Customer Retention Cost

What is the Customer Retention Cost Definition?

Success in SaaS is more than just determined by acquiring new customers. It is also about keeping (or retaining) the ones you already have.

A customer retention strategy engages customers and encourages them to continue purchasing the company's products or services. Its importance to the success of your SaaS business cannot be understated. 

Why is Customer Retention Cost Important in SaaS? 

Acquiring new customers can be a time-consuming and costly process, especially in a world where digital advertising expenses continue to rise.

You must attract new customers and then engage and convert them. And once they've converted, you must convert them into loyal customers because, while new customers are essential, your existing customers are typically more profitable.

In fact, current customers spend 67% more than new customers on average. Not to mention that retaining existing customers is nine times less expensive than acquiring new ones. So it's confirmed: retention = an excellent way to boost your overall revenue.

How is Customer Retention Cost Calculation Done? 

Depending on your company's industry and subscription model, the procedure for calculating the SaaS customer retention rate will typically involve the following steps:

  • Determine the total number of customers after a given period.
  • Subtract the total number of new customers acquired during that time frame from the result.
  • Divide by the total number of customers you had at the start of the period.

To express the customer retention rate as a percentage, multiply the result by a hundred.

Therefore, measuring your SaaS customer retention formula rate over the long term makes sense if you sell software subscriptions with annual billing (so customers primarily interact with your service every year).

If your customers interact with your service more frequently, such as with a monthly subscription model commonly used in B2B, then it is preferable to measure customer retention formula over a shorter time period so that you can identify key trends and opportunities in the data.

Once you've determined which method best suits your business, it's time to examine the critical metrics for measuring customer retention.