{"id":10520,"date":"2011-02-18T11:06:00","date_gmt":"2011-02-18T16:06:00","guid":{"rendered":"http:\/\/devweb.rjrinnovations.com\/how-to-measure-customer-retention-2\/"},"modified":"2011-02-18T11:06:00","modified_gmt":"2011-02-18T16:06:00","slug":"how-to-measure-customer-retention-2","status":"publish","type":"post","link":"https:\/\/www.rjrinnovations.com\/fr\/how-to-measure-customer-retention-2\/","title":{"rendered":"How to measure customer retention?"},"content":{"rendered":"<div style=\"text-align: justify;\">If you are a running a business, you know how important it is to retain customers. It is very often cheaper to retain an existing customer then to acquire a new one.<\/div>\n<div style=\"text-align: justify;\"><\/div>\n<div style=\"text-align: justify;\">In this article I will share my experience of retaining customers as a software as a service (SaaS) company. The lessons learned can be applied to any company, not only to SaaS vendors.<\/div>\n<div style=\"text-align: justify;\"><\/div>\n<div style=\"text-align: justify;\">A brief explanation: SaaS means web-applications that you can use as a business without having to buy licenses and install anything yourself.<\/div>\n<div style=\"text-align: justify;\"><\/div>\n<div style=\"text-align: justify;\">For SaaS businesses, retaining customers is 100% different then for \u201ctraditional software license\u201d business.<\/div>\n<div style=\"text-align: justify;\"><\/div>\n<div style=\"text-align: justify;\">With traditional on-premise software there is a natural switching barrier for customers. Once customers made an upfront investment in licenses, hardware, management resources, signed a long term contract and integrated other applications it has become hard and costly to switch.<\/div>\n<div style=\"text-align: justify;\"><\/div>\n<div style=\"text-align: justify;\"><\/div>\n<div style=\"text-align: justify;\">But in the SaaS world, these switching almost do not exist! Customers do not have to make huge upfront investment in licenses, but pay as they go. Customers don\u2019t sign a multi-year contracts and the integrations are often build with published web-services and generic APIs rather then proprietary code.<\/div>\n<div style=\"text-align: justify;\"><\/div>\n<div style=\"text-align: justify;\">As a result, SAAS vendors have to focus more on retaining customers and have 2 great instruments: innovation and service.<\/div>\n<div style=\"text-align: justify;\">These instrument can give SaaS vendors a real competitive edge over on-premise customers.<\/div>\n<div style=\"text-align: justify;\"><\/div>\n<div style=\"text-align: justify;\">SaaS vendors have direct access to your application. This puts them in a position to offer faster and better service.<\/div>\n<div style=\"text-align: justify;\">SaaS vendors can can upgrade all their customers to the latest release multiple times a year while it takes an on-premise vendor multiple years to upgrade all their customers to a new release.<\/div>\n<div style=\"text-align: justify;\">Since retention is so important, how do you measure it properly?\u00a0<\/div>\n<div style=\"text-align: justify;\">At first sight: the formula looks simple: Compare the number of customers that did not renew their contract versus the ones that did over any period of time.<\/div>\n<div style=\"text-align: justify;\"><\/div>\n<div style=\"text-align: justify;\">But what if you have multiple products or multiple editions of the same product with different prices?<\/div>\n<div style=\"text-align: justify;\"><\/div>\n<div style=\"text-align: justify;\">At Mirror42 we have 4 versions of our KPI Dashboard product: Small, Medium, Large and a Partner Edition. All optimized for different customer profiles.<\/div>\n<div style=\"text-align: justify;\">We learned that +-80% of the people that sign-up for a small edition either upgrade to a higher plan or cancel in the first 6 months after signup.<\/div>\n<div style=\"text-align: justify;\"><\/div>\n<div style=\"text-align: justify;\">We also learned that our retention of large editions is higher then medium and higher then small. The large editions also have a higher price point so this is great.<\/div>\n<div style=\"text-align: justify;\"><\/div>\n<div style=\"text-align: justify;\">As a result, If we calculate overall customer retention for this product with the formula above, then you could draw the wrong conclusion that having the small edition is a bad thing, since it brings the overall retention down.<\/div>\n<div style=\"text-align: justify;\"><\/div>\n<div style=\"text-align: justify;\">Another example: If you have 10 customers with 8 paying 100 USD and 2 paying 1000 USD, then you are more likely to have the following targets: retain the high value customers and upgrade 4 out of 8 small customers to high value customers. If you manage to do this your might lose 4 customers and only have a retention of 60% but your revenue has tripled.<\/div>\n<div style=\"text-align: justify;\"><\/div>\n<div style=\"text-align: justify;\">There are even examples where vendors who market high retention rates include retaining free-plans in their calculation! (We retain 99.8% of all KPI Library members!)<\/div>\n<p>Conclusions:<\/p>\n<ul>\n<li>Retention should also be calculated with retained dollars\u00a0<\/li>\n<li>rather then % of retained customers.<\/li>\n<li>Retention can not be looked at in isolation. You might justify a drop in retention if your avg revenue per customer goes up or if you are introducing a \u201closs leader\u201d product.<\/li>\n<li>You need to understand which customers you are not retaining, why you are not retaining them and when they are leaving (after 3 months or 16 months) in order to truly understand your company retention.<\/li>\n<li>Customer retention is a numbers game: If you have 50 customers and 1 leaves it is by default a 2% drop in retention. So focus on retention after you have solid lead acquisition and lead to customer conversion.<\/li>\n<\/ul>\n<div>\n<div><\/div>\n<div>Karel van der Poel\u00a0<\/div>\n<div>Co-Founder Mirror42\u00a0<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>If you are a running a business, you know how important it is to retain customers. It is very often cheaper to retain an existing customer then to acquire a new one. In this article I will share my experience of retaining customers as a software as a service (SaaS)  [&#8230;]<\/p>\n","protected":false},"author":26,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[39],"class_list":["post-10520","post","type-post","status-publish","format-standard","hentry","category-blog","tag-english-fr"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>How to measure customer retention? - RJR Innovations<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.rjrinnovations.com\/fr\/how-to-measure-customer-retention-2\/\" \/>\n<meta property=\"og:locale\" content=\"fr_FR\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How to measure customer retention? - RJR Innovations\" \/>\n<meta property=\"og:description\" content=\"If you are a running a business, you know how important it is to retain customers. 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