. The key is to strike a balance between pricing and perceived value.
5. Competition and market trends
With trends and competitors constantly evolving, the marketplace is a dynamic place. Keeping an eye on what your competitors are offering and understanding market trends is essential. If a competitor offers a more enticing proposition, customers may be tempted to jump ship. With a team dedicated solely to keeping an eye out for new market trends, you can avoid this altogether.
6. Communication and engagement
Keeping in touch with your customers is like having an ongoing conversation. Regular communication, personalised interactions and relevant content can keep your brand top of mind. Neglecting this aspect can cause your brand to fade into the background.
7. Emotional connection
Emotions play a profound role in customer retention. When customers feel emotionally connected to your brand - whether through shared values, memorable experiences or personalised interactions - they are more likely to stay, even when tempted by alternatives.
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12 Strategies and tactics to improve your customer retention

How to craft and manage customer expectations
Clearly show the features functionalities and potential limitations of your tool to your customers
4 pro tips
Underpromise and overdeliver
Feedback loop

1. Crafting and managing customer expectations

Effective communication is the bridge that connects your promises to reality. In short, tell prospects what you do, what value you add, and - if necessary - what you don't do.  

Clearly communicate the features, functionality and potential limitations of your tool on your website or when you speak directly to customers during the sales call. Customers who know exactly what they're signing up for are more likely to stick around, even if they encounter minor roadblocks.

Remember, it's not about overpromising to win customers over. It's about aligning their expectations with what your business can actually deliver. By setting clear expectations, you're laying the foundation for a relationship built on trust and reliability. Here are some tips for managing customer expectations gracefully:
Don't hide the fine print or gloss over potential challenges. Being upfront about limitations helps customers make informed decisions.
Underpromise, overdeliver
While it's tempting to promise the moon, it's wiser to exceed expectations by delivering a little more. This pleasantly surprises customers and builds trust in your brand.
Provide resources, tutorials and FAQs that educate customers about your platform. The more they know, the fewer assumptions they'll make.
Feedback loop
Encourage feedback and listen to your customers. This shows that you value their opinions and also gives you insight into areas where expectations may be mismatched.
Deliver an AHA experience with exceptional onboarding
AHA moment is when a customer experiences the full potential of your service
4 pro tips for onboarding
Guided exploration
Quick wins
Highlight value

2. Delivering an "Aha" experience with exceptional onboarding

The 'aha' moment is that magical moment when a customer experiences the full potential and value of your service. It's the moment when the dots connect and they realise, "This is exactly what I needed!" This moment doesn't happen by chance. It's carefully planned through a thoughtful onboarding experience.

Timing is everything when it comes to delivering that 'aha' moment. Too soon and customers may feel overwhelmed. Too late and they may lose interest.

But remember, the longer the time to value, the more likely people are to churn. Strike a balance by introducing key features gradually, allowing customers to grasp their significance and utility.

During onboarding, guide users through setting up their first project, assigning tasks and tracking progress. By the time they're done, they'll have experienced an 'aha' moment that reassures them they're on the right track.

A well-designed onboarding process can lead to long-term product usage and customer satisfaction, while a poor onboarding process can lead to user churn. Here are 4 pro tips how to get onboarding right:
Every customer has a unique user journey. So tailor the onboarding journey to each customer's needs and goals. A one-size-fits-all approach won't create those "aha" moments.
Guided exploration
Provide step-by-step guidance to help customers explore the core features of your platform. Consider interactive tutorials, walkthrough videos and tooltips.
Quick wins
Show your customers how they can achieve a small win with your platform to get them excited about learning more.
Highlight value
Highlight the unique value your platform brings. Help customers see how it addresses their pain points and makes their lives easier.

If you want to learn more on user onboarding, check out this Complete Guide to SaaS User Onboarding and download a free checklist.
2 important steps for contextualize and position your offer
Contextualizing your platform means creating an irresistible proposition that attracts and retains customers
Understand your audience
Create a strong unique value proposition

3. Contextualizing your offering

Contextualising your platform in the marketplace means creating an irresistible offer that attracts and retains customers.
Understand your audience
Think of your product as a tailored suit. To make it fit perfectly, you need to know your customers, your Personas. Understanding your audience - their preferences, challenges and expectations - is the cornerstone of effective positioning and will help you define your unique value proposition. To better understand your customers, dive into:

1. Demographics:
Who are your customers? Age, gender, location, industry - these details paint a vivid picture.

What drives them? Their values, interests and behaviors provide insights into their motivations.
Positioning with a strong unique value proposition
Positioning is about how you position yourself in the minds of your customers. It's the art of crafting a narrative that aligns with the needs, aspirations and pain points of your target audience. Make them feel that they are right to choose your solution. Positioning your business includes your design and marketing approach, as these are the first things your customers see when they come into contact with your brand.

A Unique Value Proposition (UVP) is a concise statement that communicates the benefits your product or service offers customers. It highlights what makes your offering different from the competition and why potential customers should choose your solution over others in the market. In essence, the UVP answers the fundamental question: "Why should customers buy from you?

Check out this in-depth article on how to find your SaaS idea and validate it to find your UVP.
Resources to build a successful saas business
9 tips for making the most of up-sells and cross-sells
Value demonstration
Problem solving
Bundle offers
Educational upselling

4. Leveraging upsells and cross sells

Upselling involves offering a higher level package or additional features to customers who are already using your product. Cross-selling is about recommending complementary products or services that enhance their overall experience.

Upselling isn't about pushing products on customers, It's about presenting them with opportunities that truly enhance their journey. When done thoughtfully, upselling resonates with customers' needs and aspirations, builds long-term relationships and improves your customer retention in the long run. Follow these 7 pro tips to make the most of upselling and cross-selling:
1. Relevance
Upsells should be relevant to the customer's current journey. If they've just bought a basic subscription, offering advanced features can enhance their experience.
2. Demonstrate value
Show customers how the upsell enhances the value they're already receiving. Paint a picture of how their experience will be enhanced.
3. Problem solving
Identify your customers' pain points and offer upsells that address them. Customers who feel understood and supported are more likely to stay.
4. Segmentation
Segment your customer base based on behaviour, usage or preferences. This allows you to tailor upsells to specific needs.
5. Timing
Introduce upsells at strategic points in the customer journey, such as when they've reached a milestone or faced a challenge.
6. Bundle offers
Package complementary services into an enticing bundle. This adds value and encourages customers to explore further.
7. Educational upselling
Educate customers about the benefits of an upsell through targeted content, case studies and success stories.

Successful upselling isn't just about boosting revenue, it's about building a loyal customer base that sees your brand as a partner in their journey. When customers feel that your upsells genuinely enhance their experience and align with their goals, they're more likely to view each upsell as an opportunity rather than a sales pitch.
How to create a communication plan with your customess
The goal is to have an ongoing dialogue that keeps the connection alive long after the initial transaction
5 strategies you should use
The welcome warmth
Regular check-ins
Valuable content
Special occasions
Feedback loop

5. Building a communication schedule

Building a communication plan with your customers is an ongoing dialogue that keeps the connection alive long after the initial transaction. It's about being a friend who is always there to listen, support and share valuable insights. Customer loyalty is not a one-off event, it's an ongoing journey!

Communicating with customers is key to staying connected and relevant in their lives. A well-designed communications plan isn't just about updates, it's about nurturing relationships. Take a look at these 5 strategies to ensure consistent engagement:
1. The warmth of the welcome
As soon as a customer comes on board, send a personalised welcome message or email that sets the tone for a positive relationship.
2. Regular check-ins
Don't let the initial excitement die down. Check in with them regularly to make sure their needs are being met and their expectations are being exceeded.
3. Valuable content
Share content that enriches their experience - tips, how-tos, industry insights and success stories.
4. Special occasions
Celebrate milestones with your customers - whether it's their anniversary with your brand or a special event in their business journey. A little recognition goes a long way.
5. Feedback loop
Encourage customers to share their thoughts, suggestions and concerns. Act on their feedback to show that you value their opinions.
3 strategies you can use to keep being relevant for customers
Continuous innovation
Feedback integration
Timely updates

6. Adapting to changing needs

The SaaS world is dynamic. As your business grows, your customers' needs may change. Adapting to dynamic needs ensures that your customers' needs are met. Again, simply being there for your customers and helping them on their journey will increase retention, even if you don't use any other "pro tips" or "quick hacks". In addition, there are several strategies you can use to stay relevant to your customers:
1. Continuous innovation
Embrace a culture of innovation where your SaaS platform experts are constantly exploring new features, enhancements and technologies that address emerging needs.
2. Integrate feedback
Listen to your customers, analyse their pain points and translate their suggestions into tangible improvements.
3. Timely updates
Regularly update your platform with features that reflect industry trends and customer needs.
3 tips how to go above and beyond for your customers
Anticipate pain points
Educational support

7. Going Above and Beyond

Imagine this: You join a platform for a single service, but you're offered add-ons and special onboarding rewards that you weren't expecting. Won't you be extra happy? Yes, I would! Going above and beyond in customer retention is akin to delivering a delightful customer experience.

Exceptional customer service is about creating moments that resonate. When customers encounter a team that's genuinely invested in their success, the impact reverberates far beyond the immediate interaction. Here are three tips you can incorporate into your customer retention strategy:
1. Anticipate pain points
Identify potential pain points that customers may encounter. Address these issues proactively to save them the trouble.
2. Personalize
A one-size-fits-all approach doesn't cut it. Personalized solutions show you are attuned to their unique challenges.
3. Educational support
Empower your customers with webinars, tutorials and resources to help them get the most out of your products and services.
Worksheets, Templates, Cheatsheets:
build a successful saas business
How to implement reward programs for your customers
Reward programs are about creating a journey where customers are delighted
Discounts and coupons
Point based systems
Tiered programs
Referral rewards

8. Implementing rewards programs

Introducing loyalty rewards programmes is about creating a journey where customers are not only delighted with your services, but also rewarded for their loyalty. Here is a funny example that does just the opposite: Have you ever seen your internet provider offer a 50% discount to new customers, while you - a loyal customer - got no bonus? What a bad experience. Don't do that. Your loyal, long-term customers are your heroes. So treat them like it. Here are some best practices you can use to implement reward programs:
1. Discounts and coupons
Offer discounts on long-term subscriptions and add-ons as rewards. For example, percentage or fixed value discounts.
2. Points-based systems
Customers earn points every time they sign up or log-in and can redeem them for additional features and add-ons. This also keeps customers engaged.
3. Tiered programmes
Create tiers based on how much customers spend on different features to increase their usage. Each with increasing benefits that make them feel valued.
4. Referral rewards
Reward customers for bringing others into your SaaS ecosystem, not only growing your community but also recognising those who help it thrive.
4 steps to reduce friction and improve your user experience
Streamlined onboarding
Encourage seamless integration
Effortless navigation
Quick problem resolution

9. Reducing friction and improving user experience

Any friction that your customers encounter will hinder their smooth journey, causing them to stumble and even consider turning back. Nobody likes unnecessary obstacles! Complicated onboarding processes and confusing interfaces silently nudge customers towards dissatisfaction and eventually churn.

Let me give you a personal example: I recently went to buy some photo editing software - I won't name names - but as soon as I saw that you had to put your credit card in to get a 7-day free trial, I went back to find a better solution. Here are some strategies for creating a seamless customer experience:
1. Streamline onboarding
Simplify sign-up processes, offer guided tours, and provide intuitive interfaces that guide customers effortlessly.
2. Ensure seamless integrations
Customers shouldn't feel like they're trying to fit a square peg into a round hole.
3. Effortless navigation
Users should be able to intuitively navigate the interface of your SaaS platform, find information easily, and complete tasks without feeling lost.
4. Fast problem resolution
Friction increases when customers have trouble getting support or finding solutions to their problems. Provide a support hotline via email, phone or messaging to help customers along the way.
How to collect and act on customer feedback
NPS Surveys
When customers see the improvements they will see that their feedback is valued

10. Collecting and acting on customer feedback

Suppose, if, customers express frustration about a complex login process. By analyzing this feedback, you simplify the login steps and add intuitive features like single sign-on. When customers see the improvement, they're not just logging into your platform more often, they also see that their feedback is valued and translated into tangible improvements. Customer feedback isn't just a collection of opinions, each piece of feedback contributes to the larger composition of better features, add-ons, and experiences.

Collecting customer feedback comes in many forms. If you want to learn more on customer feedback, the best channels, the biggest mistakes you need to avoid and the best tools you can use to gather valuable feedback, check out this in-depth article on How to collect customer feedback for your SaaS business – the right way
How to create a saas community. 4 pro tips
Platform selection
Content creation
Encourage interaction
Recognize contributors

11. Creating a community

Have you ever taken part in a group discussion? How enriching it is for everyone! As a SaaS provider, you can create a community platform for your users, similar to a virtual group discussion room. Customers share tips on how to maximize your software's features, troubleshoot problems together and even suggest ideas for future updates.

This community becomes more than just a place to ask questions. It becomes a place where customers can collaborate, learn and influence the development of your platform.

However, building a community is no easy task, and it is definitely not a one and done exercise. So before you get started, consider these 4 tips:
1. Choose a platform
Choose the right platform for your community - a forum, a social media group or even a dedicated app. Make sure it matches your customers' preferences - and don't choose a channel just because other people are doing it (I am looking at you, unused Facebook group or Slack channel).
2. Content creation
Share valuable content that aligns with your community's interests. This can include tutorials, case studies, success stories and industry insights.
3. Encourage interaction
Ask thought-provoking questions, start discussions and encourage members to share their experiences and challenges. Interaction drives engagement.
4. Recognize contributors
Highlight active and valuable community members. This recognition not only rewards their contributions, but also encourages others to participate.
How to leverage insights from churned customers
Create a safe place
Ask open ended questions
Dig deep

12. Leveraging Insights from Departing Customers

Customer churn is inevitable, no matter how good your solution is. Some customers will stop doing business with you, for whatever reason. Suppose your long-term customer decides to cancel their subscription.

Would you just let them go? A big no! You need to conduct an exit interview.

The customer may reveal that they felt the software lacked certain advanced features that they needed. You should now prioritise the development of these features. Months later, when you reintroduce these features, you will not only win back that customer, but also attract new customers looking for the same functionality. When you reach out to churned users, let's not lie - most won't respond. But the ones you do reach may reveal something you never thought of before. So here is how to conduct exit interviews and get the most out of them:
1. Create a safe space
Make departing customers feel comfortable sharing their experiences. Reassure them that their feedback will be valued and used for improvement.
2. Ask open-ended questions
Instead of closed-ended questions, ask open-ended questions that encourage detailed answers. For example, "What factors influenced your decision to leave?"
3. Dig deep
Explore reasons beyond the surface. Uncover pain points, unmet expectations and any issues that contributed to their decision.

Every exit interview is an opportunity to gain insights that can lead to strategic changes and improvements. So treat attrition not as a loss, but as a learning opportunity, and watch as customer feedback transforms your strategies and drives your business forward.

5 Frequently asked questions about customer retention

1. What is the ideal customer retention rate, and why is it important?

The ideal retention rate is 100%, of course. But you won't get there. In general, a rate of 85% or higher indicates strong customer relationships and a robust retention strategy. If your rate is lower, rethink your approach and run quick tests to improve your retention rate as soon as possible.

Remember, one of the main reasons startups fail is because they can't keep their customers, not necessarily because they can't get new ones.

2. How can I effectively use customer feedback to improve customer loyalty?

You can collect customer feedback through various channels such as email, interviews, NPS surveys and reviews. To use it effectively, create a system for collecting feedback on an ongoing basis, analyze it regularly and implement tangible improvements based on customer insights. This will help you to dramatically improve customer retention.

Customers appreciate when you take their feedback seriously.

3. What are some innovative strategies for reducing friction and enhancing the user experience?

You don't need innovative strategies to improve customer loyalty. You need to get the basics right. And that means knowing your Personas, creating a great user journey, and having a strong onboarding process that takes people to that 'AHA' moment. Make sure people quickly see the value you offer.

4. What steps should I take when conducting exit interviews with departing customers?

Exit interviews are designed to help you understand why a person has left your service. Your aim is not to win the customer back, remember that.

When you conduct an exit interview, create a safe space for customers to share their experiences, ask open-ended questions to gain detailed insights, and dig deep to explore the reasons why they left. Treat the interview as a learning opportunity.

5. What role does communication play in customer retention?

Communication is vital to customer retention and your overall business success. This includes welcoming new customers, checking in regularly, sharing valuable content, celebrating special occasions and establishing a feedback loop.

Warm communication makes your brand tangible, which can be the reason people stay with you instead of your competitor.

What’s next?

If you take these tips from this article, you will be well on your way to creating a SaaS solution that people will love - and stick with. At the end of the day, remember that it is all about customer retention. As you continue to work on the action steps mentioned, you will see an improvement in your customer retention.

But customer retention is only part of running a successful SaaS business. If you're interested in learning more about improving your SaaS skills, check out my SaaS bundle. Whether you're taking your first steps into the entrepreneurial world or you're a seasoned SaaS professional looking to improve your skills, this bundle is tailored to your needs.

The bundle will teach you everything you need to know about SaaS, starting with idea validation, Personas, customer journeys, go-to-market strategies, marketing tactics, SaaS metrics and much more. Check it out for yourself!