What is Retention?

Retention is like having a best friend who loves to come to your house every day. In the SaaS world, it means customers keep using a service regularly.

Detailed Explanation

“In SaaS, retention refers to the ability of a company to keep its customers over a period of time. It’s measured by how many users continue to use the product regularly after their initial sign-up or purchase. Higher retention means more loyal customers, which can lead to more revenue. This is often contrasted with churn, which measures how many customers stop using a product.

Customer retention formula

Why It Matters

Retention is important to SaaS CEOs and CMOs because keeping customers is less expensive than finding new ones. It also means that the product is valuable enough that customers want to keep using it. High retention rates signal a healthy business with satisfied customers. Moreover, a high retention rate can significantly increase the Customer Lifetime Value (CLV), which is a key metric in assessing the company’s profitability.

Potential Misunderstandings

Retention is often confused with churn, but they are not the same. While retention measures how many customers continue to use a product, churn measures how many stop using it.

Frequently Asked Questions

  1. What are good retention strategies for SaaS?

Good retention strategies involve regular communication with customers, continuous improvement of the product based on feedback, and providing excellent customer service.

  1. How is retention calculated in SaaS?

Retention is calculated by dividing the number of active users at the end of a period by the number of active users at the start of that period.