Keeping the customers that are already using your software is even more important than attracting new customers. Increasing customer retention can save your company money while boosting revenue and customers’ lifetime value.
Saas Retention Strategy
The ability to keep customers is what’s known as customer retention. It can also refer to the strategies that are implemented to keep customers coming back.
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 those users are still using your software. That’s a 90% customer retention rate.
90 / 100 = .9 x 100 = 90%
New customers aren’t a part of the customer retention rate calculation because you want to know how many people are continuing to use the software.
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. For a SaaS company to be profitable customers must renew not once, not twice, but three times or more.
Creating innovative software that meets a distinct market need isn’t enough to keep many customers around. In this vertical new competitors are emerging every day and hoping to sway your customers to make the switch to their software solution.
SaaS companies have to be proactive about customer retention if they want to build a loyal base of users. You have to use customer retention best practices and smart strategies to hold on to the clients you worked so hard to convert.
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SaaS Customer Retention Best Practices
Retaining more customers starts with getting the basics right. Here’s a quick hit list of essential best practices for SaaS customer retention.
Know What Your Customer Needs
This is a must for any company no matter what product or service they sell. If your software isn’t meeting a need customers won’t stick around for long. Beyond that you need to understand what the customer hopes for in terms of a desired outcome from using the software. Ultimately, that’s what you need to deliver to have a high customer retention rate.
It’s best to have this information before the onboarding process, which may mean directly asking a customer what they want to achieve. That way you can devise a plan to address the needs and desired outcomes before the customer starts using the software.
Define Retention for Your Business
Do you consider retention to be strictly paying for access to software? Or does a customer have to be active to be retained? What’s considered retention for your SaaS should be defined up front.
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 any improvement is movement in the right direction.
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 may look at retention on a daily or weekly basis.
Customer retention goals can also vary by user. You can set different goals for new users, power users and highest LTV users.
Put a Lot of Effort Into Optimizing the Onboarding Process
So much is riding on the onboarding process. Statistically this is when you’re going to experience the highest churn rate. The onboarding process has to make product adoption seem effortless and help the customer see the value in using your software. What’s deemed valuable will vary from one user group to the next.
Let your user segmentation guide the onboarding process so that it’s personalized, more relevant and focuses on the value-add features. Walk the customer through the features that will help them reach goals as quickly as possible. No matter what, be very transparent about what the software can and can’t do in respect to what the customer wants to achieve.
Next Level Tips and Tactics for Retaining SaaS Customers
Once you have the essentials in place you’re in the position to go further with your customer retention strategy. Here are a few ideas that will ensure more subscriptions are renewed.
Create a Customer Communication Protocol
Regular communication is a critical component of customer retention. It never hurts to remind customers that your team is always available to help. Talking with the customer is also a great way to supplement the data you gather through your analytics platform. As far as how often to communicate with customers, that’s dictated by contract length and customer preference. Contracts that are renewed monthly warrant more touches than ones that are renewed annually.
And if a customer reaches out, always follow up as quickly as possible. Then – touch base with the customer a week or two after their request has been handled to see how they are doing. It’s an opportunity to communicate and provide exemplary customer service.
*One conversation you should have with every customer is a heads up when a payment method is about to expire or has been cancelled. Because most credit cards expire within three years, over a third of customers will have an expired card within any given year. Reach out at least a month before the expiration to ask customers to update their payment information so that it doesn’t impact your retention rate.
Send Customers Tips for Using the Software
Another way to engage with the customer and help them get value out of the software is by sending personalized tips. An email can be triggered whenever a customer takes a certain action or on a schedule after onboarding. Just make sure the tips are relevant to what they have already done or want to get out of the software.
Make Software Scalable
SaaS that can grow with its customers has a better chance of keeping its customers. The more scalable the software is the better. It should be able to add more users to an account, increase storage capacity, expand on the functionality, etc. And customers should have the ability to scale their service up or down.
A.B.U. – Always Be Upselling
Sales teams across the country live and die by the moniker “always be closing.” For SaaS, it’s “always be upselling.” Upsells generate revenue and lower CAC. A survey from Pacific Crest found that upsells were the lifeblood of the fastest growing SaaS and the companies with the highest revenue.
Upsells increase customer LTV, strengthen your relationship with the customer and increase the perception of value.
And making upsells is actually easier than you may think. You have a 60-70% probability of selling to existing customers. Increasing upsells is all about knowing who loves your product the most and planting the seed without being too aggressive.
Use Current Customers to Retain New Customers
Making upsells is often easier if customers are helping you do the selling. With customer 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 huge for retention.
Give Away Freebies
Everyone loves freebies. Surprise extras and rewards are a quick way to turn your everyday, average user into a brand champion. Giving away a small gift can create a big return for your business. Customers won’t just stick around longer, they’ll be more eager to use your product.
You may even want to consider upgrading some customers for free. This can be advantageous for customers that use your software regularly for a while but haven’t yet upgraded on their own. Chances are after the free upgrade the customer will stick with your software long-term.
What to Track for Improved SaaS Customer Retention
So, you’ve implemented the customer retention strategies above and you want to know if they’re paying off. It’s time to start tracking the data.
Customer analytics not only tells you how well you are retaining customers, it’s necessary for retention optimization. For SaaS, customer retention optimization is more important than conversion optimization because existing customers are more valuable.
Customer Acquisition Cost and Lifetime Value
Before drilling down into deep data, it helps to set some high level benchmarks. Two metrics that you want to know and track are customer acquisition cost and customer lifetime value (LTV). As mentioned above, the LTV needs to be at least three times higher than the CAC for the company to be profitable. You need to know how many subscription renewals are needed to reach that number.
This is now your customer retention goal.
Identify Your Customer KPIs
Key performance indicators (KPIs) are the metrics that instantly tell you if you’re on track to hit core business goals. Define what those KPIs are for your business and start tracking them ASAP. A few KPIs most SaaS companies want to track include monthly retention rate, churn and revenue growth.
Focus on no more than three KPIs so there isn’t a data overload or distraction from information that isn’t truly a key performance indicator. What you learn by tracking the KPIs will help you create strategies for improving the numbers.
Product Usage Metrics
Tracking SaaS product usage metrics is a must. The data tells you exactly how customers are using your software and the value they get out of it. Product usage analytics also tells you what customers don’t like about the software, which is just as important for customer retention.
Customer engagement should be closely monitored on a daily basis. It 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 that signals it’s time to step in and help the customer see the value in continuing to use your product.
Customer Health Scores
A data analytics platform that can formulate customer satisfaction or customer health scores is highly beneficial. The score can quickly tell you how happy the customer is and how likely you are to retain them. You’ll know when you need to intervene to keep a customer engaged and when they are primed for an upsell. Health scores can even be used to identify ideal customers for testimonials and case studies.
Customer-focused data analytics can help you create an effective retention optimization strategy that’s based on subjective information about how the customer is engaging. It should be used in tandem with surveys and direct conversations to gain a better understanding about your customers and how to keep them.
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