Measuring and managing performance will always help you sort your resources efficiently, accelerate effort in areas where you are lacking, and invest more in areas where you are growing. Once you have a clear sight of where you stand, you get a better picture of where you need to get next.

But monitoring performance and growth is easier said than done. It always helps businesses to benchmark performance based on industry business cycle. If on an average in the industry it takes 2 days for closing a sale and you are able to make a sale in 4 days, then it means you are lagging behind. Either you are targeting the wrong customers or your strategies are not strong. In SaaS, benchmarking the number of days it takes for a visitor to sign-up or subscribes post his first visit, holds the key to understanding how well your website is optimized. If the average time it takes a user to convert is 2 weeks in the industry and your visitors are taking close to a month, it means you need to optimize for subscriptions.

As per McKinsey, a 20% annual growth means a 92 percent chance of ceasing to exist within a few years. You have to scale very rapidly or you will fail indefinitely. How can SaaS companies identify and measure whether they are scaling at this pace? Metrics help them stay on track.

At the end of this article, you will be able to identify 24 metrics that SaaS companies use for measuring and managing performance. A thorough understanding of these metrics will help you stay proactive to plan and achieve targets better.

SaaS Metrics And KPIs that matter – Here’s what you should be tracking

Whether you are a just in business SaaS company or have been around for quite a while now, there are certain key metrics that you would always need to track and measure.

According to Jason Cohen:

“Your job is to figure out what’s most important right now. What’s on fire? What’s most important for getting the company to its next milestone? Lean into what’s working well and then simplify and clarify the few goals and metrics that your entire company should align on.”

Your growth, from the perspective of, money, sales, and customer retention, is based heavily on how you perform on the following metrics:

1.Unique visits, organic/paid traffic, and active users

Defining unique visits: In simple words, monthly unique visitors is the number of unique visits your websites gets every month.

Measuring the metric: Google analytics will easily tell your monthly unique visitors on its audience analytics section. If one visitor visits your website even multiple times in a month but uses the same device each time to do so, it will be counted as one unique visitor.

Why measure this metric: This metric is that shows you how well you are able to grow your traffic on your website. Every business needs new, unique visitors to grow their product’s reach. How much can you grow from repeat visits? You will need to grow unique views month on month to keep growing in the market.

Growing monthly unique visits: Having a content marketing strategy in place is of great help in growing unique visits month on month. One action tip is to leverage ‘Facebook Lookalike Traffic’. This feature allows you to target new users based on your current audience type. Here is how GrowthText drove 10000+ unique visits in just 30 days, using Facebook lookalike feature and some other tactics.

2.Organic/ Paid traffic

Defining traffic source: Organic traffic is the visitors that find and visit your website through search engines such as Google or Bing. This is traffic acquired through unpaid channels. Paid traffic, on the other hand, refers to traffic acquired through paid sources and channels – PPC, social media ads, sponsored content etc.

Measuring the metric: All you need to do is log in to your Google Analytics. It also makes sense to segment your audience data by type – new, returning, recurring etc.

Why measure this metric: A clear insight into how your users are finding you will enable you to optimize your traffic acquisition strategy. If you are, for example, investing too much in PPC and getting little traffic from this paid source, you can cut down on expenditure from here. On the other hand, if organic traffic is growing on your website, you can focus more on keeping content evergreen to keep the hits coming.

Growing organic traffic: Strong keyword research, internal and external linking, evergreen content – these are just a few ways of getting more organic traffic to your website. Working as per Google’s most recent regulations on SEO is the key to remaining at the top of a search. Consider both long and short keyword searches that users look for on the internet. Guest posting is also important.

Growing paid traffic: From Instagram ads to Linkedin campaigns, you can generate paid traffic from as many channels as you want. What you need to focus on though it what is giving you the best return on investment.

3.Active Users

Defining active users: From a business operations’ perspective, active users is an important metric to measure. To define, active users are the ones who have interacted with your users during a specific time duration. Here, the time duration is an important aspect.

Measuring the metric: Consider an example: An active user of Facebook would be someone who visited Facebook and took an action – logged in or liked an activity update. If for 30 days time duration the user doesn’t log in and perform such interactions, they are considered to be inactive users. This is how you find active vs. inactive users.

Why measure this metric: Active users are a mark of effective engagement and measure of potential sales. If users are interacting with your website – visiting it, buying from you, reading your content, logging into the dashboard of your product – it means they are still content with your services or product.

Growing active users: One way of growing active users is to bring the inactive users back to browsing. Let us consider an example of a SaaS product user who goes inactive after signing up for a free trial. You could send reminder emails to users who signed up for your free trial but did not log in to their dashboard for 2 weeks. You could send them an email saying – ‘You haven’t checked out your dashboard yet. Free trial ends in 3 weeks. Start making the most of your free trial today!’

Growth Metrics:

4.Customer Acquisition Cost

Defining customer acquisition cost: This is the cost that goes into convincing and converting a user to a paying user. 

Measuring the metric: To accurately measure CAC, segment it into sales and marketing costs will give you a deeper understanding of customer acquisition channels – PPC, paid ads, sponsored content etc.

Let us consider an example to calculate CAC. You run a marketing campaign on Instagram that costs you $5000. Expenses from sales team during that month also account for $5000. Total 10 customers are acquired that month from both marketing and sales efforts. Your CAC would calculate to ($5000 + $5000) / 10, which comes out to be $1000 per customer.Why is it important: SaaS companies pay a lot of attention to this one metric – customer acquisition cost. The reason is that it determines the amount that they need to shell out in order to acquire one new customer. Every business needs to understand CAC so that they can wisely invest and scale. Once you know how much you have to spend, you get an idea of how much you have to earn in order to sustain and grow.

Reducing customer acquisition cost: Aim for more referrals. If you are able to generate enough trust and goodwill from your current set of users, they will refer others to try your product out. This way, you will be required to spend less on advertisements or other paid means for acquiring customers. One tactic is to give extended subscriptions to users who get you a referral. There are a number of more ways to reduce CAC, which you can read here.

5.Customer Lifetime Value

Defining CLV:  Over and above the concept of CAC is that of Customer Lifetime Value (CLTV), also known as Lifetime Value (LTV). As per definition, CLTV is the total revenue generated by a customer over the total duration of their subscription to a SaaS product. The higher the ARPA and the lower their churn, the higher will be their LTV.

Measuring the metric: For example, if the Average Revenue per Account is $2000 and your churn rate is 10%. The LTV you are generating is $2000. (explain)

Why is it important: This metric gives you two critical insights:

1. How much value is each customer generating
2. For how long that customer is generating that value for your business

If you know numbers on both the measures pointed above, you will be able to steer your efforts into retaining those customers who are generating a higher value for a longer duration of time. Clearly, it will help you optimize your retention strategy better. According to Jason Cohen:

“High growth is great, but not if margins are so low there won’t be a profitable business at scale.” 

Growing customer lifetime value: There is no short-term tactic to increase customer lifetime value. You must focus on building loyalty for making customers stick to your product. Needless to say, your product and services must be exceptional.  Having a unique selling proposition helps in differentiating your product from the rest. Leverage this USP and create an unmatched value for your users.

6.Net Promoter Score

Defining Net promoter score (NPS): NPS rating indicates your company’s performance based on the eyes of the customer. Where all other metrics that we discussed are based on internal benchmarks, NPS tells exactly where you stand as ‘value creator’ in the eyes of your customer.

Measuring the metric: The idea that this metric is based on is all companies can divide their customers into three groups – promoters, passives, and detractors. This division can be done based on a single question – ‘How likely are they to recommend you to a friend?’ Those who score you 9 or 10 on the scale of 0 to 10 are promoters. Those who scale you  8 or 7 are passives. 6 and below are considered detractors.

To calculate the net promoter score, you simply need to subtract detractor percentage from the percentage of promoters. Passives are not taken into account because their response is not clear.

Why is it important: Your net promoter score indicates your product’s ‘likability’. A high percentage of people likely to recommend also predicts that you will need to spend less on acquisition as you might gain new customers from ‘referrals’.

To get more out of your NPS score you need to create a clear set of questions for your customers, asking them for insights. You could ask them the why behind the rating that they have given you on the NPS scale. You could further break-down questions into finding out what users like in your product. This ‘voice of the customer’ or ‘customer feedback’ on your product will pinpoint your product’s strengths and weaknesses.

Improving NPS: Since NPS is all about customer feedback, improving it means you need to incentivize feedback from users. Encourage users to share positive words about your product. If an influencer, for example, is using your product, request him to post an expert review on his blog and share the word on social media.

7.Quick Ratio

Defining quick ratio: It is useful for measuring the efficiency of Saas company.

Measuring the metric: It measured by this calculation: (new MRR plus expansion MRR) divided by contraction MRR plus churned MRR).

Why is it important: It gives you a good insight into the financial performance of Saas company.

Growing quick ratio: It is very important to increase the ratio because the higher it is, the stronger the business will be. Simply put: you increase Quick ratio when you increase expansion MRR (via encouraging upgrades for example), whilst, at the same time decrease churned MRR (via avoiding cancellation for example).

8.Payback Period

Defining payback period: It is the period that a company can recover its investment either above or reach the break-even point.

Measuring the metric: Consider the following example: If company A invests $500,000 and is projected to make $250,000 the first year and $350,000 the second year, the payback period will be around 1.5 years time frame.

Why is it important: It gives an initial impression of the amount the risk that the company may be facing.

Growing payback period: The shorter payback period, the more positive that the company will become cashflow positive. It should be planned well to recover the investment as fast as possible to start gain revenue.

9.CAC:LTV Ratio

Defining CAC:LTV ratio: It is the ratio of customer acquisition cost to customer lifetime value that we have defined already below.

Measuring the metric: It calculated by multiplying the average monthly revenue per customer by customer lifetime measured by months.

Why is it important: It helps us to know how much a company must spend in order to gain a new customer. When the number of the ratio is low for example, (1 to 3) it means that a good target for a SaaS company.

Growing CAC:LTV ratio: By figuring out different methods to gain customers and optimize ad spend and upfront costs to acquire them, you can lower the cost of acquisition. However, the key is not to acquire customers whose lifetime value is worthless.

For example, a client of ours offered a 40% off for first-time buyers for the first month of subscription. This lowered acquisition costs, initially, but the lifetime value of these customers was 1 month. They signed up once for the discount, then canceled. In this scenario, a 40% discount only acquired customers who were not loyal to the brand, but rather the % off.

Revenue Metrics:

10.Monthly Recurring Revenue

Defining MRR: In simple terms, monthly recurring revenue (MMR) can be said to be the income that businesses are certain of receiving every month.

Measuring the metric: To calculate MMR, you need to multiply the total number of paying users by the average revenue earned per user.  To check your performance on this metric, you need to break it down into three sub-metrics – New MRR, Expansion MRR, and Churn MRR.

• New MRR: It is the revenue brought in by new customers, on a per month basis. So, if you acquired 5 customers who bring in a total revenue of $500 each per month and 2 customers who bring in revenue of $1000 each per month. Your new MRR would be $4500 per month.
• Expansion MRR: This is revenue earned when a customer upgrades to a higher priced plan. For example, two customers are using a $400 per month ‘basic’ subscription of your product upgrades to $650 ‘premium’ plan. Your expansion MRR, in this case, would be $500 per month.
• Churn MRR: The opposite of expansion MRR is churn MRR. It is the revenue lost when a customer either cancels a plan or downgrades to a lesser priced plan. So, if someone downgrades to $400 plan from $650 plan, your churn MRR would be $250 per month.

Why is it important: The higher your predictable income or revenue, the better your chances of being in operation. Therefore, MRR should continuously be growing.

Growing MRR: There are a number of smart tactics that can help you increase your monthly recurring revenue. For example, you could unbundle the features of your product, offer a yearly pre-payment, or go enterprise and sell to big businesses that are likely to pay more.

11.Annual Run Rate

Defining ARR: It is the same term of monthly recurring revenue (MMR), but the income that businesses are certain of receiving every year rather than every month.

Measuring the metric: It is calculated by multiplying MMR by 12 (months) which results to the income of the whole year.

Why is it important: ARR helps businesses to predict annual earnings and revenues for the next years by assuming that no changes occurred in the year. In short, It can be used for long-term growth because it depends on annual reports.

Growing ARR: Improving ARR is a very helpful indicator that your business is working well. As increasing monthly recurring revenue (MMR), it is automatically will make an increase in ARR.

12.Average Sale Price

Defining ASP: It is the average price which customers initially pay to subscribe.

Measuring the metric: To calculate ASP, you should define all your subscription revenue and then divide it by the number of subscriptions.

Why is it important: Understanding this metric allows you to determine the right sales model for your SaaS company. A low ASP means a self-service or low-service sales model, on the other hand, a high ASP enables you high-oriented sales strategies.

Improving ASP: Increasing ASP is not easy and requires extra effort. This is at the essence of CRO: understand the target customers, collect demographic information and then brainstorm ideas for marketing campaigns to decide how to improve your service and increase ASP at the same time.

13.Average Revenue per Account

Defining average revenue per account: ARPA is a measure of revenue contributed by an “average” account or customer, on a month-by-month basis.

Measuring the metric: You can arrive at average revenue per account by dividing monthly recurring revenue by a number of active accounts per month.  ARA can be calculated for both existing and new customers. You should calculate ARA separately for both sets of customers if you are planning on changing your pricing, or want to dig deeper into how existing vs. new customers are contributing to your revenue.

Why is it important: ARPA will give you a clear picture of how your groups of accounts are performing on a monthly basis, is there a need to change pricing for any specific cohort, and an overall picture of how your ARPA is evolving.

Growing your ARPA: Upselling and cross-selling are two very famous tactics to improve ARPA, in both SaaS and eCommerce. You could, for example, upsell to those subscribers who have been using your product for over 2 years.

14.Support Tickets Raised

Defining Support Tickets Raised: This is simply the number of people who need help and are requesting their problems be addressed.

You may need to fix the product usability in this case or increase the number of customer support service providers when the heavy volume of tickets are raised or are expected.

Measuring the metric: Looking at your customer support data will give you an insight into this metric.

Why is it important: This metric needs to be tracked and measured to analyze the support team’s performance and to find out if your customers are satisfied with your service.

An increase in the number of support tickets points out that higher number of people are finding it difficult to use your product. A decline in the number of support tickets in itself does not imply anything. It could mean anything – customers not using the product and hence not having any problems, customers being able to understand the product’s functioning on its own, and so on. You can figure this out depending on usage and so forth.

Improving on this metric: You need to continuously work towards making the product as user-friendly as possible. Onboarding needs to be super easy, and so does every other feature in your product.

Customer Success Metrics:

15.Conversion Rate

Defining conversion rate or free trial conversion rate: It is the number of people who started with a free trial and actually converted to paying customers.

Measuring the metric: Analyze the following steps to know your performance on free trial conversion rate:

Visited Site ==> Trial Sign-Up ==> Activation ==> Logged-In ==> Billed

But is there a benchmark for ‘free to paid conversions’ that companies should follow? No. You simply need to keep growing in this area. So, today if 2% of free trials convert to paying customers, you should aim at increasing this to 5%, and so on.

Why is it important: It is important to measure conversion rates to track web page and app performance. Knowing how many users are completing the desired micro and macro goals on your website will help you understand whether your product is optimized properly. You can dig deeper into finding out how your users use your product, what encourages them to complete the desired action, and what are the bottlenecks. Doing so will help in improving overall product functioning and optimizing the funnel for increased conversions.

Improving conversion rate: To improve conversion rate of your SAAS website you must have clearly defined goals in place. For example, is your goal to increase the conversion rate for a certain set of audience such as high-value customers? Then you might need to optimize in a way that such customers convert faster and better. It could also result in the conversion rate of average paying customers dropping. It all depends on your conversion optimization strategy and what goals are you planning on achieving. Also, your onboarding should be really smooth and customer support be really strong, for converting customers in their free trial period into paying customers.

16.Churn Rate

Defining churn rate: Without understanding and measuring churn rate, you cannot understand LTV. In terms of customers, churn rate measures how many customers were lost during a given time period. You could also define it as the number of customers who unsubscribed to your product in a given period of time.

Measuring the metric: Churn rate is a comparative metric. It shows you the month on month churn or loss of users. To calculate churn rate, you need to divide the number of customers who unsubscribed to your product in a month by the prior month’s total.

Why is it important: A high customer churn rate is indicative of the fact that either your customers are not getting the desired value out of your product anymore, or that you don’t have a good customer support and retention team in place.  Customers not sticking around too long means they have found someone better or will soon find someone who serves their needs better. It implies increased costs of acquiring new customers. According to Huw Slater:

“Not to be mistaken for the rate at which your customers can turn cream into butter, your Customer Churn Rate tells you how quickly your customers cancel their subscription”

Reducing churn rate: Even though a user has signed-up does not mean he is likely to keep using your product for a long time. To ensure that the customer doesn’t churn, at appropriate intervals, keep sending trigger-based emails that nudge the user to log-in to the dashboard and stay active. It is also important, to provide quality customer service, for keeping customers satisfied with your support quality.

17.Customer Retention Rate

Defining customer retention rate:

Measuring customer retention rate: Let’s understand customer retention rate with the help of an example. At the start of the month, you have 100 customers. By the end of the month, the number of customers you have is 105. During this time period, you have acquired 20 new customers and lost 15. Your customer retention rate would be:

{(Number of at end of the time period – Number of new customers acquired during that period divided)/Number of customers you had at the start of that period} x 100

Which is {(105-20)/100} x 100

The resulting percentage is 85%. What this means is that 85% of your customers continued using your services for that time period. This is a good customer retention rate.

Why is it important: This metric indicates how good your customer retention efforts are and how loyal is your user base. A growth in this metric indicates that your retention efforts are paying off and that you are likely to earn more from existing user base. According to Hunter Witherington:

“Retention is not simply a financial metric. In addition to the pure financial benefits of having strong customer/revenue retention which drives revenue growth, retention metrics and the underlying data needed to calculate them can inform critical business decisions and drive business strategy.”

Improving customer retention rate: Rewarding loyalty, providing great customer service, resolving problems quickly, building ‘habit-forming’ products – these are just some of the many ways for improving customer retention. Your retention optimization strategy, should be your go-to guide for increasing customer retention rate.

According to David Skok:

“Focus more of your retention energies on the onboarding phase, rather than on saving deals later. Make sure your onboarding process, people, and materials are excellent.”

18.MRR Retention Rate

Defining MRR retention rate: It refers when the rate monthly recurring revenue (MMR) is renewed.

Measuring the metric: It measured by dividing MRR of renewed subscriptions by the total of MRR of subscriptions up for renewal.

Why is it important: It is necessary to know how to encourage customers to renew their subscription. By understanding how many customers renew, and thus the drop-off rate, you can have a clearer picture of what needs to be done.

Improving MRR retention rate: There are some strategies that can leverage MRR retention rate such as make incentives and loyalty programs which keep customers engaged, and in communication with you somehow.

19.Marketing Qualified Leads/Product Qualified Leads

Defining MQLs and PQLs: A prospect who has already entered your lead tracking, meets certain criteria to qualify as a potential customer, and has expressed interest in buying is a qualified lead. When marketing qualifies such lead using branding, online advertising etc. it is called an MQL. In SaaS, apart from MQL, the concept of product qualified leads is also gaining strength.

Measuring the metric: A look at your Hubspot report or into a platform such as Salesforce will give you a clear picture of your MQLs. However, what really helps is understanding whether you have been able to generate quality MQLs. Track whether the MQLs fit your ideal customer persona. This will give a more holistic picture of your MQLs.

Why measure the metric: PQLs can be seen as potential customers who have used a product and have accomplished certain predefined triggers that show a high probability of these ‘potential users’ to convert into paying customers. The definition of PQLs itself highlights the importance of keeping a track of this metric. Focusing on PQLs can help you channel your effort and resources in changing ‘likelihood’ into ‘assurity’ that the potential user will convert. Another important reason why PQL must be a metric of performance for every SaaS company is that it ties all departments together to achieve one goal – revenue.

According to Jacco Van Der Kooij:

“Reactionary to an inbound request (MQL) from a customer who experiences a pain, such as a demo request, trial sign-up, pricing request. The client is often interested to resolve it asap making this very time sensitive requiring a response in <5 minutes.”

Growing MQLs and PQLs: Increasing MQLs requires your marketing team to make more efforts in terms of lead nurturing, content marketing, and refining the funnel. Increasing PQLs would require you to actually understand what those users who are actually using your product, really like about it. Make those changes that the user has suggested. Value the voice-of-customer and see PQLs increase.

20.Lead Velocity Rate

Defining lead velocity rate: This metric compares the number of leads generated this month with those generated in the previous month. These leads are qualified. 

Measuring the metric: The formula for measuring this metric is as follows: 

{(Qualified leads in current month-Qualified leads in the previous month)/ Qualified leads in the previous month} x 100

Why is it important: Measuring qualified leads is one thing, but are you taking into account the monthly growth in qualified leads? You don’t want your qualified leads to stagnate or diminish month over month. To keep track of how you are doing in this department, you need to calculate and measure your lead velocity rate.

If your leads keep flowing in consistently, month-over-month, and you have a strong sales team to keep converting the potential users into sales, you are likely to achieve revenue goals smoothly. On the other hand, if the leads keep pouring in but the sales aren’t able to convert these into buying customers, you will need to check what’s wrong. Individual and team performance will need to be evaluated here. But the end target would be to get the lead velocity rate spiking and converting leads to revenue-generating customers.

Growing LVR: To boost LVR, you first need to understand what causes it to slow down. One of the reasons is not defining objectives clearly for teams. For example, if your marketing and sales teams are not on the same page regarding how a lead should be handed off, it could result in LVR slowing down. Similarly, standardizing procedures can help sort out any confusion in terms of lead qualification and reporting. Having an integrated system to capture and analyze customer data can help eliminate obstacles that slow LVR down.

21.Average First Response Time

Defining average first response time: It is a measure of how long it takes for your customer support executive or manager to address a customer or to act on a support ticket raised.

Measuring average first response time: If a customer raises a support request at 9 a.m. and received a response by  11 a.m., the first response time would be two hours for that day for that customer.

Why is it important: AFRT is a measure of the first impression that you are leaving on customers who contact you at the time of need. By measuring performance on this metric you are able to identify how efficiently you are able to tackle customer queries. A good first-time response rate means customer satisfaction and is an important indicator of customer retention team’s performance.

Reducing average first response time: Depending on the frequency and amount of first-time queries you receive, you might need to increase your customer support team size. You will also need to make sure that the CS team is well-trained to answer customer queries with quality solutions. Additionally, making your product user-friendly will enable customers to onboard without help.

22.Net MRR Churn Rate

Defining net MRR churn rate: It is the rate at which existing customers make the cancellation of their contract or downgrade their subscription after factoring revenue such as upgrade or expansion from remaining customers.

Measuring the metric: It is calculated by subtracting the total of expansion MRR from MRR churn and divided that number by MRR at the start of the month, then multiply by 100 to get the result in percentage.

Why is it important: It is a good indicator that gives you an insight into your customers and determines which are the negative factors that make customers leave your company or make a cancellation.

Growing net MRR churn rate: To increase the net MRR churn rate, you have to make a continuous improvement that ensures your customers are satisfied. This tip will save your company from any cancellation or downgrade and if it really occurred, it should be correcting and investigate the problem and try learning from mistakes.

Sales Metrics:

23.Average Sales Cycle Length

Defining average sales cycle length: It is the average time of converting leads to the moment of a completed sale. In other words, it is a series from initial contact to sale close.

Measuring the metric: It measured by dividing a number of days from the first contact to the moment of a sale close for all deals by the number of deals.

Why is it important: It is useful for sales forecasting.

Reducing average sales cycle length: It is very important to reduce average sales cycle length it results in faster time gaining paying customers. It’s useful to target each segment separately through various automation in the sales pipeline that monitors customers until they convert.

24.Annual Contract Value

Defining ACV: It is the value of an account subscription of annual customer’s contract.

Measuring the metric: We can calculate ACV by dividing the total value of the contract by the total period.

Why is it important: ACV in order to compare it to customer acquisition cost CAC, in order to decipher further the cost of acquiring a customer for a specific period.

Improving ACV: Cross-selling and upselling are two useful ways to increase annual contract value. Product discounts are also good for attracting customers and close deals faster.

Over to You – What metrics are helping you keep a track on growth?

There are a number of metrics that you can define for tracking growth. The ones that we discussed above, are, however, some of the most important ones. Which ones out of the above are you measuring performance on? Do let us know why those metrics matter to you, in the comments section.

The post 24 SaaS Metrics And KPIs Every Company Should Care About appeared first on Invesp.

Did you know 61% of retailers cite customer retention as their biggest obstacle and a 5% increase in customer loyalty can increase the average profit per customer by 25% – 100%.   Around 58% of respondents buy from these stores and brands whose loyalty programs they belong to at least once a month.

69% of consumers say choice of retailer is influenced by where they can earn customer loyalty/rewards program points whereas 57.4% of consumers join loyalty programs to save money, 37.5% to receive rewards. Check out our latest infographic to understand the importance of customer loyalty programs and how they influence consumer purchase decisions.

Infographic by- Invesp Conversion Rate Optimization Consuting

To Publish this Image on your Blog or Website . Copy this code

<a href=”https://www.invespcro.com/blog/images/blog-images/customer-loyalty-programs.jpg”><img src=”https://www.invespcro.com/blog/images/blog-images/customer-loyalty-programs.jpg” alt=”Why customer loyalty programs are important” width=”580″></a></p><br /><br /><br /><br /><br /> <p>Infographic by- <a href=”https://www.invespcro.com/”>Invespcro.com</a>

64% of retailers say their loyalty/rewards program is the best way to connect with consumers

50% of consumers changed their behavior to reach a higher tier within a loyalty program

On average, loyal customers are worth up to 10x as much as their first purchase.

The average repeat customer spends 67% more in their 31st to 36th months of their relationship with a business than in months 0-6.

49% of consumers agree they spend more after having joined a loyalty program

76% of consumers think that loyalty programs are a part of their relationship with brands

83% said loyalty programs make them more likely to continue doing business with certain companies.

74% of travel customers surveyed have made purchasing decisions based on travel reward programs.

67% of customers said surprise gifts are very important for loyalty programs

55% of millennials claim to be more brand loyal today, compared to 39% of consumers in the 35-and-older group

The post The Importance of Customer Loyalty Programs – Statistics and Trends appeared first on Invesp.

Ever wondered why your marketing budget keeps growing, but your profits aren’t catching up? The issue might be that you’re focusing more on acquiring new customers than keeping the ones you already have. 

Here’s the thing—acquiring new customers is necessary for growth, but keeping your existing ones is much cheaper and more effective in the long run. 

So, how do you strike the balance? By understanding the real costs behind customer acquisition and retention and taking action.

Discover the latest statistics and trends related to customer acquisition vs. retention costs across industries and the reasons behind them. This article also discusses the formulas for calculating acquisition and retention costs. 

What Is Customer Acquisition vs Retention 

Customer acquisition is all about attracting and converting new people into paying customers. This can involve various tactics, from digital marketing campaigns and social media outreach to events, email marketing, and more. 

It involves introducing your product or service to someone who has never bought from you and persuading them to make that first purchase.

You can calculate CAC (customer acquisition cost) using a simple formula: 

CAC = (Cost of sales + cost of marketing) ÷ Number of new customers. 

Here are the key factors that influence customer acquisition strategy:

• Marketing efforts: The effectiveness of your ads, content, and messaging
• Sales processes: How well your team can engage and convert leads
• Brand awareness: The visibility and reputation of your business in the market
• Product-market fit: How well your product meets the needs of your target audience

On the other hand, customer retention strategies are all about keeping existing customers happy and ensuring they stay after their first purchase. 

How will you calculate customer retention costs? Here’s a simple formula:

Customer Retention Cost = Total Retention Cost / Number of Active Customers

It’s not just about keeping them satisfied—it’s about building loyalty so they come back again and again. Retention efforts usually focus on maintaining solid relationships with your customers, providing them with value beyond the initial sale, and making sure their experience with your brand keeps improving.

Here are the key factors that influencer customer retention:

• Customer satisfaction: How well your product or service meets their ongoing needs
• Support and service: The quality of your customer support, response time, and problem-solving abilities
• Personalization: Tailoring your communication, offers, and interactions to individual customer preferences
• Loyalty programs: Incentives that reward repeat business, such as discounts, perks, or exclusive deals

Customer Acquisition Costs (CAC) – Key Statistics

Here are some key customer acquisition cost statistics every business owner should be aware of: 

Average CAC by Industry

As of 2024, the average Customer Acquisition Cost (CAC) varies significantly across eCommerce sectors. Here are some key statistics:

These figures are derived from proprietary data collected from over 80 clients between 2017 and 2023, highlighting the importance of understanding industry benchmarks for effective marketing strategies. 

Evolution of CAC Over Recent Years

• Rising customer acquisition costs: a 60-75% surge from 2014 to 2019

The trend in CAC has shown a significant increase in recent years. From 2014 to 2019, CAC rose by approximately 60-75% for both B2C and B2B businesses, driven by heightened competition and increased advertising costs. (Source)

More recently, a study indicated a 50% increase in average CAC for digital businesses over five years, emphasizing the escalating challenges faced in customer acquisition due to factors such as increased competition and rising ad costs on platforms like Facebook and Google.

• E-commerce focus: customer acquisition costs surge by 60% in five years

According to data from the e-commerce optimization platform SimplicityDX, customer acquisition costs (CAC) have skyrocketed by 60% over the last five years, reaching 2024. (Source)

This significant increase shows the growing challenge for online businesses trying to attract new customers in an increasingly crowded market.

What’s the reason behind this gradual spike in customer acquisition costs? 

This surge could be due to the rising competition across many industries. 

More companies are trying to attract the same customers, which means everyone is spending more on advertising to grab attention. As companies increase their bids for online ads, the costs increase, making reaching potential customers more expensive.

Another reason behind this increase in the CAC could be the perennially changing algorithms and policies of companies like Google and Facebook. To keep up with the changing trends, businesses often invest more to achieve the same visibility and engagement they once enjoyed. 

Customer Retention Costs – Key Statistics

Average Retention Costs by Industry 

Customer Retention Rates Vary Widely Like customer acquisition costs, Customer Retention Costs (CRC) vary across industries. It all depends on the time, resources, and efforts you invest in customer service, loyalty programs, and marketing to retain existing customers. 

When we look at customer retention rates across different industries, the average CRC is about 75%. 

However, this number varies greatly depending on the industry. For example, media companies do well, with retention rates hitting 84%. In contrast, the hospitality industry struggles more, with only about 55% of customers sticking around.

This difference makes sense when you consider the nature of these industries. 

Media companies, for example, often provide subscription-based services or continuous content to keep customers coming back regularly. 

Meanwhile, hospitality businesses—like hotels and restaurants—might only see customers during special occasions or vacations, making it harder to maintain a long-term relationship.

Impact of customer satisfaction on customer retention 

• 80% of Americans are in loyalty programs—and it boosts repeat purchases by 60%

Recent trends show that businesses are focusing more on personalized marketing strategies and loyalty programs to keep customers coming back. And it’s working. 

Around 80% of Americans are part of at least one loyalty program, and being in these programs increases the chances of repeat purchases by 60%. 

Loyalty programs are all about rewarding customers for sticking around. Whether it’s through points, discounts, or special perks, these programs make customers feel valued and give them a reason to choose your brand over competitors. 

This trend also reflects the industry-wide shift toward focusing on retention rather than always chasing new customers. After all, it’s much easier (and cheaper) to sell to someone who’s already bought from you before than to win over a brand-new customer.

• Positive customer experiences lead to 140% more spending

A study found that when customers have a positive experience with a brand, they end up spending 140% more over time compared to those who have a negative experience. (Source)

Think about it—when you feel valued and enjoy great service, you’re more likely to come back, right? Happy customers are also more likely to recommend your business to others, turning into loyal advocates. 

The Cost Comparison: Acquisition vs. Retention

Statistical comparison: cost of acquiring vs. retaining customers

• Retaining customers is cheaper than acquiring new ones

According to Harvard Business Review, acquiring a new customer can cost 5 to 25 times more than keeping an existing customer. 

Think about that for a second. You spend all this time and money trying to win over new customers through ads, promotions, and outreach but often overlook the people who’ve already bought from you. These people already know and trust your brand—so why not focus on keeping them happy?

Retention isn’t just cost-effective—it also builds loyalty. Customers who stick around tend to spend more over time, recommend you to others, and require fewer resources to maintain. 

If you can invest in great service, personalized experiences, and loyalty perks, you’ll save on marketing costs while still boosting your bottom line.

Why is Retention often more cost-effective? 

Retaining existing customers is often more cost-effective than it is to acquire customers for a simple reason: the customers you already have know your brand, trust your products, and are much easier to convince to purchase again. 

Here’s why focusing on retention can save your business money and drive profits:

• Lower marketing costs: You have already marketed to your existing customers by investing in advertising, lead generation, and sales processes. These measures were important to grab their attention, build trust, and nurture them before they make a purchase. With existing customers, that trust and familiarity are already there, so you don’t need to spend as much on marketing. Instead, a well-timed email, loyalty program, or discount can be enough to get them to buy again.
• Higher customer lifetime value (CLV): Customers who stick with your brand tend to spend more over time. They’re not just making one purchase—they’re coming back for more. This increases their lifetime value to your business, meaning each repeat sale costs less to generate than the first.
• Referrals and word of mouth: Loyal customers are your best advocates. They’re more likely to tell their friends and family about your business, bringing in new customers without you having to spend extra on advertising. Referrals are one of the most cost-effective ways to acquire new customers, and they come naturally from happy, retained customers.
• Reduced sales effort: Selling to someone who’s already had a positive experience with your product or service is easier than selling to someone who’s unfamiliar with your brand. Existing customers are more likely to purchase faster and with fewer objections because they trust you. This lowers your sales costs, and you can now use your existing resources in other areas of your business.

Conclusion: The Balance Between Acquisition and Retention

Businesses now need to find a way to strike a balance between customer acquisition and retention to thrive. While attracting new customers is essential for growth, if you retain customers you already have, your business strategy is likely to be cost-effective and profitable in the long run. 

Focusing on customer retention not only lowers marketing and sales costs but also builds loyalty, increases customer lifetime value, and generates organic referrals.

By investing in personalized experiences, loyalty programs, and excellent customer service, you can create a strong foundation for long-term success. Ultimately, businesses that prioritize retention alongside acquisition will see stronger profits, improved customer relationships, and sustainable growth over time.

How Marketers Are Using Online Channels For Retention Or Acquisition

Most Effective Digital Marketing Tactics For Customer Retention

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In 2025, the latest customer experience statistics reveal crucial insights into how consumers interact with businesses, shaping their satisfaction and loyalty.

As customer expectations continue to evolve, businesses must adapt to stay competitive and foster lasting relationships.

E-commerce sites worldwide quickly realize that a great customer experience is where the money is. Poor customer service hurts a customer’s experience, as evidenced by 89% of eCommerce consumers. 

They quickly stopped buying at stores that offered poor customer service. Since it costs six to seven times more to attract a new customer than to retain an old one, improving customer experience is all the more critical. 

Check out these latest customer experience statistics that show the importance of providing a great customer experience. 

Key Statistics on Customer Experience

1. Generative AI in customer service: A game-changer for 2025 and beyond

As customer expectations rise and support teams face growing demand, generative AI is rapidly transforming how businesses deliver customer experience (CX). According to Gartner, by 2025, 80% of customer service and support organizations will adopt generative AI technologies to enhance agent productivity and streamline interactions.

Generative AI—tools that use large language models to create content, automate responses, and support live agents—is currently at the “Peak of Inflated Expectations” in Gartner’s Hype Cycle, which means it’s getting a lot of attention and hype. However, most companies are still figuring out how to use it effectively.

Many expect it to solve significant problems, such as improving customer service or reducing costs, but not all results have been proven yet. Still, early signs indicate real potential, with 38% of business leaders stating that their primary goal with generative AI is to enhance customer experience and retention.

2. Growth of the global customer experience management market

The global customer experience management (CEM) market was valued at approximately $12.04 billion in 2023. It is expected to expand rapidly, with an average annual growth rate of 15.8% from 2024 to 2030. (Source)

This growth is driven by the increasing focus on improving customer satisfaction, retention, and overall experience across various industries. 

3. Consumers are willing to pay more for a great experience

A significant 61% of consumers are ready to spend at least 5% extra if they know they’ll receive a good customer experience. (Source)

This shows how much customers value being treated well and having their needs met. Businesses that cater to their needs will naturally gain an edge over competitors, as customers are not only willing to pay more but are also likely to return and spread the word about their positive customer service experience. 

They’ll be equally quick and eager to spread the word about poor customer experience, so make sure your service only results in satisfied customers and positive customer experiences throughout the customer journey.  

4. 80% of companies plan to invest more in customer experience

A significant 80% of companies plan to increase their investment in customer experience (CX). (Source)

This means that most businesses now recognize the importance of providing excellent service and are willing to put more resources into ensuring their customers have positive interactions. 

Customer Experience Statistics Related to Customer Loyalty and Retention

5. Almost all consumers and managers agree: customer service drives brand loyalty

As many as 97% of consumers and 98% of contact center managers believe that the quality of customer service interactions plays a significant role in shaping brand loyalty. (Source)

This means that nearly everyone, whether they’re on the buying or managing side, agrees that how a company handles customer service can make or break its relationship with customers. 

6. 86% of consumers would abandon a brand after just two lousy service experiences

If a customer has two negative experiences with a brand, there’s an 86% chance they won’t return. (Source)

This shows how important it is for businesses to provide a stellar and positive customer experience consistently. Even a few mistakes and not being up to mark as per customer expectations can result in losing a loyal customer forever. 

7. A 5% boost in customer retention can drive a 25% profit increase

Improving customer retention by just 5% can lead to a significant 25% increase in profitability. This shows how important it is to keep your customers happy and returning. (Source)

When customers remain loyal, they continue to purchase from your business, often increasing their spending over time. This reduces the costs of acquiring new customers and increases overall profits. 

8. Customer service impact: 93% more likely to return

When a brand delivers excellent customer service, 93% of consumers are more likely to make repeat purchases. (Source)

This is a win-win situation for brands. Clearly, great service helps resolve issues and builds loyalty and trust, encouraging customers to return and continue buying from that brand.

9. 80% of consumers prefer brands that offer personalized experiences

80% of consumers are more likely to buy from brands that offer personalized experiences, which is increasingly important in fostering loyalty. (Source)

Consumers today want more than just products or services—they want experiences tailored to their preferences. This personalization can be as simple as product recommendations based on past purchases or as complex as customized marketing messages that truly resonate with them. 

Technology and Customer Experience

10. Nearly half of customer service professionals aim to boost efficiency with AI and automation

Nearly 45% of customer service professionals plan to enhance their operations by integrating more AI and automation tools, which are expected to streamline processes and improve service delivery. (Source)

Businesses are turning to these technologies to make customer service smoother and prompt. Integrating AI and automation helps them handle tasks faster, reduce human error, and provide quicker, more accurate responses to standard customer inquiries. 

11. Customers connect through multiple channels, primarily online

On average, customers interact with brands through nine different channels or touchpoints. These include social media, websites, emails, and even in-store visits. 

Moreover, approximately 60% of these interactions occur online, highlighting the importance of adopting an online omnichannel marketing approach for businesses. (Source)

Financial Impact of Great Customer Experience 

12. Customer-centric businesses see double the revenue growth

Businesses prioritizing customer experience see nearly double the revenue growth compared to those not adopting a customer-first approach. (Source)

This demonstrates a clear connection between prioritizing customers and generating more revenue. When companies prioritize customer satisfaction, it often leads to happier customers, more repeat business, and higher revenue. On the other hand, businesses that neglect customer experience may struggle to keep up with more customer-focused competitors. 

13. Superior customer experience drives 5.7x more revenue than competitors

Brands that offer a better customer experience earn significantly more—about 5.7 times more—than those that don’t focus on it. (Source)

This again shows that when companies try to keep their customers happy by providing excellent service, easy interactions, and a smooth overall experience, they see much higher profits. On the other hand, businesses that don’t prioritize customer experience miss out on this extra revenue. 

14. 73% of companies with superior customer experience outperform their competitors financially

When companies provide a better-than-average customer experience, they are more likely to outperform their competitors financially. 73% of these companies do better financially than those that focus less on customer satisfaction. (Source)

When your customers have a positive experience, they’re more likely to remain loyal, spend more, and even recommend the company to others, ultimately contributing to improved financial performance.

Cost Savings and Efficiency 

15. The cost of poor customer service: $1.6 trillion lost by U.S. companies

When customers experience poor service, they often take their business elsewhere. And this isn’t just a minor inconvenience—it’s a significant financial loss. 

In the U.S. alone, companies lose a staggering $1.6 trillion due to customers switching to competitors due to unsatisfactory service. (Source)

This suggests that if a company fails to prioritize customer satisfaction or neglects it entirely, it can have a significant impact on its bottom line.

16. You can lower support costs by reducing customer inquiries

When you streamline customer interactions and remove obstacles in the user experience, it leads to fewer questions and problems that customers need help with. 

Naturally, your customers no longer need to reach out to your support team as often. This decrease in customer inquiries means your support team can focus on more complex issues, reducing the overall cost. Fewer support calls also mean your resources are used more efficiently, which can significantly lower your company’s support expenses.

The Future of Customer Experience: Key Takeaways for 2025

Providing a great customer experience is more than just a nice-to-have—it’s something that will directly have an impact on your company’s success. The statistics reflect that customers are willing to pay extra for excellent service. Businesses that prioritize customer satisfaction also reap financial benefits, including increased revenue and enhanced customer retention. 

How can you achieve customer satisfaction, though? The best approach is to listen to customer feedback and promptly address their needs to acquire new customers and ensure existing customers remain satisfied and loyal.

In contrast, poor customer service can result in significant financial losses and customer churn, as customers quickly abandon brands that fail to meet their expectations. Companies that focus on streamlining customer interactions, personalizing experiences, and investing in customer experience management are not only reducing their support costs but also setting themselves up for long-term success. 

All in all, keeping loyal customers happy through great service is far more cost-effective than constantly seeking new ones.

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