Revenue growth might be the name of the game for companies, but customer retention is just as important for any SaaS business.
And while there are several customer retention metrics you should track, it’s important to start with the absolute basics — the number of customers leaving your product or service over a period of time.
Logo retention (customer retention) is a SaaS metric that shows how good a business is at keeping its existing customer base. It gives you the percentage of customers who stay with you from period to period.
While logo retention is a useful metric for SaaS businesses, you should use it with other metrics to measure your business’s health. Businesses often use net revenue retention (NRR) and gross revenue retention (GRR) with logo retention to make strategic business decisions.
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The Value of Logo Retention
Logo retention is often calculated for a customer cohort who signed up for a service at a specific time. A poor logo retention rate could indicate potential customer churn issues.
When customers highly value a product or service, they stay with the brand, thus increasing the logo retention rate.
While a low retention rate might indicate trouble, you should always use it with other retention metrics like:
- Gross revenue retention (GRR)
- Net revenue retention (NRR)
- Customer lifetime value (LTV)
- Customer acquisition cost (CAC)
- LTV:CAC ratio.
How to Calculate Logo Retention Rate
To calculate logo retention rate, you need to divide your customers into cohorts based on when they signed up for your product/service. You can calculate the retention rate for a month or year based on the length of your subscription cycle.
Logo retention is calculated by subtracting the number of new customers you acquired during a period from your total customers at the end of the period and dividing by the total number of customers you started the period with.
Here’s a quick visualization of the straightforward retention metric formula.
Essentially, your logo retention rate is a way to measure the number of customers due for renewal who actually renewed service in addition to those that churned early.
If you have sufficient data and the right tools, it’s easy to calculate logo retention rate.
For example, assume you had 500 customers at the beginning of a month and 520 by the end. Along the way, you added 30 new customers but lost ten. Here’s what your logo retention rate would look like for the period:
The logo retention rate = [(520 customers to end the period – 30 new customers) / 500 customers at the start of the period] * 100 = 98% logo retention
Logo Retention Benchmarks
What’s a good logo retention rate?
Different industries have different benchmarks for logo retention rates. Even within an industry, the benchmark varies based on the company’s size and business model. Within SaaS, a logo retention rate of 90 to 95% is common for enterprise customers, 85% for mid-market customers, and 70 to 80% for small business accounts.
But you should look at these benchmarks as a reference and not waste too much energy catching up with them. Instead of comparing your numbers against the benchmark, you need to understand the “why” behind your retention numbers.
Why Logo Retention Benchmarks May Not Apply to SaaS Companies
It’s not easy to determine what logo retention rate is good for a SaaS business. A high logo retention rate might not always mean the business is doing great.
The following aspects make it difficult to define a universal logo retention benchmark for the SaaS.
Complex Revenue Model
The complexity of the SaaS revenue model makes it difficult to interpret a logo retention rate as success or failure. SaaS revenue doesn’t directly depend on the number of users. Instead, it could vary based on factors such as:
- Billing cycles
- Complex pricing plans
- Seasonal business variations
For example, your logo retention rate might be low for a particular period. Still, you might have made many upsells, cross-sells, and account expansions during this period, increasing your revenue and SaaS quick ratio.
Even if you manage to retain all your customers, your revenue can decline if some customers downgrade their accounts. So logo retention rate alone isn’t sufficient to indicate the success or failure of a SaaS business.
Type of SaaS Business
The logo retention rate benchmarks should differ for B2B and B2C SaaS companies.
For a B2C business, most customer accounts contribute equally to the revenue. So churn rate may be directly proportional to the decrease in revenue.
But customer accounts vary in their size for B2B enterprises. Some customer accounts bring more revenue than others. In B2B, the impact of losing one customer might be different from losing another customer.
If you implement business strategy changes, they may affect your retention rates. If you’re an SMB and focus on shifting towards the enterprise market, your customer attrition may be higher than the SMB average — because the SMB market benchmark isn’t a perfect fit for your business.
Maybe you upgraded your pricing and lost a chunk of bad accounts while overall revenue grew.
Remember: There are many different ways to look at retention — don’t get caught up in a general benchmark for this high-level metric.
Logo Retention with NRR and GRR
Logo retention rates help you understand the number of customers leaving your brand. It also helps you unveil the potential reasons for customer churn. For instance, you might have made a particular product or pricing change that triggered the churn.
But you can’t get a complete picture of your business’s health just by looking at the customer retention rate.
For example, if you retain all your customers, but they downgrade their subscriptions, you’ll have good logo retention rates yet a drop in revenue. Likewise, if you only concentrate on revenue and ignore customer churn, you might see a revenue drop due to negative reviews.
You need to use multiple SaaS financial metrics to monitor the health and growth of your business. Along with logo retention, keep track of NRR and GRR. They’ll tell you if your monthly recurring revenue (MRR) or annual recurring revenue (ARR) grows as expected.
How to Improve Logo Retention Rate
Retaining your existing customers is as important as acquiring new customers. The customer acquisition cost is high, and losing your customers might also result in negative reviews and affect your brand’s reputation.
Here are some high-level ways you can adjust your customer retention strategies to improve logo retention and renewal rate:
- Improve the market fit of your product/service.
- Offer great onboarding and product experiences.
- Align your pricing plans with the value of the services.
- Offer incentives while upgrading plans.
- Work with your customer success team to plan out additional support resources.
- Re-prioritize product roadmap to address customer needs.
Real-time Customer Retention Metric Tracking
Logo retention rate is a crucial metric to understand whether your customers are happy and if they value your products. But it’s far from the only metric you need to fully understand how you’re performing from a customer retention standpoint. The only way to gain deep insight into customer retention and gain strategic insight is to have real-time visibility into your most critical retention metrics.
Mosaic can pull up logo retention rates on demand and contextualize them with the other retention metrics that matter most to your business. And because actuals feed into the platform straight from your source systems, you can cut the data by customer segments, time period, sales territory, and other dimensions with just a few clicks. This kind of contextual information will help you embrace strategic finance and financial analytics to become the growth catalyst your business needs.
Do you want to know how Mosaic can help you calculate real-time logo retention rates?