Jared Zhao
CEO
In SaaS, strong customer retention is the key to maximizing lifetime value (LTV) and building a scalable business. Without it, even the best acquisition strategies leak revenue. Small improvements in retention compound over time, driving long-term revenue growth and healthier unit economics.
Retention directly impacts Customer Lifetime Value (LTV) and sustainable growth. Weak retention means your customer acquisition cost (CAC) delivers diminishing returns. Improving retention increases LTV, enabling faster, more profitable scaling.
The Relationship Between LTV and Retention
A = Revenue per user per period (e.g., monthly)
r = Retention rate (as a decimal)
The LTV formula:
LTV = A·r + A·r² + A·r³ + … = A / (1 - r)
Retention’s Impact on LTV Example at $100 Monthly Revenue per User
50% retention → $200 LTV
60% retention → $250 LTV (25% increase)
A 10 percentage point increase from 50% to 60% raises LTV by 25%.
70% retention → $333 LTV
80% retention → $500 LTV (50% increase)
Another 10 percentage point increase from 70% to 80% boosts LTV by 50%.
"Retention is a measure of the people who tried your product and liked it enough to return; as such, it underpins all significant metrics."
Sequoia Capital
This shows how retention improvements compound revenue growth—small retention gains lead to disproportionately large LTV increases.
Unlike many business efforts with diminishing returns, improving retention accelerates revenue growth and customer lifetime value in SaaS.
Retention is the foundation of scaling a successful SaaS business. Strong retention powers a growth flywheel:
Higher LTV improves your LTV:CAC ratio, enabling increased acquisition spending.
Lower CAC strengthens unit economics and accelerates scaling.
More scale generates richer data and faster feedback loops.
Better insights drive product improvements that further boost retention—restarting the cycle.
Without strong retention, new customer acquisition is wasted, undermining growth efforts. Improving retention compounds customer lifetime value (LTV), which in turn allows you to invest more in customer acquisition (CAC). A higher CAC budget means you can reach previously inaccessible customers, fueling continued growth and expanding your market.
A strong retention strategy starts with understanding what sets your most loyal users apart from those who churn. The key is user segmentation—grouping customers by acquisition channel, persona, geography, product usage, subscription tier, or behavior.
Segmentation uncovers patterns that aggregate metrics miss. It reveals where customers get stuck, which behaviors correlate with loyalty, and what triggers churn. This behavioral analysis is essential to reducing churn and driving sustainable growth.
Why user segmentation matters for SaaS customer retention:
Identify customer cohorts with high or low retention rates
Pinpoint drop-off points during onboarding and activation phases
Discover high-value user segments by geography, subscription tier, plan type, feature usage, and demographics
Track segment behavior over time using cohort analysis and retention charts
Uncover key product “aha” moments that drive long-term engagement
Prioritize product development and investment based on real user data and retention outcomes
Combine behavioral segmentation with qualitative insights from session replays and customer interviews for deeper analysis
Rachel Hechter
Head of Product at PhoneBurner
Take Uber as an example: loyalty isn’t based on the very first ride but may develop after the third. Similarly, a SaaS platform might find users who activate a core feature within 7 days are three times more likely to retain. Segment-level retention analysis uncovers these crucial patterns, enabling smarter onboarding, targeting, and product decisions.
"A product might have excellent overall retention while retention of specific features like messaging or image uploads is significantly lower. Recognizing this variability is crucial for maximizing product potential."
Sequoia Capital
By analyzing retention by user segment and feature usage, teams uncover hidden growth opportunities. This approach lets you scale intentionally by focusing on what drives customer lifetime value (LTV)—the foundation of sustainable product-led growth.
Tracking retention goes far beyond vanity metrics like signups or website traffic.
Cohort Retention measures how user groups—defined by when they signed up—engage with your product over time. This allows you to monitor whether retention is improving and which user behaviors are most valuable.
Product Health: Cohort analysis identifies when and why users drop off, pointing to usability or onboarding issues.
LTV Impact: Retention is the primary driver of LTV. Cohorts reveal which users stick longest and generate the most value.
Growth Insights from Segmentation: Slice cohorts by persona, plan type, region, or product usage. Patterns emerge that help you find your “aha” moments and refine onboarding and activation.
Measuring cohort retention is essential for evaluating if your product changes truly improve long-term engagement.
"Retention is a measure of the people who tried your product and liked it enough to return; as such, it underpins all significant metrics."
Sequoia Capital
Building a Cohort Retention chart manually is tedious. At Athenic AI, we’ve built it into the product—combining the flexibility of AI while ensuring the cohort calculations are accurate. Once setup, you can explore customer segments just by asking questions:
Retention of Athenic AI users is much stronger after connecting a live data source, as opposed to CSV or Google Sheets:
Based on artificial data, for demonstration purposes only
Takeaways:
CSV and Google Sheets are fine for quick testing but don't deliver lasting value. We should consider replacing them with a fully set-up sample data source to guide users faster.
Connecting a live data source should be frictionless. Add options like booking support directly from the connection page, extending free trials, or offering incentives to encourage it.
The “Aha” moment for new Athenic AI users probably happens somewhere around 15 questions mark:
Based on artificial data, for demonstration purposes only
Takeaways:
We need to incentivize new users to ask more questions as quickly as possible.
If it takes 15+ questions to reach the "Aha" moment, users likely aren’t understanding the product early enough. We should:
Make asking questions more intuitive
Teach users how to ask questions inside the product (e.g., a guided walkthrough)
Improve product documentation
Now that you’ve seen why measuring Cohort Retention is valuable, and how easy it is to do this with Athenic AI, let’s set it up for your own data.
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If you have any questions, you can reach out to support@athenic.com for help.
Connect your application database
Athenic AI connects to your application database, which is your most complete source of user activity and feature usage. This allows you to analyze all of your historical data, rather than having to record user activity separately.
Identify the User and Action:
User: The unit you’re measuring retention for (e.g., Uber → riders; Athenic AI → Teams). Usually it’s whoever is billed, but sometimes it’s another entity.
Action: the main way users get value (e.g., Uber → rides completed; Athenic AI → questions asked).
Identify Customer Segments
To get the most from retention analysis, you need to find what separates your best-retained users from the rest. Adding segmentation data in Athenic AI lets you compare retention across different user behaviors.
For example, we looked at retention by data source type, projects created, team size, and number of questions asked. We added minimal supporting datasets to our Knowledge Graph to compare users with live vs. static data sources, and those who asked 1 vs. 15+ questions.
Create Cohort Retention Charts
Now, we’re ready to start creating our Cohort Retention charts. The best way to format your questions is:
“Show me a {time period} cohort retention of {user} doing {action},
{how you want to segment the users}“.
For example, we’ll ask: “Show me the monthly cohort retention of teams asking questions”
🎉 Congratulations! You’ve created your own Cohort Retention chart!
"Exposing users to your product’s magical moment as early and as frequently as possible will reinforce your product’s value proposition and drive them to return to the product, as well as to engage more deeply and more frequently. This will first increase short-term retention and later manifest in better long-term retention, putting your product on the road to sustainable growth."
Sequoia Capital
Retention analysis isn’t just another metric — it’s the clearest blueprint for building a product users can’t live without. By deeply understanding cohort retention and segmenting precisely, you uncover where your product truly delivers value — and where it falls short.
The insights uncovered through cohort retention empower you to create "Aha!" moments earlier and more frequently, driving your customers towards lasting engagement. Keep listening closely to your retention data—it has the power to guide you toward the product your customers can't imagine living without.
Book a demo to get started.
