In business, maintaining relationships with customers and employees is extremely important. It is no exaggeration to say that customer retention is vital, especially in subscription businesses such as SaaS.
In this article, we will mainly introduce the meaning and importance of retention from a marketing perspective, how to calculate it, and examples of companies that have increased their retention rates.
What is Retention?
The word "retention" comes from the English word meaning "maintain, hold, continue." It has the nuance of holding something together, and is used alone or in combination with other terms in various business terms.
Recently, two terms that are often used are "customer retention" and "employee retention." Their meanings are as follows:
Customer retention (rate) = customer retention rate, customer fixation rate, customer retention rate, customer retention rate, CRR. *All have the same meaning.
Employee retention (rate) = Employee retention rate
*To be precise, a rate is added and it becomes "XX rate", but this is often abbreviated.
The idea and background
Both customer retention and employee retention are concepts that have been important for a long time, but the reason they have been receiving more attention in recent years is Japan's rapid population decline. As companies compete in the domestic market, sales expansion and employee recruitment are becoming a battle for a piece of the pie.
Not only has the pool of potential customers become smaller, but in today's mature society, there are a wealth of attractive options available, whether it be products or jobs. Companies are being forced to focus more on retention, as customers and employees are more likely to leave in search of better experiences and environments.
Japan's population pyramid
Japan's population pyramid
(Source: National Institute of Population and Social Security Research )
Business scenarios where retention is used
Here we will explain the situations in which customer retention, employee retention, and net revenue retention, which is commonly used in the SaaS industry, are used.
Customer Retention
Customer retention means "maintaining customers." Companies use customer retention rates as an important indicator and measure them regularly.
Usage scenarios: Mid- to long-term sales forecasts, performance reports to funds and shareholders
Generally, except for one-time sales businesses (such as high-value real estate), whether or not customers continue to do business with you has a big impact greece telegram phone number list on future sales. A 1% increase or decrease in customer retention rate can make a significant difference in sales in the long run, so both companies and stakeholders attach great importance to it.
Example: Difference in sales 60 months after a 5% difference in customer retention rate(Shoppify)
A graph showing the difference between a 5% difference in retention rate and sales
Employee Retention
Employee retention means "keeping employees," and employee retention rate means "employee fixation rate."
Usage scenarios: Long-term recruitment planning, talent management, etc.
As mentioned above, Japan's population has been declining in recent years, making it difficult to hire young people. However, young people these days have little resistance to changing jobs and it is common for them to change jobs to advance their careers, so an increasing number of companies are putting effort into employee retention.
In the past, many companies focused only on retaining excellent personnel, but recently, more and more companies are strengthening the retention of average personnel, and alumni programs that welcome employees who have left the company back to work are becoming more common. Companies are also more enthusiastic than before about retaining personnel who are looking to change jobs.
Net Revenue Retention
In the SaaS industry, the indicators "Net Revenue Retention" and "Net Dollar Retention" are also used. They are abbreviated as NRR and NDR, and both have the same meaning. They are indicators that show how much sales from existing customers have been maintained compared to the previous year, and are also called "sales retention rate" and "sales retention rate."
Usage: Mainly for forecasting sales for the current and next fiscal year
Calculate the percentage of MRR (monthly sales from existing customers) compared to the previous year, and use that to calculate the next year's sales. If it's over 100%, it's considered a stable business.