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A Guide to Calculating SaaS Retention Metrics

Author: Melissa Scatena

Published: June 6, 2024

Last updated: June 6, 2024

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Picture this: your SaaS company’s product is solid, marketing is on point, and new customers are signing up left and right. You’re feeling pretty invincible.

But then you take a closer look at your numbers and realize that your churn rate is high. Suddenly, all those new signups don’t seem quite as impressive anymore. 

Here’s the hard truth — if you can’t keep your customers sticking around, you’re going to be stuck on a never-ending hamster wheel of acquisition. And that’s exhausting, not to mention expensive.

But with the right strategies, you can turn that churn rate around and start building a loyal customer base that will stay with you through thick and thin. Here’s what you need to know about mastering B2B SaaS retention right here. 

Understanding SaaS Retention 

To effectively manage and improve your SaaS retention, you need to track the right metrics:

  • Customer Retention Rate (CRR): Also known as logo retention, this metric reflects the percentage of customers retained over a period. 
  • Net Revenue Retention (NRR): NRR measures the percentage of revenue retained from existing customers, including expansions and contractions. 
  • Gross Revenue Retention (GRR): This metric excludes revenue from expansions and focuses solely on the revenue retained from existing customers. 

Why SaaS Retention Rate Matters

Before digging into strategies to optimize your retention, explore the fundamental reasons why retention matters so much in the world of SaaS.

Accelerated Growth

Retention directly correlates with growth. Companies with NRR over 100% grow 1.5 to 3 times faster than those with lower retention rates. For instance, businesses with NRR above 100% typically grow at an annual rate of 43.6%, compared to just 13.1% for those with NRR below 60%.

Product-Market Fit Validation

High retention rates signal strong product-market fit. When customers continue to use and pay for your product, it indicates that you are effectively addressing their needs and providing value. 

Higher Margins and Efficiency

Retaining customers is more cost-effective than acquiring new ones. As sales and marketing expenses are significant, high retention rates mean better capital efficiency and higher margins. 

Enhanced Valuation

Investors favor companies with high retention rates due to their growth potential and capital efficiency. High NRR is often a key indicator of business health and can lead to higher valuations.

Strategies To Optimize SaaS Retention

Now that you understand the role retention plays in SaaS success and the key metrics to track, consider some actionable strategies you can implement to optimize your retention rates.

Know Your Metrics

Understand your retention metrics and track CRR, NRR, and GRR regularly to identify trends and areas for improvement. Use cohort analysis to determine when customers are most likely to churn and address those pain points proactively.

Target the Right Customers

Are you sure you’re attracting the right customers who will benefit most from your product? To find out, define your Ideal Customer Profile and focus your marketing efforts on acquiring customers who fit this profile. Onramp has recently introduced a more efficient application process to reduce wait times for candidates, ensuring quicker transitions from application to apprenticeship. 

Conduct Health Checks

Regularly analyze customer usage data to identify potential churn risks. Conduct customer health checks and act on feedback to improve the user experience. 

Correlate Pricing with Value

Align your pricing strategy with the value delivered to customers. If customers perceive high value from your product relative to the cost, they are more likely to stay. Regularly review and adjust pricing so that it reflects the value provided.

Contain Contraction

Implement strategies to minimize revenue contraction. This can include offering additional features or services to existing customers to increase their usage and value perception. MRR saved from contraction is as valuable as MRR gained from new sales.

Conduct Exit Interviews

When customers churn, reach out to understand why. Conducting exit interviews can provide insights into the reasons behind churn, whether it’s pricing, missing features, or other issues.

Build an Expansion Loop

Incorporate mechanisms for upselling and cross-selling into your product and pricing strategy. This can help turn satisfied customers into advocates who expand their usage and bring in more revenue.

Reduce Involuntary Churn

Address issues related to involuntary churn, such as declined payments. Implement strategies like automated payment retries and reminders to minimize revenue loss from these issues.

Ensure Excellent Onboarding

A seamless onboarding process is critical for retention. Make sure customers experience the value of your product quickly. Provide clear documentation, support, and a smooth transition from sales to customer success teams. 

OnRamp is here to help with our Customer Onboarding Platform.

SaaS Retention Rate Examples and Insights

Looking at examples is a great way to understand the impact of high retention rates and effective customer engagement in the SaaS industry. 

B2B vs. B2C Retention

B2B SaaS companies generally experience higher retention rates compared to their B2C counterparts. This difference comes down to several factors, including the nature of purchasing decisions and the opportunities for upselling and cross-selling in B2B environments. 

Only 2.7% of SaaS businesses with an ARPA (Average Revenue Per Account) of less than $10/month achieve an NRR of over 100%. In stark contrast, 41.1% of SaaS businesses with an ARPA exceeding $500/month report NRR rates over 100%​. This highlights how B2B companies, often dealing with more significant contracts and long-term engagements, can maintain and grow revenue more effectively.

The Importance of Cohort Analysis

Cohort analysis is a powerful tool for understanding and improving retention in SaaS businesses. By grouping customers based on their start date and tracking their behavior over time, you can identify trends and pinpoint issues that may be affecting retention. 

For example, if you see a significant drop-off within the first three months, this might indicate problems with the onboarding process. Addressing these issues early can help improve long-term retention and customer satisfaction​.
 

Conclusion

By really digging into key metrics like Customer Retention Rate, Net Revenue Retention, and Gross Revenue Retention and finding ways to optimize them, you can unlock faster growth, healthier margins, and higher valuations for your business.

The key is to be proactive. Target the right customers from the get-go, keep a close eye out for any signs of churn risk, and always be on the lookout for opportunities to expand your existing accounts. 

At the end of the day, retaining a customer is way more valuable than acquiring a new one. So, while acquisition is important, don’t underestimate the power of retention. Nail that, and you’ll be well on your way to building an incredibly successful SaaS business for the long haul.