What is your primary goal as a SaaS company?
Let me guess.
As a SaaS company, you strive to get and retain as many clients as possible.
However, with so much competition in the current market, keeping your consumers interested and satisfied with your offerings can be difficult.
That is why having a robust retention strategy in place is critical.
This article will focus on 16 Strategies to maximize Saas customer retention growth.
We'll share practical insights and tried-and-true tactics to help you build a smooth customer experience that will keep your consumers returning for more.
So, whether you're a startup or a well-established SaaS company, prepare to learn how to enhance your client retention game.
Let’s dive in.
What is a SaaS Customer Retention Rate?
Customer retention rate is when customers remain loyal to your company over a predetermined period.
When you have a better understanding of the rate at which your business can keep clients, you will be in a position to take steps to improve that rate.
Retention vs. Acquisition
In addition to customer retention, gaining new customers is essential for a company's success.
It increases its ability to grow in its target market because more customers equal more income.
However, the need to win new consumers often precedes many businesses' attention paid to current customers.
At first glance, this makes sense, especially for SaaS providers:
If existing customers continue to pay the same amount for service while you add another 10, 20, or 50 users, your overall revenue will improve.
It's not relatively easy, though.
First, it costs 6 to 7 times as much to get new consumers as to keep your current ones since you have to put in the extra effort to engage and convert them.
Additionally, because they know the value of your service and the products you offer, returning clients frequently spend more money with you.
Corporation revenue can increase by 25–95% with a 5% increase in retention rates.
The outcome for businesses aiming to expand is a simple but frequently startling realization:
While acquisition delivers a modest income boost in exchange for more sales and marketing expenditures, retention offers greater value for less money.
The Importance of SaaS Customer Retention
It's always thrilling to bring on board new customers, but keeping existing ones is where your software company will see the greatest return on investment.
Let’s talk numbers:
- Increasing the percentage of returning customers by 5% can raise profitability by 25-95%.
- It has been demonstrated that maintaining relationships with one's current clientele can increase revenue by 25 to 95 percent.
- Are you aware that 80 percent of your future profit will come from about 20% of your current clients?
- Renewals and upsells from current customers account for 50–70% of the revenue in a subscription business.
Customer Retention Benefits
Your plan for client retention in SaaS is crucial to your company's success.
And most of that may be attributed to SaaS's As A Service component.
Here are some advantages of retention.
1. Increased Customer Lifetime Value
With the SaaS model, users of your program pay you regularly via subscription; you might call it a repeat business instead of a one-time transaction.
A customer's lifetime value (LTV) is the total amount of money they spend with you while they are a customer.
This means that for every additional month or year you have a customer, their LTV increases, leading to higher retention and more valuable clients.
2. Keeping Current Customers is Less Expensive Than Acquiring New Ones
In contrast, Customer Acquisition Cost (CAC) is paid in full upfront.
At the same time, LTV is realized over time—month by month in the scenario shown below.
According to the lower graph, which was taken from a blog by David Skok, you have unprofitable consumers up until LTV exceeds CAC.
You have a major issue if your customer retention rates don't translate into LTVs that outperform CAC.
Of course, per-user costs for SaaS companies include expenses besides acquisition.
But as long as these are less than the regular membership charge (and if they're not, you've got far worse retention issues! ), you can simply negate them when calculating LTV.
But that CAC will only be incurred once.
This is why keeping existing customers may be much cheaper than acquiring new ones.
3. Increased Profits Through Account Expansion Opportunities
Your existing users are more likely to stick around and increase their spending, so they may continue receiving value as you provide additional value.
This is especially true for collaborative SaaS applications such as Slack, Figma, Asana, etc., which increase in value with the number of members in a workspace.
To move people onto higher product tiers, purchasing add-ons and offering them other products from your line are all excellent ways to expand your customer base, even with single-player SaaS.
The longer you engage a customer, the more probable it is that their needs will change and you will have the possibility of increasing the account.
For additional information, read this blog post on customer expansion tactics.
4. Increased Brand Loyalty and Recommendations
Additionally, you have a significant advantage when selling to people they know once you have an engaged consumer.
This is because the user can serve as your champion by demonstrating to friends and coworkers the benefits they receive from your software.
Brand loyalty and recommendations assist you in some aspects of marketing, lowering CAC for individuals connected to you.
Additionally, if your user base is active, you may invite these people to leave positive reviews on websites like Capterra and G2 so that you can establish your reputation.
5 Essential Metrics to Gauge Customer Loyalty and Retention
The customer retention indicators that have the most impact on growth can identify which customers are leaving, when they are leaving, and why, as opposed to tracking B2B SaaS metrics that have no bearing on the overall health of your organization.
Although other indicators could directly or indirectly affect SaaS retention, we'll focus on the five most important retention metrics because of their significant effects on revenue and growth.
1. Customer Churn
Customer churn counts the number of users who ceased using your service during a specific period.
For instance, 10% customer churn month-over-month (MoM) signifies that 10% of total subscribers from 30 days ago have unsubscribed in the last 30 days.
The simplest way to comprehend and stop client churn is to consider it the source of leaks in your regular revenue.
If you can see it in this light, you'll know it doesn't make much sense to keep bringing on clients who will leave the typical way.
Instead, it is more prudent and cost-effective to put tactics in place to keep current clients rather than attract new ones.
Additionally, the more customers a company loses, the slower its growth.
Abandoned clients are a goldmine of knowledge that can improve your service to current consumers.
You may predict churn and improve the customer experience for the subscribers who are still paying consumers by knowing why, when, and how customers depart. By doing this, you can control churn and retention rates.
2. MRR Churn
Your monthly recurring revenue (MRR) is directly threatened by MRR churn.
It computes the MRR lost over a specific period due to client cancellations.
A 10% MRR churn rate means that, throughout the past 30 days, 10% of your MRR from the previous period has been lost.
MRR churn is still a remarkable statistic to gauge the health of a firm, even for SaaS providers with several pricing levels and contract lengths.
Only the number of cancellations is displayed when a customer leaves.
MRR churn, however, reveals the real impact and the amount of income lost. The faster the growth, the smaller the MRR churn.
3. Customer Lifetime Value (LTV)
A customer's lifetime value estimates how much money they will spend using your service overall.
This metric displays the value of each customer and the potential revenue you might earn from keeping existing clients willing to make payments.
Furthermore, compared to new consumers, your existing clients have the potential to spend 67% more.
Different clients in SaaS may have varied customer lifetime values due to the different pricing tiers.
It is therefore advised to determine a customer's LTV based on the pricing tier to which they are subscribed.
But you can quickly figure out lifetime value by dividing the average monthly revenue from each customer by the churn rate.
If a consumer pays $2,000 per month and you have a 5% customer turnover rate, your lifetime value for a new customer is $40,000 over an anticipated 20-month period.
Customer lifetime value is a term that 76% of businesses consider to be of utmost significance. Therefore, it should come as no surprise.
Lifetime value becomes a valuable indicator when measured alongside another crucial metric, such as customer acquisition cost (CAC).
4. Customer Acquisition Cost (CAC)
Customer acquisition costs refer to the expenses of acquiring a new customer.
These expenses cover salaries, bonuses, commissions, advertising and marketing expenditures, tool subscriptions, and other overhead costs.
It is calculated by dividing the entire cost of gaining new consumers by the number of those clients.
A fundamental indicator called CAC can assist you in comprehending your target market and the profitability of your current acquisition techniques and channels.
The scalability and profitability of your SaaS company can be assessed when CAC is analyzed along with other indicators like client lifetime value.
For instance, spending $4,000 on acquisition (CAC) is not a viable alternative if the average customer pays $5,000 over a specific time frame (lifetime value).
The ideal ratio between customer acquisition cost (CAC) and lifetime value (LTV) is 3:1.
According to this, a customer should bring in three times as much as you used on acquisition.
You should spend no more than $1500 to bring in a customer who will pay $5,000 over a specific length of time.
5. Net Promoter Score (NPS)
An important indicator of customer satisfaction, the Net Promoter Score, assesses your clients' satisfaction.
It gauges how likely they are to recommend your goods or services to others.
It gauges client loyalty, satisfaction with your product, and the likelihood of product recommendations.
This index can measure customer loyalty by gathering input through a Microsurvey with a numerical scale that respondents can react to using a 0–10 scale.
Customers who rate your goods negatively (between 0 and 6) are detractors. They can be on the verge of churning if they don't see the value in your offering.
Customers in the 7-8 range are referred to as passives, while those in the 9–10 range are promoters who genuinely enjoy your product and aren't shy about telling others about it.
Although the response rate for an ordinary survey is just over 3%, NPS surveys are so simple to complete that they can have response rates of up to 20%–40%.
NPS scores are expressed as:
- A value of 0 is quite unsettling; what went wrong?
- Some users like you, but the majority aren't grinning, so anything between 0 and 40 is a reason for alarm.
- You can learn this by continuously seeking feedback to advance; the ideal range is between 40 and 60.
- Above 60 is excellent, but you may constantly improve.
A high NPS does not ensure client growth and retention. However, when combined with customer turnover and revenue growth rates, you can forecast potential growth via retention and referrals.
16 SaaS Customer Retention Strategies
We've compiled a list of the top 16 SaaS customer retention tactics to assist your company in keeping consumers interested.
1. Meet Customer's Expectations
Customers have expectations when they engage in business. Examples of what clients can anticipate are as follows:
- Timely delivery of services
- Quality customer support
- Consistent products and services
- Solved challenges
After a consumer makes a purchase, companies that don't live up to their expectations risk losing them as subscribers.
For instance, if a company claims its software accelerates a business process but the client still needs to finish the task in the same amount of time, the customer won't be interested in continuing to pay for the service.
By providing exceptional customer service, frequent updates, and open communication channels, businesses can keep their SaaS clients by ensuring their solutions meet and exceed their expectations.
Below are the factors that influence customers’ loyalty.
2. Build a Customer Journey Map
The customer's journey doesn't have to end after their initial purchase.
The ups and downs of the customer relationship can instead be shown by a customer journey map that depicts the journey of a devoted customer.
For instance, if a company has trouble keeping clients for over a year, it can map that time to look for signs of diminishing interest or potential influencing variables.
This map comprises consumer communications, remarks, and behaviors that may indicate the root of the rising unhappiness.
Insights from an exit interview will also help the company solve the problems that led to the customer's disinterest and lengthen the typical SaaS customer lifecycle.
3. Provide an “Aha” Experience
A recent poll found that 99% of businesses currently utilize at least one SaaS provider, ranging from useful CMS tools and thorough analytics services to specialized, purpose-built cloud applications.
As a result, it's crucial to give your customers an "a-ha!" moment—a flash of insight that makes the value of your service obvious.
Achieving this goal frequently entails giving new clients a reliable starting point during onboarding.
They can more rapidly access the main advantages of your SaaS service and begin to discover value if you point them on the correct path using tutorials and knowledge bases.
4. Contextualize Your Offering
Where does your SaaS product fit into the overall market?
Who or what is your target market, and what can your solution do that no other can?
It is feasible to avoid comparing your service with other SaaS providers that don't operate in the same market sector by describing who you are and what you do in detail.
Consider a finance application that automates important accounting tasks as your primary SaaS solution.
You can express exactly what you do and don't do by developing a straightforward, contextual value proposition.
5. Offer Connected Upsells
The variety of potential add-ons available with SaaS products is well known.
These frequently consist of extra storage space, higher computing power, or software capabilities that simplify interacting with other cloud-based services.
If they're related to what businesses are utilizing, these upsells are an excellent method to encourage more spending from loyal clients.
Consider a business that uses your technology to manage complicated computational processes.
Sure, you could offer a discount on data storage, but this upsell isn't used if the client keeps their data on their systems.
To keep clients paying, keep it relevant.
6. Create a Communication Schedule
It's simple to shift your focus and begin putting more emphasis on acquisition than retention once you have a client on board, especially if they have been customers for months or years.
When you spend more time pursuing new leads than interacting with current customers, you may no longer be interested in them now that you have their business.
If customers have only minor issues with your software, they might not contact you for weeks or months.
This is especially typical when your SaaS product functions as expected.
Make a timetable for your communications so that you can engage with customers frequently to address this potential churn issue.
It may go a long way toward keeping consumers pleased, even if it's just a quick check-in to ensure everything operates as intended.
For your business to continue to thrive, maintain it regularly.
7. Keep Your Product Current
SaaS solutions change over time.
Software must adapt to keep up with the development of cloud technologies and business needs.
SaaS suppliers must maintain their current products, but it is crucial to inform clients of any changes.
This demonstrates your dedication to introducing new features and functionalities and alerts businesses to any potential service interruptions or downtime so they can plan accordingly.
8. Go Above and Beyond
According to 33% of Americans, a single incidence of subpar service will make them think about switching businesses.
This results in businesses losing about $136 billion annually due to avoidable client churn.
Therefore, businesses must go the extra mile to keep customers connected; it is not enough to just provide good service.
This entails going above and beyond to assist clients in locating problems or resolving pain spots, even if they are only loosely associated with your product or service.
This is crucial because even good customer service interactions can irritate customers if they think their demands or complaints are not adequately addressed.
Avoid frequent service problems by striving for outstanding rather than good.
9. Consider a Rewards Program
For retail businesses, a rewards program could entail discounts after a certain number of purchases or the opportunity to accrue points for each item purchased.
In contrast, rewards programs for SaaS businesses sometimes take the form of gradual discounts based on the length of the signed service contract.
For instance, if the monthly cost of your SaaS solution is generally $100, you may provide businesses that sign up for a year a discount of $10 per month, and you might give higher reductions for longer durations.
You can also launch a referral program that rewards clients who recommend you to other businesses in their network with immediate discounts on services or add-ons.
10. Reduce Friction Wherever Possible
Users become irritated by friction and stop visiting as frequently. Particularly true for SaaS solutions, which businesses often use daily; even minor faults can, over time, lead to significant frustrations.
For routine tasks to run more smoothly, this entails incorporating tools like form autofill and ensuring your solution is compatible with a wide range of other as-a-service apps.
11. Collect (and Act) on Feedback
Do you want to know the true thoughts of your clients?
Inquire about them.
You can learn where your company meets expectations and where improvements are needed by gathering client feedback through email surveys, post-purchase forms, and routine communication.
The more responses you gather, the better, since this helps you identify potential service trends that need to be addressed, such as lengthy wait times or inadequate responses.
Do not inquire soon after providing help or service to customers.
The fact that they are paying attention to you may make it seem like a beautiful time, but chances are that they want to return to what they were doing before they needed to call for help.
Send a follow-up to ensure everything is still working and get their feedback.
12. Build a Product Community
Your product does not exist in a vacuum.
If one customer has a problem, another has one like it.
If one customer finds a better way to integrate your offering, other customers will benefit from knowing this information.
While you can serve as the intermediary for gathering and spreading this knowledge, it's beneficial to think about creating a product community.
The community can support your brand by including knowledge bases, forums, and tutorials that consumers can access and contribute to.
13. Track Your KPIs
The people who buy and utilize your products ultimately matter regarding customer retention, but sustained retention relies on an accurate measurement.
Tracking your key performance indicators (KPIs) is crucial.
Starting with your overall customer retention rate, this also considers the total number of consumers who quit your service in a particular time frame, the most frequent excuses offered by customers, and your search engine ranking in relation to other comparable companies.
14. Leverage Data from Customers Who Leave
Some clients depart despite your best efforts.
Client's business requirements or financial constraints can change, forcing them to switch to new providers.
Therefore, it might not be your solution's fault or the fault of your customer service.
Additionally, while making the off-boarding process as easy and seamless as possible is crucial, it also pays to get consumer input.
How come they're leaving? Were there any specific deficiencies or service problems? What may tempt them to return?
Although not every exit interview question will receive an answer, the ones that do can be highly insightful.
15. Make Self-service Possible
When clients experience an issue, excellent customer service can ease the tension.
Meanwhile, self-service options can do away with this problem.
Customers may easily handle their issues and resume using your app as intended by providing detailed manuals, simple tutorials, or an in-app knowledge base to help them with problems they may be having with your service.
16. Personalize Your Product Offerings
About 76% of B2B buyers want companies to recognize their particular requirements and expectations.
This means that even though your SaaS service may play a more generic role, it's worthwhile to connect with users to understand their use cases and see if there are any opportunities to tailor your solutions.
The Final Thought
You may significantly boost your SaaS customer retention and growth by applying these 16 proven strategies.
However, the procedure can be time-consuming and exhausting.
This is where AI bees comes into play.
With our AI-powered solution, we can follow up on your current customers’ responses and provide you with timely feedback.
This will help you assess their needs and act quickly to prolong your engagement.
Our trained sales team applies the AI-powered solution to automate and optimize your retention efforts, analyze customer behavior, and tailor your message at scale.
Schedule a demo today to see how we may assist you in retaining more customers, reducing churn, and growing your business.