Which user retention metrics seal the cracks

Imagine spending hours and resources landing new clients, only for them to leave after just a few months or even a few weeks. It’s like continuously breaking your back to fill up a bucket with water that has a massive leak. Any energy you put into it is going to be for nothing. 

This is why user retention matters. 

Your sales and marketing team can draw in new customers all day long, but it’s ultimately on your customer success and product team to sustain that growth by keeping those customers coming back. 

Luckily, there are a few metrics that you can use to not just keep tabs on how many customers you’re retaining, but also to identify strategies that help you craft a more strategic roadmap to boost retention in the long term. 

Tracking retention metrics helps you:

• Identify issues and opportunities. You can pinpoint parts of the user experience that may be causing users to leave and be proactive from it becoming a barrier to future users. 
• Enhance your product. It may be the case that there are some areas where your product falls short of your user’s expectations, pushing them to leave. Your metrics help you to identify these potential improvements quickly. 

Metrics to track

There are a handful of metrics that directly tie into your user retention, whether it’s to give you a good temperature check or to help you get to the bottom of what’s driving your retention. 

Retention rate

The most obvious user retention metric to track is retention rate. This paints the picture of what percentage of your users continue to use your product over a certain period of time. You find this number by dividing the number of users at the end of the determined period (minus new users) by the number of users at the beginning of the period, then multiplying it by 100. 

You can track this metric on any time period that’s appropriate to the story you’re trying to tell, whether it’s for your strategic planning, for an investor meeting, or to determine the success of certain initiatives. 

You may choose to track this over multiple time periods as well. Your monthly retention may vary greatly from your yearly retention, so it can be helpful to have both numbers to work with. 

The average retention rate can differ wildly between industries, with more stable industries like insurance creeping up to 80%+. For SaaS companies, though, the average is closer to 35%. 

Churn rate

The churn rate is essentially the inverse of your retention rate. It shows you the percentage of users who stop using your product during a certain period of time. 

While retention rate measures the positive, churn rate hones more into the negative. While retention rate shows how many users you keep, churn rate directly points to the percentage you lose, which can be more actionable for identifying underlying issues causing users to leave.

Daily/weekly/monthly active users (DAU/WAU/MAU)

Looking at your users who are actively engaging in your platform, whether on a daily, weekly, or monthly basis, can help you to more accurately predict which users you’re more likely to retain. The stats back it up. According to a recent study by Precursive, lack of engagement is the second most common cause of customer churn. 

When you track DAU, WAU, or MAU, you can track how many people are continuously returning to your platform over time. When you map this onto your broader user retention metrics, you can hopefully identify people more likely to churn earlier and step in to get them to engage more often, through strategies like product tours, knowledge base articles, or a proactive reach-out from your customer success team. 

Customer Lifetime Value (CLV)

There are some customers that are just more valuable than other customers. Period. So treating the retention of all clients as equally valuable would not be the best strategic move. 

Customer Lifetime Value (CLV) is one of the best ways to determine which customers you should put a little extra effort into retaining, because it will pay off in the long-term. This metric projects the total revenue that a company can expect from a single customer across the entire customer relationship. 

For example, certain segments of your customers are likely to continuously expand their usage of the platform by upping their feature usage, adding more team members, and perhaps expanding their storage. There are other customers who will go the entire length of the customer lifecycle happy with their limited free account. 

The basic formula for calculating CLV is:

CLV=(Average Purchase Value×Purchase Frequency)×Customer Lifespan

There are more advanced models, though, that may factor in other things like customer acquisition costs (CAC), retention costs, and discount rates to get a more accurate projection.

Once you can identify CLV for certain customers or groups of customers, you can get even more granular about how to shape your retention-boosting efforts to maximize long-term impact on your revenue. 

Time to first value (TTFV)

TTFV measures the time it takes for a new user to experience the value of your product. 

While this may not be directly measuring retention, it can add some really clear color to the other retention metrics that you’re tracking. Users with a shorter TTFV are quickly seeing the benefits that your product provides, making it a lot less likely that they will leave.

If you are noticing that your retention metrics are dropping, it may be worth digging into some of the users who have the shortest TTFV and seeing how you can translate that positive experience to the other users who take much longer to see the value in your product (or in the worst case scenario, cancel their subscription before they ever fully realize it). 

Plug the hole, boost your revenue

Sales and marketing get much of the glory for a company’s revenue growth, but product and customer success teams are really the ones who make sure that as few as possible of those new customers are lost. In other words, you make sure that the bucket that holds all of your new customers doesn’t have any holes. 

Or at least, you’re able to patch those holes quickly.