What Are the Top Customer Retention Metrics for UK Subscription Services to Monitor?

April 4, 2024

In the dynamic arena of UK subscription services, the magnitude of customer acquisition often overshadows the importance of customer retention. However, a slight increase in customer retention can significantly boost a company’s profitability. In fact, businesses can save up to five times the cost of acquiring a new customer by focusing on retaining existing ones. As you stride forward in your business journey, understanding and analysing customer retention metrics can help refine your strategies, and bolster your bottom line. So what are the key metrics you need to monitor? Let’s delve into it.

1. Customer Churn Rate

Customer churn rate is a crucial metric that indicates the percentage of customers who stopped using your product or service over a specific time period. A high churn rate can be a telltale sign of customer dissatisfaction and a hint that your service or product may need improvements.

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When you monitor the churn rate, you not only understand how many customers you’re losing, but also gain insights into the reasons for their departure. This knowledge can then be leveraged to devise effective retention strategies and optimise your service or product.

Calculating customer churn rate involves dividing the number of customers lost during a specified period by the number of customers you had at the start of that period. For instance, if you started with 500 customers and lost 50 of them in one month, your churn rate would be 10%.

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2. Monthly Recurring Revenue (MRR) Churn Rate

For subscription-based businesses, the Monthly Recurring Revenue (MRR) churn rate is a vital metric. It represents the loss in MRR due to cancellations or downgrades in a given period.

The MRR churn rate goes beyond the number of customers and reflects the impact of churn on your revenue. It’s possible to have a low customer churn rate but a high MRR churn rate if your most valuable customers are the ones leaving.

To calculate the MRR churn rate, you subtract the MRR at the end of the period from the MRR at the start of the period, and then divide by the MRR at the start of the period.

3. Customer Retention Rate

While churn rate shows the percentage of customers who left, the customer retention rate reveals the percentage of customers who stayed. This metric offers a positive perspective on your customer base and provides valuable insights into customer loyalty.

To calculate the customer retention rate, subtract the number of new customers gained during a period from the total number of customers at the end of the period. Then, divide by the number of customers at the start of the period and multiply by 100%.

4. Customer Lifetime Value (CLTV)

Customer Lifetime Value (CLTV) is a prediction of the net profit attributed to the entire future relationship with a customer. It helps you understand how valuable a customer is to your business over a long period.

CLTV is essential for understanding how much you can afford to spend on acquiring new customers and still generate profit. It can also inform strategies to increase the value of existing customers through cross-selling or upselling.

To calculate CLTV, you multiply the average purchase value by the average purchase frequency, and then multiply that by the average customer lifespan.

5. Net Promoter Score (NPS)

NPS is a customer loyalty metric that measures customers’ willingness to not only return for another purchase or service but also make a recommendation to their family, friends or colleagues.

It’s a powerful tool to gauge customer loyalty, satisfaction, and advocacy. It can also provide insights into the overall customer experience and satisfaction with your brand and product.

To calculate NPS, customers are surveyed on a single question: "On a scale of 0-10, how likely are you to recommend our company/product/service to a friend or colleague?" Respondents are grouped as Promoters (9-10 score), Passives (7-8 score), and Detractors (0-6 score). The NPS is then calculated by subtracting the percentage of customers who are Detractors from the percentage of customers who are Promoters.

By keeping these metrics at the forefront of your business strategy, you can effectively monitor customer retention and drive your subscription service towards increased profitability and growth.

6. Engagement Metrics

Engagement metrics offer another slice of the customer retention pie, capturing the depth of a customer’s interaction with your products or services. This is gauged through indicators such as click-through rates, time spent on your site, and activity on your social media platforms.

Measuring customer engagement can be nuanced, as it often involves combining a variety of data points to form a more holistic view of your customers. For instance, a customer who only opens your emails but never clicks any links may have a different level of engagement from a customer who interacts actively with your social media posts.

Ultimately, higher engagement levels often correlate with increased customer loyalty and satisfaction, leading to better customer retention. Therefore, it’s vital to continuously monitor and optimise your digital channels to encourage customer engagement. By keeping an eye on these metrics and adjusting your strategies accordingly, you can create a compelling customer experience that keeps your subscribers coming back for more.

7. Expansion Revenue Rate

Expansion revenue rate is a crucial metric for subscription businesses. It quantifies the amount of revenue increase from existing customers through upselling, cross-selling, or subscription upgrades, offsetting any revenue churn. This metric is vital as it demonstrates how effectively your business is capitalising on its existing customer base to drive growth.

To calculate expansion revenue rate, you firstly need to determine your expansion revenue, which is essentially any additional revenue earned from current customers. This could be from any upsells, cross-sells, or subscription upgrades. Then, you subtract any churned revenue (i.e., revenue lost from cancelled or downgraded subscriptions) from your expansion revenue. Finally, divide this number by your total revenue at the start of the period, then multiply by 100% to get your expansion revenue rate.

This measure of customer retention demonstrates how effectively your team is able to convince existing customers to invest more in your products or services. A high expansion revenue rate indicates a strong customer experience and high levels of customer satisfaction.

Conclusion: Harnessing the Power of Customer Retention Metrics

In the age of digitalisation and fierce competition, mastering customer retention is no longer optional for businesses in the UK subscription services sector. It’s a necessity. By focusing on these key retention metrics, businesses can gain a more in-depth understanding of their customers, enabling them to refine their customer service, improve their products and services, and ultimately boost their bottom line.

Remember, customer retention metrics are not static. They should be constantly monitored, analysed, and acted upon. After all, understanding why customers stay is just as important as understanding why they leave. As Peter Drucker once said, "what gets measured, gets managed". Hence, by prioritising customer retention metrics, businesses can set themselves up for a future of sustained growth and profitability.