In general, SaaS customer retention rates define the percentage of customers your company has retained for a given period. The rate of retention is the reverse or opposite side of the rate of churn, which designates the percentage of clients your company has lost for a specified time.
The significance of retention rates as metrics depends on the type of industry. For instance, for companies offer SaaS products or services, customer retention is important since it affects directly the business profitability.
It is important to keep the number of customers who are already using your SaaS product. It is even more important than acquiring new customers. With increased SaaS customer retention rates, your company can save money and boost revenue. It is also useful for improving customers’ lifetime value.
What is SaaS Retention Strategy?
Customer retention is an important concept – especially for those running SaaS companies and offering SaaS products. A customer retention strategy is vital for your company, which means you must implement or follow a sophisticated approach that would help you retain customers. In other words, your business will grow and thrive in the market when your customers keep coming back.
Basically, the measurement for SaaS customer retention rate is the number of customers at the end of a specific period of time divided by the number of customers at the start of the time multiplied by 100. For instance, on February 1st, you have 200 customers. By March 31st, 150 customers are still using your SaaS product. This is a 75% customer retention rate.
Keep in mind that new users are not a part of your SaaS customer retention rate measurement. It is because you want to find out the number of people who are using your SaaS product continuously.
You are running a SaaS company, which means your objective is to encourage users to continue renewing their contract or subscription. In the SaaS industry, customer acquisition cost is high. So, if you want to be profitable, you must ensure that your customers renew their subscriptions at least 3 times or more.
When you create a unique SaaS product, which meets the requirements of distinct markets is not good enough to keep a lot of customers around. It is because new competitors are coming in the market every day, which means swaying your customers to make a transition to their SaaS products or services.
Therefore, you must be proactive about customer retention rate if you want to create and maintain a loyal base of customers. In this regard, you must use the best practices focusing on customer retention.
Likewise, the strategies must be smart enough that allow your clients to keep coming back and renew their subscriptions. This way, you will make more conversions and eventually greater profits.
The Importance of SaaS Customer Retention
Profitability is the primary goal that most SaaS companies try to achieve. In this regard, SaaS customer retention is an important strategy that needs to be implemented for achieving your profitability goals.
While most SaaS companies focus on accomplishing the profitability goal, they must also focus on the customer retention rate and how it is measured or calculated. Also, it varies from company-to-company. You must consider the profitability goals to be accomplished via customer acquisition costs.
The reality concerning customer churn illustrates that for every customer, you lose profitability when you lose a customer through cancellations, attritions, and non-renewals of subscriptions. Therefore, you must acquire new customers to maintain your profitability. In reality, it is one of the toughest challenges for SaaS companies.
Make sure you are aware of the fact that some customers can cost you money. For example, customers who churn out early and do not stay long to cover their acquisition and onboarding costs.
You are working hard, spending a lot of money, and creating effective methods to attract potential customers to your SaaS product but the better thing is to create an effective customer acquisition strategy and implement procedures to reduce churn. You must do this all promptly.
Research shows that the faster you gain prospects in the “Free Trial,” the more likely these people are going to become the paying customers. Also, the quicker you get customers on board and the SaaS product adopted within the organization after becoming a client, chances are that they will stay as customers for a longer period.
On the other hand, when you retain customers for a longer period, it increases the profitability of the company as you provide them the best quality service.
Remember that customers who stay for a longer period of time not stay as customers only – but they also pay you more. Likewise, they continue to use your SaaS product and more and more – and this is known as Expansion Revenue.
In simple terms, it is easy to promote up-sells and cross-sells to existing happy customers who realize value from your SaaS product than those who have churned out. Besides, customers who are a churn threat spend less money on your product. This causes a reduction in profitability.
Techniques to Improve your SaaS Customer Retention Rates
Customer retention is of great importance when it comes to your SaaS product success and earning more profits. In this section, we will tell you 5 techniques through which you can improve your SaaS customer retention rates. Continue reading!
1. Understand the Requirements of Your Customers
Understanding the need of your customers is a key strategy for your SaaS Company. If your SaaS product is not fulfilling the requirements of your customers, they will not stick around for a longer period of time.
You must understand the expectations of the customers and align them with the desired outcome from using the SaaS product. Eventually, this is what you must deliver to achieve or maintain a higher customer retention rate.
It is important to have this data or information before you start the onboarding process, which means asking your customers about their desires or what they want to achieve. This way, you can make a sophisticated plan to address the requirements of your customers and focus on the desired outcomes before they even start to use your SaaS product.
1. Define Retention for Your SaaS
There are different ways to define retention for your SaaS product. For instance, you must ask yourself – i.e. whether or not the retention of customers is centered on paying for access to the SaaS product?
Or do customers have to be active on the platform to be retained? You must answer these questions and make your choices. Also, you must do this upfront so that everything goes smoothly and timely.
2. Set Customer Retention Goals
It is important to fully comprehend the concept of customer retention rate. You must identify a good customer retention rate. It is unique to your SaaS product or business and your goals. Obviously, you want a 100% retention rate – however, for this, you need to make continuous efforts and improve your SaaS product – i.e. make it more oriented towards users.
You can start by establishing your current retention rate at several points after the acquisition. However, it depends on your SaaS product and subscription lengths. For instance, a customer relationship manager may look at statistics on a monthly basis whereas sharing SaaS might look at retention rates on a daily basis.
The goals of customer retention can also vary by user. Therefore, it is important to set new goals for new customers as well as power users, and the highest customer lifetime value users.
3. Optimize the Onboarding Process
Onboarding is a significant step for SaaS companies. Typically, companies go for onboarding when they experience higher churn rates. The process of onboarding has to make the SaaS product adoption seem effortless as well as support the customers to experience value in using the SaaS product. Remember, the value deemed can vary from one customer group to another.
You must focus on customer segmentation, which will guide you to accurately implement the onboarding process. This way, you can make it more personalized and relevant to the customers. You can do this by focusing on the value-added features of your SaaS product.
Allow your customers to understand the features of your product, which will help them reach their goals quickly. You must be transparent enough and provide clear guidelines on your SaaS product – for instance, what does it do and how your customers can use it easily and get the most out of it.
These are essentials that you must in place if you to further enhance the process of improving your SaaS customer retention rates. With this, we move to our second technique. Continue reading!
2. Create a Customer Communication Protocol
Communication is a vital part of your customer retention strategy. Remind your customers that your company and the customer support team is available to help them. You need to assure them that you are available to walk through them step-by-step to use your SaaS product effectively.
When you communicate and interact with your customers, it can supplement important data, which you can collect via the analytics platform or tool you use. Keep in mind that communication with your customers is defined by a few important factors.
For example, how often you communicate with them is dictated by the length of the subscription and preferences of the customers. Subscriptions renewed monthly entail more communication and interaction than those that are renewed annually.
When a customer reaches out, it is your responsibility to follow up quickly. Interact with them every week to know if they are solved with the solutions you had previously provided to their problems. This is to find out “how they are doing.” It is a great opportunity to interact with your customers and provide them with exemplary customer service.
1. Send Users Tips for using SaaS Product
Communication with your customers also requires you to go out of the box and engage with them. For instance, you can help your customers get the value of your SaaS product – and one way to do it is by sending personalized tips.
You can trigger an email whenever your customers take certain actions or on schedule after onboarding. You need to ensure the tips are helpful and relevant to the product. Avoid fluff language and be to the point.
3. Make SaaS Scalable
A SaaS product growing with its customers has a higher probability of retaining its customers. The more scalable your SaaS product, the better it is. You must add more users to an account as well as increase storage capacity. Likewise, it is important to expand on the functionality. Your customers must be capable of scaling their service up or down.
1. Focus on Upselling
For SaaS, upselling is important because it lowers customer acquisition costs and generates revenue. Recent studies show that upsells are significant components of the fastest growing SaaS as well as companies with more revenue.
So, upsells can increase your customers’ lifetime value and strengthen your relationships with them. This likewise improves the perception of value by your customers.
Making upsells is quite easy. You have a 70%-70% profitability of selling to your current customers. It is all about understanding who likes your SaaS product the most.
2. Retain New Customers
You can make upsells easily if your customers help you do the selling. For instance, using customer analytics, you can find out the number of customers who are power users. These customers can give you compelling testimonials, which can encourage others to use your SaaS product and pay for upsells.
So, instead of spending money on acquiring new customers, use your existing customers to retain new customers. This is an easy way to retain more and more customers – allowing you to thrive on the market with more renewals of subscriptions and significantly reducing churns.
Your existing customers can of great help to show your new customers the value of your SaaS product, which is something very important for improving your SaaS customer retention rates.
3. Focus on offering Freebies
We won’t be wrong if we say freebies are loved by everyone. Extras and reward always surprise your customers. This is a quick way for your new customer into a repeating customer. When you offer a small reward or gift, it can create a big impact on your customer and your SaaS Company.
Not only does it allow your customers to stick around for a longer period but they will also be showing more eager to use your SaaS product. This is something very simple to implement – but the outcomes are always excellent.
Another way to do this is by offering free service to some of your customers. This is even more beneficial for your customer that use your SaaS product regularly but have not upgraded on their own. This enables your customers to stick with your SaaS product on a long-term basis.
4. Track Customer Acquisition Cost & Lifetime Value
After implementing customer retention techniques, it is important to know if they are paying off. So, the fourth technique is to track the data. Use customer analytics because it allows you to retain customers effectively for your SaaS product.
Essentially, it is used for retention rate optimization. Customer retention optimization for SaaS is important than conversion optimization since you focus on existing customers, which are more valuable than new ones.
Before you analyze the data thoroughly, you need to set some benchmarks. For instance, you must track customer acquisition cost “CAC” and customer lifetime value “LTV,” which are two important customer retention metrics. Make sure your LTV is three times higher than your CAC – this allows your SaaS product to generate more revenue. Find out the number of subscription renewals and this is your customer retention goal.
5. Emphasize on KPIs and Product Usage Metrics
Using key performance indicators or KPIs allows you to track important data and determine whether or not you are on the right track to achieve your SaaS goals. First, you need to define the KPIs and then start tracking them quickly. Monthly retention rates, churn rates, and growth of revenue is a few KPIs for your SaaS Company. Make sure you track them accurately using analytics.
Moreover, do not focus on more than three KPIs because doing so will cause problems like data overload and distraction from the information. Tracking KPIs enables you to learn about customers, their behaviors, and analyze other data. Eventually, using this data, you can establish strategies to improve your SaaS customer retention rates.
Furthermore, it is important for you to track SaaS product metrics. The data describes the number of customers who are using the product. It also tells you about the value your customers get out of the product. So, product usage analytics helps you know whether or not your customers like the SaaS product, its features, and any need for improvement. 61
Lastly, you must also monitor customer engagement regularly. It helps you predict the action of customers and allow you to direct them to your defined areas. Using these 5 techniques, you can significantly reduce the churn rates and improve SaaS customers’ retention rates. Good Luck!
Rakhin has over 10 years of experience driving business development and client services. In his prior roles, he stayed close to customers to understand their requirements and help them achieve their business goals. He is passionate about customer success.
Published May 28, 2020, Updated March 09, 2023