What is Saas Retention?
Saas retention is a key metric that focuses on your customers’ use of your product, essentially a proxy for customer satisfaction, the higher your retention, the higher your revenue growth and lifetime value will be.
Defining your Retention Strategy
Retention Analysis helps you determine if your customers are returning, churning, upselling, or downselling.
For SaaS companies, the goal is to encourage customers to continue renewing their subscription or contract. Customer Acquisition Cost (CAC) is notoriously high in the SaaS industry, so renewing customers has a high positive impact for SaaS products — the goal being to renew customers multiple times to lower CAC and increase profitability. According to the White House Office of Consumer Affairs, “It is 6-7 times more costly to attract a new customer than it is to retain an existing customer.” Customer retention efforts also pay dividends. Bain & Company found that a mere 5 percent increase in customer retention could lead to a 25 to 95 percent increase in overall revenue. Since acquiring a new customer is substantially more expensive than retaining an existing customer, the more renewals you can achieve, the lower your CAC will be in the long-run.
With new software solutions coming to market as emerging competitors, it’s imperative for SaaS companies to proactively address retention if they want to build a loyal base of satisfied customers and drive revenue growth.
SaaS Customer Retention Basics
Know your customer’s needs
What problem does your product help your customer solve? Offering your customer a solution, and understanding their goals gives them a reason to use, and keep using, your software. This can be high-touch for a more customizable platform — ie. you may ask a customer what they want to achieve, or assumed through the product you offer — ie. a ride-sharing app.
Define your goal event
Do you consider retention a monthly payment for access to software? Or does a customer have to be an active user to be considered retained?
Optimize the Onboarding Process
The highest churn rates occur after onboarding. Focus on early product adoption by helping the customer see the value of using your software. Personalize the onboarding process by segmenting your messaging and sharing only the most relevant features. You can also use a funnel report to understand where most users drop off and monitor how retention is impacted when you focus your efforts on that particular segment of users.
Set Customer Retention Goals
What is a good retention rate? The answer is unique to your business and your business goals. Getting 100% customer retention is what every business wants, but that may be unrealistic — remember that any improvement is movement in the right direction.
The basic calculation for customer retention rate is the number of users at the end of a specified time period divided by the number of users at the start of the time period multiplied by 100. For example, on October 1st you have 100 users. By October 31st 90, of the original cohort of users, are still using your software. That’s a 90% customer retention rate.
90 / 100 = .9 x 100 = 90%
Start by establishing your current customer retention rate at different points after acquisition depending on your product and contract lengths. For example, a CRM may just look at monthly statistics whereas a photo editing and sharing SaaS company may look at retention on a daily or weekly basis.
Customer retention goals can also vary by user. You can set unique goals for new users, power users, and your highest lifetime value (LTV) users.
What to Track for Improved SaaS Customer Retention
Customer-focused data analytics can help you create an effective retention strategy that’s based on how the customer is engaging with your app.
Customer Acquisition Cost and Lifetime Value
Before drilling down into deep data, two metrics that you want to know and track are customer acquisition cost (CAC) and customer lifetime value (LTV). You want your customer LTV to be higher than the CAC for the company to be profitable. Improving retention drives your CAC down, and increases your customer LTV.
Product Usage Metrics
The data tells you exactly how customers are using your software and what customers don’t like. Both sides of this feedback can help you invest in the parts of your product that deliver value and improve retention.
Monitoring customer engagement helps you predict what the customer will do next and gives you the ability to lead them where you want them to go. If the customer isn’t engaging with the software it’s a red flag signaling it’s time to step in to help the customer find value in using your product.
Tips and Tactics for Retaining SaaS Customers
Create a customer communication protocol
Regular communication is a critical component of customer retention and keeps your product top of mind. Remind customers that your team is available to help and if a customer reaches out, always follow up as quickly as possible.
Send customers tips for using the software
Help your customers get value out of your software by sharing personalized tips. Send emails that are triggered by your product analytics tool — you can automate your messages to send after a customer completes a specific action, or automate an email campaign that sends after onboarding.
Make scalable software
Grow your company with your customers — scalable software creates opportunity to add more users to an account, increase storage capacity, expand functionality, etc.
Use tools to help you
Sales teams across the country live and die by the moniker “always be closing.” For SaaS, we encourage you to use tools like Mixpanel to understand who your power users are and better understand the behaviors that typically lead to upgrades. Upsells generate revenue and lower CAC. Increasing upsells is all about knowing who loves your product the most, which you can monitor with your data analytics tool. With every upsell, you increase customer LTV, strengthen your relationship with the customer, and increase the perception of value.
Find your Customer Advocates
Get your customers to help you do the selling. With product analytics, you can identify which customers are your power users and champions. These are the customers who can provide compelling testimonials that encourage others to use a software and pay for upsells. They also show new customers the value of the software, which is a huge win for retention.