How to keep your users happy: a complete guide to customer retention

Customer retention is crucial for sustainable business growth—but keeping users happy long-term is easier said than done. 

To build trust and win their loyalty, you need to capture their attention early, solve their problems, and deliver world-class experiences at every stage of their journey. 

But if you want to do all this effectively, assumptions aren’t good enough. You need real user data to know exactly what they want (and exactly what they don’t want) so you can proactively provide it.

In this guide, we cover everything you need to know about customer retention. Read on to learn what it is, the three stages of retention, why you should make it a priority, and how to measure it.

What is customer retention?

Customer retention is a company’s ability to keep its existing customers using its products or services over a given time period. 

The goal is to keep customers happy and engaged by delivering long-term value in a range of ways—like providing new features, customer support, advanced training, or user experience (UX) improvements—so they generate ongoing revenue that boosts your business.

Customer retention is particularly important for companies with recurring billing models, like SaaS businesses or subscription-based ecommerce sites. But every business benefits from repeat purchases, so don’t write it off if your company is in a different category: if you want customers to keep coming back, customer retention should be a top priority.

A good customer retention program builds brand loyalty by listening to customer feedback, improving the customer experience, and anticipating customer needs. To do that, you need to deeply understand and empathize with your customers, and use data to create tailored, personalized experiences that proactively meet their needs.

The three stages of customer retention

Customer retention is typically made up of three stages: onboarding, adoption, and renewal. Let’s explore what this looks like using the example of a SaaS company with a free trial and an annual billing cycle.

1. Onboarding

Stage one is the initial use of your product or feature, when users sign up for a free trial or demo. At this stage, new users are excited and engagement is high.

But be warned: on average, a mobile app loses 80% of its users after just one session. This might sound scary, but it’s normal. You’re never going to retain 100% of your customers, so you should expect some drop-off.

To make the most of this stage, use this period of heightened enthusiasm to hook your ideal customers and help them reach their ‘aha’ moment quickly.

2. Adoption

Stage two is sustained use, when engagement levels off into a more standard user rate. You’ve lost some of the users from stage one, but the users who stuck around have incorporated your product into their workflow.

Use the data from this stage as your baseline when you run experiments designed to increase retention rates. This data can also be useful for forecasting revenue.

3. Renewals

The final stage is the end of the cycle when users must decide whether to renew their subscription or leave. 

If your product and company have delivered sufficient value—for example, if your customer’s team relies on it every day to help them reach company goals—it’s likely that these current customers will happily renew or even expand their usage. If not, they may be at risk of churn.

Why customer retention matters

Customer retention is the most cost-effective, efficient, and sustainable way to grow your business. It has a concrete impact on your monthly and annual revenue, affects your brand reputation, and indicates whether you’re meeting customer expectations.

Everyone has a role to play in customer retention, from the support teams that turn unhappy customers into loyal promoters to the R&D teams that prioritize new products to meet the needs of high-value customers.  

What’s more, the longer customers are with you, the more valuable data you glean, which enables you to continuously improve your customer retention strategies. Studying the user behavior associated with long-term customers lets you identify common traits and segments to target with your marketing outreach, so you can attract more right-fit customers from the start.

Customer retention is great for customers, too. Having a go-to product or service that you can count on to achieve your goals is much better than getting frustrated with the user and product experience of a solution and having to start all over again.  

Customer retention vs. customer acquisition: which is more important?

There are two ways for a company to sustain revenue and profitability: acquisition and retention. 

Acquisition focuses on bringing new customers in, and is primarily the responsibility of marketing and sales teams. 

Retention focuses on keeping existing customers happy so they keep on paying you. As we’ve seen above, it’s everybody’s responsibility, because the customer experience is made up of multiple touchpoints.

Both are important. Acquisition is crucial, because new customers have to come from somewhere. But renewals, expansions, referrals, word-of-mouth recommendations, and customer loyalty only happen when users continue to find value in your product.

It’s often said that acquisition is anywhere from five to 25 times more expensive than retention. In general, a poor customer retention strategy puts unnecessary pressure on your marketing and sales departments, because if you’re not keeping your current customers, you have to constantly bring in new ones to sustain revenue.

What’s the difference between customer retention and customer loyalty?

Customer retention and customer loyalty are related, but they aren't interchangeable.

Customer loyalty is a person’s likelihood to choose a product as their preferred solution to a problem over and over again.  That might sound really similar to customer retention. The catch is that you can retain a customer without gaining their loyalty. 

For example, if you make it difficult for users to cancel their subscription to your service, you may retain them—but they won’t be thrilled with the prospect or become brand ambassadors. 

But how do retention and loyalty go together? You need to increase retention to increase loyalty. As you retain users, you identify ways to boost customer satisfaction and deliver the best product experience. 

By empathizing with your users and conducting research into their behavior, you can delight your existing customers—and work backward from your learnings to attract more of these right-fit customers from the start.

4 customer retention metrics to track

To help you understand the state of customer retention in your organization—and get a baseline to measure your optimization efforts against—here are four customer retention metrics to track.

Bonus: metrics and KPIs make it easy to share your progress with stakeholders and get buy-in for your ideas, faster. 

Customer retention rate

Customer retention rate (CRR) is the percentage of customers who continue doing business with your company in a given period of time. To calculate it, use the formula: 

([Total number of customers at the end of the period – number of new customers acquired during the period] / Number of customers at the start of the period) x 100

Customer churn rate

Customer churn rate is the percentage of customers who leave in a given period. To calculate it, use the formula: 

(Number of lost customers in a period / Total customers at the beginning of the period) x 100

Customer lifetime value (CLV)

Customer lifetime value estimates of the total monetary value of a customer to your business over the course of the relationship. Calculating CLV accurately can be complicated, but to get started you can use this very simple formula:

(Average customer value x average customer lifespan) – average customer acquisition cost

Net Promoter Score (NPS)

Net Promoter Score® (NPS®) isn’t specifically a customer retention metric, but it lets you gauge customer engagement and loyalty, providing a valuable pulse check on your customer relationships. 

To measure NPS, use a survey to ask customers one question: “On a scale from 0 to 10, how likely are you to recommend this product/company to a friend or colleague?”

Then, calculate your score using this formula: Percentage of promoters (customers who gave a score of 9 or 10) – percentage of detractors (customers who responded with a score of 0–7)

Use surveys to measure your Net Promoter Score and ask why they rated you the way they did

3 ways to improve customer retention

To keep customers engaged and happy, you need to deeply understand their preferences and pain points. And to do that, you need comprehensive data that reveals exactly how they interact with your site or product: where they get frustrated, where they drop off, and what keeps them coming back. 

Using a product analytics tool gives you all of these insights, so you can make data-driven improvements to your customer retention strategy. Try these three quick tips, or read our full guide on how to improve customer retention.

1. Find friction and boost engagement with heatmaps

Poor UX—like site errors, slow loading times, broken buttons, and confusing layouts—can frustrate users to the point of churn.

Use heatmaps to find pesky issues with your site or product experience. Heatmaps are visual aggregations of where users click, tap, scroll, pay attention, and get annoyed. They help you quickly identify and eliminate points of friction, and make optimizations based on real customer behavior. 

For example, if heatmaps reveal that users rage click on a certain element (like a feature name), it could suggest they’re looking for more information. Try redesigning the page to include a helpful tooltip, additional content, or links to relevant pages to reduce friction and improve their experience.

Zone-Based Heatmaps in Contentsquare reveal exactly where users click, tap, scroll, and engage, so you can make UX improvements that drive retention

2. Improve onboarding and drive adoption with session replays

Product adoption happens when a customer realizes the value of your product and makes it a part of their workflow or routine. If you want to promote adoption quickly and reliably, start by creating a robust onboarding process.  Use session replays to learn how people engage with your site or product after signing up, so you know how to guide new users. When you watch what users do just before and after completing a task, you discover what steps you need to optimize. Playbacks of real-time interactions give you more context into a user’s experience than page analytics alone, which you can use to make improvements to your onboarding experience. 

Use Session Replays to discover how users interact with your onboarding flow and make optimizations   

3. Use customer journey analysis to find the right-fit customers

A customer journey details how customers interact with your product across multiple touchpoints. The better you understand it, the more you can improve the user experience—and by extension, your retention rate. 

Customer journey analysis reveals the exact path users take on your site, from their first visit to conversion and beyond. Use it to understand which acquisition channels your long-term customers come from (for example, social media) and the steps they took. Then, work backward to invest in attracting and nurturing more of those customers and encourage them to take the same steps.

Customer Journey Analysis highlights which journeys lead to long-term value so you can replicate them with new users

Discover what users really want to boost long-term retention 

Understanding your users is the first step to creating products, features, and experiences that they love. 

Capturing in-depth user behavior data lets you stay close to your customers and uncover new opportunities to deliver customer satisfaction. Use behavior and product analytics insights to streamline UX, reduce friction, and address the causes of churn, so you can deliver long-term value to your customers and your business.

FAQs about customer retention