- Why Change?
Discover the power of cloud cost intelligence.
Give engineering a cloud cost coach.
Learn more about CloudZero's pricing.
Request a demo to see CloudZero in action.
Learn more about CloudZero and who we are.
Got questions? We have answers.
Speak with our Cloud Cost Analysts and get the answers you need.Get in touch
How SeatGeek Decoded Its AWS Bill and Measured Cost Per CustomerRead customer story
Enable engineering to make cost-aware development decisions.
Give finance the context they need to make informed decisions.
Decentralize cloud cost and mature your FinOps program.
Discover the best cloud cost optimization content in the industry.
Gauge the health and maturity level of your cost management and optimization efforts.
Browse helpful webinars, ebooks, and other useful resources.
Learn how we’ve helped happy customers like SeatGeek, Drift, Remitly, and more.
Guide: How To Overcome Tagging And Accelerate Cloud Cost AllocationSee guide
Discover what customer retention cost is, how to calculate it, retention cost examples, and how you can improve customer retention costs.
You may have heard that keeping an existing customer is five times cheaper than acquiring a new one. But that isn't always true. “Hidden costs” often accompany customer retention, loyalty, and increasing "share of customer".
Could you be spending more on retaining customers than on winning new ones?
This quick guide will walk you through the meaning of Customer Retention Cost (CRC), why it's important to calculate, and how to calculate CRC.
You’ll also learn how to cut customer retention costs without losing customers, so you can recoup your investment and increase your profit.
Table Of Contents
Customer Retention Cost (CRC) is how much you spend to keep one customer buying from you for as long as possible. CRC is the cost of customer retention over a specific time.
SaaS businesses typically track crucial metrics like monthly recurring revenue (MRR), customer acquisition cost (CAC), churn, payback time, and lifetime customer value (CLV). Additionally, most companies invest heavily in reducing their churn rate. Chances are your company does this as well on the following activities.
Customer retention costs include all of the costs to maintain and support that customer. Retention costs include:
Historically, companies looked at retention rates because it is easier to cross-sell or upsell to an existing customer than to a new one. Keeping a customer is good for increasing their lifetime value.
However, the shift to Software-as-a-Service (SaaS) requires businesses to keep customers for as long as possible to increase profitability.
If you run your business on recurring or subscription revenue, nurturing, growing, and meeting the needs of existing customers are crucial to your survival and long-term success, month-by-month (renewal cycles).
That’s not all.
Customer Acquisition Cost (CAC) is the amount of money a company spends over a particular period to win a new customer, but the Customer Retention Cost (CRC) is the amount of money a company spends after signing up that customer.
A business can use CAC to determine when it will recoup the costs of sales and marketing used to acquire a new customer. CRC is useful for determining if it makes sustainable profits from keeping all or specific customers.
So, how do you calculate CRC?
You need to add up all the sales and marketing costs of both new and existing products and services to your current customers for a set time. Depending on how much visibility you want, you can add up all the investments every month, quarter, or year.
Here are a few helpful formulas:
This method, however, does not show how much you spend to support a specific existing customer. Rather, it equalizes customer retention costs across the board, which is grossly inaccurate.
That approach makes it hard to determine your most expensive or least profitable customers. In addition, it is difficult to determine what discount rate to offer a customer whose retention cost is low in relation to their revenue.
A smarter approach is to calculate CRC on a case-by-case basis.
You can use cost per customer to determine if you are making enough from each customer to keep them. A cost intelligence platform can help you measure cost per customer allowing you to make informed decisions on contract renewals, pricing tiers, and go-to-market strategies.
That leads us to the next question most organizations ask.
With time, a customer's CRC may decrease as their confidence in your product or service develops, theoretically requiring less input from you to keep their business. However, we don't recommend factoring in reducing CRC over time. Here are a few reasons why:
Trying to reduce customer retention costs at any cost can damage your customer relationships. You could instead optimize your CRC to protect your margins and profit. Below are some tips.
How do you retain customers at the lowest cost? And, how do you cut customer retention costs without losing customers? Try these tips:
CloudZero's cost intelligence platform helps SaaS companies discover the actual costs of supporting a particular customer.
Unlike calculating average CRC, you can use cost per customer to determine how much you should charge a specific customer to recover your retention expenses.
You can also use CloudZero’s cost per customer metric to set profitable SaaS pricing. Schedule a demo today to see CloudZero in action.
CloudZero is the only solution that enables you to allocate 100% of your spend in hours — so you can align everyone around cost dimensions that matter to your business.