The software-as-a-service (SaaS) retention rate measures how many customers choose your SaaS product over time.
Struggling to keep users around?
Let’s fix that.
I’m Nikola, a marketing expert with more than 10 years of experience working with SaaS businesses. In this post, I’m breaking down what SaaS retention rate is and why ignoring it could be killing your growth.
I’ll walk you through proven strategies to boost retention, lock in loyal customers, and keep that sweet recurring revenue flowing.
Ready to stop the churn and start scaling?
Let’s go.
Key Takeaways
- Optimizing retention rates makes a business grow faster.
- Customer retention rate (CRR) and monthly recurring revenue (MRR) rates are key SaaS metrics to monitor customer retention
- Don’t make mistakes like counting canceled memberships as churn.
- To improve customer retention, provide a great service from the start and keep it going.
What Is SaaS Retention Rate?
SaaS retention rate is a metric that indicates the percentage of customers who keep their subscriptions over time. It shows how many customers stay with a SaaS product and their loyalty. New customers are not counted.
In other words, it benchmarks how many customers continue to use your software after the initial usage period.
Why Retention Rate Is Important for SaaS Businesses
Retention rate directly impacts your company’s valuation. Investors look at this metric before anything else because it proves product-market fit.
A high retention rate means the following:
- Predictable revenue: You can forecast growth without depending entirely on new customer acquisition.
- Lower customer acquisition cost (CAC) payback: When customers stick around longer, you recover acquisition costs faster and start profiting sooner.
- Compounding growth: Retained customers expand their usage, refer others, and increase their spending over time.
- Higher company valuations: SaaS businesses with strong retention are often valued more highly because recurring revenue is more predictable and customers are less likely to churn.
Strong retention also improves your SaaS gross margin because you’re generating more revenue from existing customers without proportionally increasing delivery costs.
Improving retention rates delivers a healthier return on investment (ROI) with a low churn rate, which translates into sustainable business growth over time.
Here’s why even the smallest SaaS retention rate improvements matter:
If a SaaS company increases customer retention by just 5%, revenue could rise by 25% to 95%.
That’s why retention sits at the top of SaaS marketing metrics you need to monitor closely alongside acquisition costs and monthly recurring revenue.
What Is a Good Retention Rate for SaaS?
Most healthy SaaS companies aim for annual gross revenue retention above 90%. This means the company keeps the vast majority of its existing revenue year over year, minimizing losses from customer churn.
What are the SaaS industry retention rate benchmarks?
The median net retention across all SaaS companies is 101%, while the median gross retention is 91%, according to the 2025 B2B SaaS Retention Benchmarks report by SaaS Capital.
Retention benchmarks also vary by annual contract value (ACV). SaaS companies with ACVs above $250,000 report a median gross retention of 95%, while companies below that threshold typically report around 91% median gross retention.
If your retention rate sits below 90%, you have either a product-market fit problem or a customer success execution problem. Anything below 85% requires immediate attention.
Improving SaaS customer retention should be a core priority for any business looking to reduce churn, increase recurring revenue, and build long-term growth.
How to Calculate Retention Rates for SaaS
SaaS retention can be measured in two ways: by counting how many customers stay (logo retention) or by tracking how much revenue you retain from existing customers (revenue retention).
Here are the two key SaaS retention metrics:
- Customer retention rate (CRR): Measures the percentage of customers who continue their subscriptions over a specific period.
- Monthly recurring revenue (MRR) retention rate: Measures the percentage of recurring revenue retained from your existing customer base, excluding new customers and expansions.
The difference matters because customer count and revenue don’t always move together. A company can retain most customers while still losing significant revenue if high-value accounts churn. On the other hand, losing smaller accounts may have little impact on overall recurring revenue.
Tracking both metrics helps you understand not just how many customers stay, but how valuable those retained customers are to long-term growth.
How to calculate SaaS Customer Retention Rate
Here’s how to calculate SaaS CRR:
- Count the number of customers at the beginning of the period.
- Count your customers at the end of the period and subtract any new customers acquired during that time.
- Divide the result by your starting customer count and multiply by 100.
This is the SaaS CRR formula:
SaaS Customer Retention Rate (CRR) = [(Customers at the end of the period – New customers for the period) / Customers at the beginning of the period] × 100
Example: You start January with 1,000 customers, end with 900 customers, and have 10 new signups.
SaaS CRR = [(900 – 10) / 1,000] × 100 = 89%
How to calculate Monthly Recurring Revenue Retention Rate
Here’s how to calculate MRR Retention Rate:
- Take your MRR at the end of the period.
- Subtract any MRR from new customers or expansions during that period.
- Divide by your starting MRR and multiply by 100.
This is the MRR Retention Rate formula:
MRR Retention Rate = [MRR at the end of the period (excluding new customers and expansions) / MRR at the beginning of the period] × 100
Example: You start January with $100,000 in MRR. You end the month with $95,000 in MRR from your original customer base (not counting new customers or upsells).
MRR Retention Rate = ($95,000 / $100,000) × 100 = 95%
This metric gives you a clear view of your business’s financial health and highlights where revenue is recognised, allowing you to identify areas of growth or potential revenue loss from your existing customer base.
Why both SaaS retention rate metrics matter
You need to track both MRR Retention Rate and CRR metrics monthly to understand where your business is actually losing value.
Ten small customers leaving might cost you $500 in MRR. One enterprise customer leaving could cost you $10,000. Customer Retention Rate treats both scenarios equally. MRR Retention Rate shows you the actual financial impact.
6 Common Mistakes in Retention Rate Calculation
Avoid these six critical errors when calculating your SaaS retention rates:
- Tracking only customer count or only revenue: High customer retention with low MRR retention signals pricing problems. Strong MRR with poor customer retention indicates you’re losing customers but upselling the remaining base aggressively. Track both metrics to see the full picture.
- Counting canceled memberships as immediate churn: Not all cancellations are permanent churn. Some customers cancel temporarily due to budget constraints or seasonal needs and return later. True churn means the customer stops using your service permanently.
- Ignoring cohort analysis: Calculating one overall retention rate hides critical insights. Segment retention by acquisition channel, customer segment, pricing tier, and signup month to identify which groups retain well and which don’t.
- Mixing logo retention with revenue retention: Logo retention counts customers. Revenue retention counts dollars. Losing 15% of customers (logo churn) might only represent 5% revenue loss if small accounts churned. These metrics tell different stories.
- Including new customers in retention calculations: Retention measures existing customers who stay, not new signups. Adding new customers to your end-period count inflates your retention rate and masks the true churn picture.
- Not accounting for different time periods: Monthly retention will always look worse than annual retention due to natural fluctuation. Compare the same time periods (month-over-month or year-over-year) for accurate trends.
5 Strategies to Improve SaaS Retention Rates
To improve SaaS retention rates, companies can implement strategic approaches such as:
- Personalized onboarding programs that meet customers’ needs and expectations.
- Secondary onboarding for existing users who may need further assistance or training.
- In-app self-service support that is available 24/7 to solve customer queries instantly.
- Implementing churn or exit surveys to understand the reasons behind customer turnover.
- Running Net Promoter Score (NPS) surveys to measure customer loyalty and identify at-risk accounts before they churn.
Below, I explain all SaaS retention rate strategies in detail:
1. Personalized onboarding
Personalized onboarding uses details about the user to give them a unique start. It shows immediately that you care about each customer’s needs and want them to get the most out of your software.
This kind of care can lead users to stay with your service longer, adding more money to your company.
“When it comes to ramping up SaaS retention rates and fostering loyalty, it really boils down to keeping your ear to the ground and being tuned in to your customer’s evolving needs. Imagine walking into your favorite local cafe, where they remember just how you like your coffee. That’s the vibe we’re aiming for—a personalized experience that makes customers feel seen and valued. It’s all about fostering a relationship where they know their input is not just welcomed but genuinely appreciated and can influence changes. A stellar customer support team that goes above and beyond? That’s just the cherry on top!” — Sudhir Khatwani, Founder, The Money Mongers
2. Secondary onboarding
Secondary onboarding is ongoing user guidance that helps customers discover advanced and underused features beyond the core functionality they already use. It introduces helpful tools, provides deeper product education, and encourages broader feature adoption over time.
Sending personalized emails to your clients is a great way to nurture and inform them about the other functionalities of your product. It shows them there’s always something more for them to gain from your software service.
3. In-app self-service support
You can use in-app self-service support to keep your users happy. This tool helps the user find answers for themselves. It is located inside your app or software. The user does not need to leave what they are doing to get help.
They simply click on the support tool and look for a solution. Contented users often stay longer with your app, so make sure this option works well.
“To maintain customer trust, SaaS software must meet the standards of enterprise-readiness, as customers rely on your software to provide a reliable infrastructure so they can focus on using the software to accomplish their work. Customers also seek innovative licensing options and software extensions that can be customized to meet their specific enterprise requirements.” — Paul Ross, Group Product Manager, Esri
4. Churn or exit surveys
Churn or exit surveys are a good way to make your business better. They help you find out why customers left your service. Knowing this can help with fixing problems and making the product better for all users. Some companies that keep a lot of their customers use these types of surveys to improve their services.
Such surveys help boost customers’ satisfaction, which keeps them around longer. Using churn or exit surveys as a tool for understanding customers is an effective retention strategy in the long run.
“Implementing customer success programs, onboarding strategies, and loyalty initiatives, such as referral programs or exclusive access to new features, can strengthen customer relationships. Moreover, businesses should focus on setting realistic expectations, ensuring transparent pricing models, and demonstrating the tangible benefits and ROI of their SaaS offering. This holistic approach can help optimize retention metrics, drive sustainable growth, and minimize churn in the competitive SaaS landscape.” — Vaibhav Kakkar, CEO, Digital Web Solutions
5. Net Promoter Score (NPS) surveys
Net Promoter Score (NPS) surveys measure customer loyalty by asking one simple question: “How likely are you to recommend our product to a colleague?”
Customers respond on a scale of 0-10, categorizing them as promoters (9-10), passives (7-8), or detractors (0-6).
NPS for SaaS is particularly valuable for retention because it identifies at-risk customers before they churn. Detractors are likely to cancel soon, while promoters tend to renew and expand their usage.
Run NPS surveys quarterly to track loyalty trends over time. Follow up with detractors immediately to understand their concerns and address issues before they leave. This proactive approach can save accounts that would otherwise churn silently.
My Final Thoughts
The SaaS retention rate serves as a barometer of how well your product resonates with your customers and directly impacts your company’s success. With the right strategies, planning, and frequent evaluations, you’re set on a path to fostering customer loyalty and securing a steady stream of recurring revenue.
Explosive growth awaits on the other side of retention rate optimization. So why not start today?
FAQ
How can I improve my SaaS business’s customer retention rates?
You can improve your SaaS business’s customer retention rates by providing personal service, demonstrating the value of your product, creating loyalty programs, and optimizing your onboarding process for new users.
Can offering different subscription plans improve user retention in SaaS?
Yes. Offering different plans at various price points can not only draw in new users but also encourage them during the different stages of the customer lifecycle.
How effective is digital advertising in improving the SaaS retention rate?
Proper use of strategies, such as A/B testing, could scale up the effectiveness of digital advertisements. They must be combined with personalized welcome screens to encourage repeated interaction from customers, thereby increasing revenue growth from existing customers.