How to measure and improve customer retention

Customer retention is one of the clearest indicators of long-term success for any software company. It’s more than just keeping customers on board — it’s about growing the value of your existing customer base over time. So how do you actually measure whether your retention strategy is working? Let’s delve into the main indicators.

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The key metric: net revenue retention (NRR)

If you’re looking for one retention metric that gives a reliable picture of success, it's net revenue retention (NRR).

NRR measures whether your current customers are spending more, the same, or less over time. It captures the full picture by combining upsells, cross-sells, and churn from your installed base. In simple terms: are you generating more revenue from the same group of customers?

To calculate NRR:

• Start with the monthly recurring revenue (MRR) from your existing customers.

• Add any expansion revenue (from upsells or cross-sells).

• Subtract any revenue lost through downgrades or churn.

• Divide the outcome by the starting MRR

If your NRR is over 100%, that means you’re growing revenue from your existing customer base, which is a clear sign of strong retention and product value.

This metric becomes especially important as companies shift towards product-led growth models, where the product itself drives user acquisition, conversion, and retention. NRR helps you understand whether your product is truly delivering ongoing value to your users.

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Dig deeper with usage metrics

While NRR tells you the financial story, product usage metrics help you spot early signs of churn or opportunities for growth.

Some usage indicators to track:

• Number of active users

• Frequency of logins or sessions

• Volume of key actions performed (e.g., reports generated, workflows completed)

• Adoption of new features

A steady or increasing trend in these metrics suggests that customers are engaged and finding value. A decline might point to confusion, unmet needs, or dissatisfaction — all of which could lead to future churn if not addressed.

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Use marketing to improve retention, without raising costs

Improving retention doesn’t always require expensive initiatives or adding headcount. In fact, marketing can play a powerful role in retention, especially when automated. Here’s how:

• Keep your customers informed: Regular updates about new features, product improvements, and use cases remind users of the value they’re getting. A simple monthly newsletter can go a long way.

• Share success stories: Case studies and customer testimonials help reinforce that choosing your product was the right decision.

• Build a customer community: Forums, user groups, or LinkedIn communities can turn users into advocates and help them learn from each other.

• Target your existing customers: Treat your installed base as a core marketing audience, not just a post-sales group. Personalized content and relevant updates help deepen relationships over time.

These marketing strategies don’t require a big budget. With the right tools, they can be largely automated, ensuring your existing customers stay engaged and informed.

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Investing in retention pays off in multiple ways:

• It increases customer lifetime value (CLV)

• It lowers acquisition pressure on your sales and marketing teams

• It provides a stable foundation for sustainable growth

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Final takeaway

With the right approach, your current customers can become your most valuable growth engine. By focusing on net revenue retention, paying attention to usage trends, and using marketing to stay top of mind, software companies can drive long-term value without significantly increasing their costs.