[Subscription strategy] Customer retention: the key to sustainable growth

In a context where acquiring new customers costs on average 5 to 25 times more than retaining existing ones, retaining customers who have subscribed to your service is an essential lever for key accounts and subscribers.

Not only do 65% of a company’s revenues come from existing customers, but loyal customers can spend 67% more per order than new customers.

By maximizing loyalty, a company with a subscription offer can not only reduce its subscriber acquisition costs, but also increase the customer’s Lifetime Value, ensuring long-term profitability.

A key indicator for measuring customer satisfaction and the robustness of a business model, your customer retention can no longer be ignored.

Find out more in our article! 😃

Retention rate: definition

Retention rate, although sometimes relegated to the background, embodies an essential measure of a company’s ability to maintain a solid link with its customers.

The higher the retention rate, the better the match between users’ expectations and the offering.

In the world of key accounts, where each customer represents a strategic asset, this indicator becomes a veritable compass, guiding the company towards sustainable, profitable choices.

By extending the lifespan of each customer relationship, retention generates recurring revenues while helping to amortize acquisition costs. As a result, Lifetime Value (LTV) increases considerably.

Conversely, when the misalignment between customer expectations and perceived experience increases, the churn rate rises. This has a direct impact on retention, weakening customer relationships.

In short, the churn rate is a symbol of customer flight, while the retention rate is a symbol of customer loyalty.

How to calculate the retention rate

Don’t panic, calculating the retention rate is a simple exercise, even if the insights it reveals are invaluable.

The basic formula is as follows

(End-of-period customers – New customers) ÷ Start-of-period customers × 100.

Unclear? Let’s take the example of a SaaS company offering a monthly subscription to use its marketing automation software.

At the beginning of the year, the company has 1,000 loyal customers. As the year progresses, it attracts 200 new subscribers, but loses 150, leaving 1,050 active customers at the end of the year.

The calculation is: (1,050 – 200) ÷ 1,000 × 100 = 85%.

In this case, the result illustrates the company’s ability to maintain a strong, lasting bond with its customers.

It reflects its ability to meet expectations and build trust, even in a fiercely competitive environment.

By retaining 85% of its initial base, despite some unavoidable losses, this company proves that it knows not only how to attract new users, but also how to retain them.

For a SaaS company in a growth phase, such a rate augurs well for long-term stability.

It’s the sign of a successful match between the product on offer and market needs, guaranteeing the company’s longevity.

The importance of retention rates for companies with subscription offers

“If your retention is low, nothing else matters”. The quote from Brian Balfour, CEO of Reforge and former VP of Growth at Hubspot, is full of common sense.

Looking for more and more new customers, without focusing on retention, is like bailing out a boat with a hole in the hull.

No matter how fast you bail, until the hole is plugged, the water will continue to seep in.

In the same way, a company can invest considerable sums in acquiring new customers, but if it fails to retain the ones it already has, the effort will be in vain.

A Harvard Business Review study showed that a 5% increase in customer retention could boost profits by between 25% and 95%.

This is primarily due to the fact that retaining a customer costs much less than acquiring a new one, but also to the behavior of loyal customers, who tend to spend more over time.

As pointed out in our introduction, a loyal customer not only generates recurring revenues, but is also more likely to make additional purchases or opt for premium services.

Other factors amplify these results. For example, a satisfied customer often becomes a brand ambassador, actively recommending the company to friends and family. This positive word-of-mouth naturally reduces the cost of acquiring new customers, while strengthening the company’s reputation.

Moreover, loyal customers are often more forgiving in the event of problems or mistakes, enabling the company to maintain a relationship of trust despite the ups and downs.

In short, a retention-focused strategy not only boosts short-term profitability, but also creates a virtuous circle in which loyal subscribers generate sustainable growth and higher margins.

What is a good retention rate?

The definition of a good retention rate varies from sector to sector, and benchmarks can be very different from one industry to another.

Here’s a non-exhaustive overview:

• SaaS for individuals, SMEs, large enterprises (annual retention rate): 40-70% for individuals, 60-80% for SMEs, 70-90% for large enterprises. SaaS for individuals has lower retention rates, as these users are more volatile and change services easily. For SMEs, software is important, but can be replaced more quickly, depending on budgets. On the other hand, large enterprises are highly integrated with these solutions, which makes them essential and therefore favors higher retention.

• Energy/Utilities (89%): Utilities, such as electricity or gas, enjoy high retention because it’s difficult and expensive for customers to switch suppliers. Long-term contracts and the essential nature of the services increase this loyalty.

• Industrial services (83%): These services are often associated with long-term relationships and maintenance contracts, making it difficult for companies to change supplier without financial risk.

• Financial services (81%): Financial services, especially banks, benefit from trust and long-term relationships. Customer loyalty is reinforced by the complexity of the services and the difficulty of switching providers.

• Professional services (73%): These include specialized advice and expertise. Retention is supported by the need to maintain strong relationships to ensure continuity of services.

• Telecommunications (69%): The telecoms sector benefits from long-term contracts, and customers are reluctant to switch providers due to termination fees and the one-off complexity of service transfers.

• Consumer goods (60%): The consumer goods sector is extremely competitive, but loyalty programs and brand trust help maintain a relatively stable retention rate.

• Wholesale (44%): Wholesale has one of the lowest rates, due to strong competition and volatile margins, making customers more inclined to look for better deals.

Generally speaking, according to Lenny Rachitsky, former Product Lead at Airbnb, a retention rate above 90% is a sign of remarkable success, while a rate below 50% should be a red flag indicating serious failings in product-market fit or user experience.

Six elements that impact the churn rate of a subscription business model

Identifying the reasons why a subscriber leaves your company is an essential step in reducing churn.

Each departure reflects a failure to meet the needs of its users.

Here are the six main causes, each playing a role in the erosion of customer loyalty:

• Change of context: The customer’s environment evolves, and with it his or her needs. What seemed relevant at one point may suddenly lose importance. For example, a company using software may decide to switch to a more robust solution as it grows, rendering the old service obsolete. Failure to anticipate and respond to these contextual changes often results in a loss of customers.

• Lack of evolution: If a product fails to keep pace with changing market needs, or fails to innovate sufficiently, it becomes less attractive. Customers are looking for solutions that adapt to their new requirements. A product frozen in time can no longer deliver the expected value, leading to a gradual loss of interest.

• Misalignment between expectations and offering: When customer expectations evolve faster than the product, an imbalance is created. This misalignment often occurs when a company fails to listen sufficiently to its users, or is slow to incorporate feedback. This lack of responsiveness drives customers to seek solutions that better anticipate their needs.

• Declining quality: The quality of a product or service is a minimum expectation for the customer. Declining performance, repeated malfunctions or inadequate support undermine trust. Today’s customers rarely tolerate recurring faults, and a drop in quality can be enough to drive them to the competition.

• Poor customer experience: Absent customer support, difficult-to-use service or complex interfaces discourage users. A customer who has to overcome obstacles to take advantage of a service will eventually lose patience. A smooth, intuitive customer journey is essential to avoid attrition.

• Late activation (Time-to-Value): The time it takes for a customer to perceive the value of a product is a key factor in retention. If the value isn’t clear from the very first interaction, motivation to stay diminishes. The longer the Time-to-Value, the greater the risk of churn, as customers do not perceive the expected benefits quickly enough.

Best practices for improving retention rates

Fortunately, by applying proven methods, you can improve your retention rate and reap all the benefits mentioned earlier.

In-depth churn analysis

Understanding why customers leave is the first step towards stemming attrition. Regular analysis of the reasons why customers leave can identify trends or weak points in the customer experience.

Is it a problem of service, price, or lack of functionality?

By answering these questions, a company can adapt its strategies to better meet user expectations.

Vista Equity, for example, recommends focusing on analyzing high-value customer segments to understand those most likely to stay and deliver sustainable profitability.

By identifying the 20% of customers who generate the majority of profits, companies can allocate their resources more effectively.

This approach is based on the analysis of Lifetime Value (LTV) and customer retention data. It enables the creation of tailor-made strategies to retain the most valuable users and ensure sustainable growth.

Setting up a loyalty program

An effective loyalty program keeps customers coming back by rewarding them for their commitment. This can take the form of points accumulated for purchases, VIP levels or special discounts.

Gamification can also play a role: by making the experience more playful, customers feel pleasure in interacting with the brand on a regular basis.

Personalizing the customer experience

Offering a tailor-made customer experience is one of the most powerful levers for strengthening loyalty.

Thanks to algorithms and data, it’s possible to personalize product recommendations, promotional offers and communications according to customers’ buying habits and preferences.

This attention to detail at every stage of the customer journey makes them feel that they are unique, and that the company understands their specific needs.

Personalized notifications and real-time engagement

Sending notifications at the right time means capturing customers’ attention when they’re ready to act.

A well-placed notification can recall an abandoned product from the shopping cart, inform of a relevant promotion or propose an update that corresponds to the customer’s current needs.

This proactive communication maintains interest and encourages customers to return to the platform.

Effective onboarding

The onboarding phase is crucial. If the user doesn’t quickly understand how to use the product, or doesn’t perceive its value, they risk disengaging.

An effective onboarding process should guide the customer step by step, with simple tutorials, relevant advice and assistance at every stage, so that the customer feels comfortable from the outset.

Time-to-Reordering-Value (TTRV)

Time-to-Reordering-Value (TTRV ) measures how quickly a customer places a second order.

The shorter the time, the more likely it is that the customer will become loyal. Encouraging a customer to make a new purchase quickly can be achieved through cross-sell (selling complementary products) or upsell (moving upmarket) strategies.

These techniques maximize the customer’s value from the very first interaction, and create a long-term attachment.

The keystone of any sustainable organization?

Customer retention is not just an indicator of satisfaction, it’s the key to sustainable profitability.

By maximizing retention rates, companies can ensure increased LTV, reduce acquisition costs, and create a solid foundation for long-term growth.

With practices such as churn analysis, personalization and loyalty programs, you have all the tools in hand to turn every interaction into a loyalty lever.

BONUS FAQ

How do you calculate the retention rate?

→ The calculation is simple:

(End-of-period customers – New customers) ÷ Start-of-period customers × 100.

This rate is used to measure customer loyalty over a given period, and to identify strengths and weaknesses in customer management.

Why is retention more important than acquisition?

Retaining a customer costs 5 to 25 times less than acquiring a new one. What’s more, loyal customers spend more than new ones.

Retention therefore generates recurring revenues and improves long-term profitability.

What are the best practices for improving retention?

Best practices include :

• Churn analysis to understand why customers leave.
• Loyalty programs to reward repeat users.
• Personalized offers to meet the specific needs of each customer.
• Effective onboarding for rapid and successful integration of new users.

TTRV (Time-to-Reordering-Value) to encourage rapid purchase after the first order.