8 Important Customer Retention Metrics + KPIs (and How to Measure Them)

Customer retention metrics are critical factors—or variables—that measure how likely your business is to retain and attract customers. Every customer-focused organization has a neat list of customer retention KPIs that they track without missing a beat. Common examples include customer churn rate, Net Promoter Score, repeat purchase rate, and so on.

Monitoring strategic customer retention metrics is important for many reasons—which we’ll explore in this guide.

Why Are Customer Retention Metrics Important?

The Harvard Business Review claims acquiring a new customer is 5-25x more expensive than retaining customers (depending on the industry your company operates in). Clearly, not focusing enough on retaining your loyal customers is a loss-making move.

Monitoring the right customer metrics is not just great for your bottom line; it also tells you:

• Why customers are leaving your product
• Who is leaving your product
• When customers are leaving your product

Typically, SaaS companies use customer retention metrics to assess how well their product is performing and drive organic success.

The takeaway: If you want insights into why your customers choose to stick around and how to engage active customers, you need to track the right customer retention KPIs.

8 Effective Customer Retention KPIs Worth Tracking

In the acquisition versus retention quest, the real question is: What matters when? Keeping the right set of customers only makes sense if your timing is spot on. This strategic process starts with mapping customer retention KPIs, measuring said metrics, and continuously improving your findings.

Here are eight metrics worth adding to your must-track list:

Metric #1. Customer Retention Rate (CRR)

Customer retention rate refers to the percentage of customers who continue to engage with your brand over some time versus the ones who are going away. CRR is defined in terms of percentage and is time-specific (such as monthly, quarterly, annually, etc.).

Failure to track this metric will cancel out all your efforts of acquiring new customers.

How to Calculate It?

Source

Where:

• CE: Total number of customers you have at the end of a specific period
• CN: Number of new customers who started doing business with you during that period
• CS: Total number of customers you had at the beginning of the period

Let’s assume that at the beginning of Q1, you have 1,000 customers (CS). By the end of Q1, you have 1,200 customers (CE).During Q1, you acquired 300 new customers (CN).

So, your CRR will be:
CRR = (1200 – 300)/1000 X 100 = 0.9 X 100 = 90%

Improvement Tips:

• Track customer data consistently over the same period (i.e., monthly, quarterly, or annually) to spot trends.
• Clean your data regularly to remove duplicates and inactive accounts.
• Break down your customer base into segments such as new customers, loyal customers, and at-risk customers. Calculating CRR segment-wise will help you get a detailed understanding of retention across different customer groups.
• Include relevant customers in your calculations—consider returning customers and exclude customers who made one-time purchases.

Metric #2. Monthly Recurring Revenue (MRR)

MRR is a product metric. It tracks predictable recurring revenue coming from your company’s subscription-based product/service month on month.

Most companies use this metric to forecast and learn about their business’s financial health and growth trajectory while making informed decisions.

How to Calculate It?

Source

Where:

• Average Revenue Per Account (ARPA) = Total Recurring Revenue/Total Active Accounts

Let’s assume a B2B software company offers the following subscription plan:

• Plan A: $12,000 per year

To calculate the MRR, you need to first convert this annual fee to a monthly amount.

• Plan A: $12,000/12 = $1,000 per month

Next, determine the Number of Active Accounts. Let’s assume that the company has 75 active accounts for the given month.

• MRR = 75 (Active Accounts) × $1,000 (ARPA) = $75,000

Improvement Tips:

• Update customer data regularly to reflect real-time changes in subscriptions
• Use recurring revenue and not total revenue when calculating
• Include only active (read: paying) customers and not ones who signed up for a free trial
• Standardize each metric to per month

Metric #3. Expansion Monthly Recurring Revenue (Expansion MRR)

Expansion MRR represents the revenue generated from existing customers who upgrade their current subscription plan or add new features/services to their existing plan.

It acts as a key indicator of two things: customer growth and the effectiveness of your upselling/cross-selling strategies. It allows you to monetize the value you’re extending to customers.

How to Calculate It?

Source

Let’s assume:

• Total MRR at the start of the month: $50,000
• Expansion MRR during the month: $5,000

So, MRR = 5000/50,000 X 100 = 0.1 X 100 = 10%

In this example, the Expansion MRR percentage is 10%, meaning that the company’s MRR increased by 10% due to expansions (upgrades or add-ons) from existing customers compared to the total MRR at the beginning of the month.

Improvement Tips:

• If a large portion of your revenue is from existing customers, you must track Expansion MRR
• Determine which revenue streams should be included in your Expansion MRR calculation, such as upgrades, upsells, cross-sells, and add-ons
• Do not assess this metric in isolation, especially if churn is on the rise, or else you risk getting skewed results
• Try to increase your Expansion MRR from the Gross MRR Churn Rate

Metric #4. Customer Lifetime Value (CLV)

Customer Lifetime Value estimates the total revenue your business can expect from a single customer over the entirety of their relationship with your brand.

Whether you want to understand customer profitability or guide business decisions related to marketing, sales, and customer service, tracking this metric is key.

How to Calculate It?

Source

Where:

• Average Purchase Value: The average amount a customer spends per purchase
• Average Purchase Frequency Rate: The average number of purchases a customer makes in a given period
• Customer Lifespan: The average length of the customer relationship in years

Let’s say you run a subscription-based business. On average, your customers spend $50 per month on your service, make 1.5 purchases per month, and stay subscribed for 24 months.

CLV = $50 X 1.5 X 24 = $1800

Improvement Tips:

• Pull data from your CRM and sales records
• Calculate CLV for high-value and regular customers separately
• Factor in the average time a customer stays with your business
• Use profit per sale, not just revenue
• Deduct the cost of acquiring each customer from the CLV
• Include recurring revenue from subscriptions
• Add revenue from customer referrals
• Apply predictive analytics to forecast future value

Metric #5. Product Stickiness

Product stickiness refers to how effectively your product keeps customers engaged and coming back for more. It measures your product’s ability to retain customers over time and indicates how valuable (and integral) your product is to their daily routine as well as needs.

How to Calculate It?

Source

Where:

• DAU: The total number of unique users who engage with your product daily
• MAU: The total number of unique users who engage with your product at least once within a given month

Suppose you have an app with the following metrics for May:

• DAU: 5,000 (average daily users)
• MAU: 20,000 (total monthly users)

Product Stickiness = 5,000/20,000 x 100 = 25%

This means 25% of the customers who engage with your app monthly also use it daily, indicating how “sticky” your product is.

Improvement Tips:

• Clearly define what counts as an active user
• Analyze user groups by signup date
• Consider seasonal user activity changes
• Create charts to track DAU and MAU trends

Metric #6. Repeat Purchase Rate (RPR)

Repeat Purchase Rate is the percentage of customers who have made more than one purchase from your business during a defined period.

It’s calculated by dividing the number of customers who purchased more than once by the total number of unique customers, then multiplying by 100. Use this metric to measure customer loyalty and assess the effectiveness of your retention strategies.

How to Calculate It?

Source

Let’s say you have an online store and want to calculate your Repeat Purchase Rate for June. You had 500 unique customers during June, and out of those, 100 customers made more than one purchase.

RPR = 100/500 x 100 = 20%

Improvement Tips:

• Clearly define what constitutes a “repeat purchase” for your brand. For example, is it a second purchase within a certain time frame? Or does it include all purchases beyond the first?
• Invest in CRM software to ensure your data on customer purchases is accurate and up-to-date
• Segment your customers based on their purchase behavior (read: first-time buyers, repeat buyers, etc.) to calculate RPR for each segment individually
• Use RPR in conjunction with other metrics, such as Customer Acquisition Cost (CAC) and Customer Lifetime Value (CLV), to gain a more comprehensive understanding of your customer base

Metric #7. Customer Satisfaction Score

Customer Satisfaction Score (CSAT) allows you to gauge how satisfied customers are with a specific interaction, transaction, or experience.

You can use surveys where customers rate their satisfaction, often on a scale from 1 to 5 or from “very unsatisfied” to “very satisfied.”

Typically, you’ll want to use CSAT scores to benchmark against industry standards and/or competitors and assess performance.

How to Calculate It?

Source

CSAT is calculated as the percentage of customers who selected a positive rating (e.g., 4 or 5) out of the total number of responses.

Suppose you survey 100 customers and receive the following ratings:

• 20 customers rate their satisfaction as 1 (very unsatisfied)
• 30 customers rate their satisfaction as 2
• 25 customers rate their satisfaction as 3
• 15 customers rate their satisfaction as 4
• 10 customers rate their satisfaction as 5 (very satisfied)

CSAT = (15+10/100) X 100 = (25/100) X 100 = 25%

Improvement Tips:

• Use simple and easy-to-understand language in your survey questions
• Avoid sending surveys when you think customers will be less likely to respond
• Offer a small incentive for customers to encourage survey participation
• Include specific details about the customer’s recent interaction to demonstrate that the survey is personalized
• Empower customers with multiple platforms to complete the survey, such as email, SMS, or your website
• Connect with customers who provided negative feedback to understand their concerns granularly

Metric #8. Net Promoter Score (NPS)

Net Promoter Score (NPS) measures your customers’ loyalty and satisfaction based on how likely they are to recommend your company/offering. Businesses use this metric to understand how their customers perceive their brand and pinpoint areas for improvement.

How to Calculate It?

Source

Based on the customer’s rating, they are classified into three categories:

• Promoters (9-10): Devoted fans who will continue to make purchases and recommend others, fostering growth
• Passives (7-8): Customers who are content but lack enthusiasm and are susceptible to competing offers
• Detractors (0-6): Customers who are dissatisfied and could harm your brand with negative reviews

Suppose you survey 100 customers with the following results:

• 40 customers = Promoters (rating 9-10)
• 30 customers = Passives (rating 7-8)
• 30 customers = Detractors (rating 0-6)

To calculate NPS:

• %Promoters = 40/100 x 100 = 40%
• %Detractors = 30/100 x 100 = 30%
• NPS = 40% – 30% = 10

Improvement Tips:

• Note: NPS can range from -100 to +100 where:
  – Positive NPS (>0): Indicates more Promoters than Detractors, generally considered good
  – Negative NPS (<0): Indicates more Detractors than Promoters, suggesting serious issues
  – Benchmarking: Companies use NPS to benchmark against industry standards and track changes over time
• Evaluate NPS scores based on different touchpoints (think: sales, customer support, etc.) to identify areas that need immediate attention
• Send the survey shortly after a key interaction to capture the customer’s sentiment while it’s fresh
• Keep the survey brief, focusing only on the NPS question. You can include one follow-up question for context
• Ask specific questions such as “On a scale of 0 to 10, how likely are you to recommend our company/product/service to a friend or colleague?”

Are You Tracking the Right Customer Retention Metrics?

Retaining customers is as important as attracting new ones. Organizations that monitor why their customers stick around can engage them for the long haul.

However, not every organization’s customer retention metrics look the same. Some companies may benefit from measuring time to value, while others may consider customer satisfaction scores as their North Star metric.

Before you create a list of metrics and KPIs to track, do your homework on global customer trends and understand what’s making your customer tick. Armed with the latest data, you can implement a results-oriented metrics framework for your teams to follow—and ace.