Retention

Churn rate measures the percentage of customers who cancel or stop paying during a given time period. It is the silent killer of SaaS businesses — even a small monthly churn compounds into massive annual losses. A 5% monthly churn sounds manageable, but compounded over 12 months, you lose 46% of your customer base. To maintain the same revenue, you need to acquire enough new customers to replace nearly HALF your base every year. This is why the best SaaS companies obsess over churn — Slack's monthly churn below 1% means they retain 89% of customers annually, creating a compounding revenue machine.

Monthly Churn Rate = (Lost Customers ÷ Start-of-Month Customers) × 100%

NRR measures the percentage of recurring revenue retained from existing customers over a period, including upgrades, downgrades, and churn. An NRR above 100% means your existing customers are spending MORE over time even without new sales — your revenue grows automatically. NRR = (Starting MRR + Expansion − Contraction − Churn) ÷ Starting MRR × 100. Best-in-class SaaS companies have NRR of 120%+: Snowflake (158%), Datadog (130%), Twilio (127%). NRR is the single most predictive metric for long-term SaaS success — VCs have said it's the first metric they check.

NRR = (Starting MRR + Expansion − Contraction − Churn) ÷ Starting MRR × 100%

Customer Retention Rate measures the percentage of customers who remain with your business over a given period. A 90% annual retention rate means you lose 10% of your customers each year. For subscription businesses, improving retention from 90% to 95% can double your customer lifetime value because the average customer stays twice as long.

CRR = ((E − N) ÷ S) × 100 [E=End, N=New, S=Start]

Time to Value (TTV) measures how long it takes a new user to experience the core benefit of your product — their 'aha moment.' Slack's TTV is minutes: send one message, get an instant reply. Enterprise software TTV can stretch to 90+ days, during which 40-60% of users abandon. Research by Totango shows that products achieving TTV under 5 minutes retain 2.5x more users in month 1 than those with TTV over 1 hour.

TTV = Median Time from Signup to First Value Event

Onboarding optimization is the systematic improvement of a new user's first experience to maximize activation — the percentage of signups who reach the 'aha moment.' A 25% improvement in onboarding completion can increase revenue 15-20% because activated users are 3-5x more likely to convert to paid and have 2x higher LTV. Duolingo's onboarding lets users complete a lesson before creating an account — resulting in a 90%+ lesson-1 completion rate.

Onboarding Completion Rate = Users Completing Final Step ÷ Users Starting Step 1 × 100

A Customer Health Score is a composite metric (typically 0-100) that predicts whether a customer will renew, expand, or churn. It combines product usage data (login frequency, feature adoption), engagement signals (support tickets, NPS responses), and business outcomes (ROI achieved, time-to-value). Gainsight data shows that accounts scoring above 80 renew at 96%, while accounts below 40 churn at 55%. Proactively reaching out to at-risk accounts can save 20-30% of them.

Health Score = (Product Engagement × 0.4) + (Relationship Signals × 0.3) + (Business Outcomes × 0.3)

Engagement metrics measure how actively and deeply users interact with your product. The most important is the DAU/MAU ratio (Daily Active Users ÷ Monthly Active Users), also called the 'stickiness ratio.' A 50% DAU/MAU means half your monthly users come back every day. Facebook's DAU/MAU is 66%, making it one of the stickiest products ever built. For SaaS, a 13-20% DAU/MAU is average, 20-30% is good, and 30%+ signals exceptional engagement that predicts strong retention.

DAU/MAU Ratio = Daily Active Users ÷ Monthly Active Users × 100

A referral program turns your happiest customers into a scalable acquisition channel by incentivizing them to recommend your product to others. Referred customers are 4x more likely to refer others (creating compounding loops), have 16% higher LTV, and have 37% higher retention rates than non-referred customers (Wharton School study). The economics are powerful: a well-designed referral program acquires customers at 30-50% of paid acquisition cost because the referrer does the selling for you. Dropbox's referral program (give 500MB, get 500MB) drove a 3,900% user growth over 15 months — from 100K to 4M users — at nearly zero marginal cost.

K-Factor = Average Invitations per User × Conversion Rate per Invitation