If you build it, they will come, right? Well, that adage doesn’t necessarily increase SaaS customer retention. And in 2023, retaining and expanding your existing accounts is vital to keep your fundamentals and valuations in check.
Increasing your SaaS user retention rate and reducing customer churn can build a loyal customer base and drive sustainable growth. There are several additional benefits of retaining existing customers.
Our guide covers key strategies to grow customer retention, specific pointers for product managers, and our top tactics to increase customer loyalty.
Why Focus On Customer Retention?
The name of the game in SaaS is account retention. When an account stays on the books, the business improves in the following ways:
Earn recurring revenue: Cash is king. It means you can invest more in talent, product, and lengthen your runway. Retaining existing customers is more cost-effective than acquiring new ones. Studies show that increasing customer retention rates by just 5% can lead to a 25% to 95% increase in profits.
Grow customer lifetime value: Loyal customers tend to generate more revenue over time as they continue to use your SaaS product and potentially upgrade to higher-tier plans or purchase additional features. Customer expansion remains a top objective for B2B SaaS companies.
Increase word-of-mouth referrals: Satisfied customers are more likely to recommend your SaaS product to others, resulting in organic growth through positive word-of-mouth referrals. Word-of-mouth marketing is essential to score those five-star reviews on G2, Trustpilot, and app stores.
Lower customer acquisition costs: By retaining existing customers, you can minimize the need for extensive marketing and sales efforts to acquire new customers, ultimately saving on acquisition costs. If you can halve your CAC, you can acquire more accounts faster.
Capture product feedback: Long-term customers provide actionable feedback and insights that can help you improve your product, identify new market opportunities, and stay ahead of competitors. They often are the canaries in the coal mine when it comes to churn causes. And you know the value of it — it’s often not theoretical since the account pays a subscription.
Top Causes of Customer Churn
|Rank||Churn Driver||Suggested Solutions|
|1||Lack of Value or Poor User Experience||Improve product functionality and usability based on customer feedback. Provide personalized onboarding and proactive customer support. Regularly release updates and enhancements.|
|2||High Price or Lack of Cost-Effectiveness||Conduct market research to ensure pricing aligns with customer expectations. Offer flexible pricing plans and discounts for long-term commitments. Showcase the value and ROI of your product.|
|3||Inadequate Customer Support||Invest in a robust customer support system with multiple channels. Respond promptly to inquiries and provide effective resolutions. Assign dedicated customer success managers to build relationships and address concerns.|
|4||Poor Onboarding Process||Create a personalized onboarding experience with clear guidance and training materials. Set up checkpoints to ensure customers successfully adopt and integrate your product.|
|5||Lack of Communication or Engagement||Maintain regular communication with customers through targeted emails, newsletters, and in-app notifications. Provide relevant updates, feature releases, and proactive engagement.|
SaaS Retention Terms Defined
To better understand the world of SaaS customer retention, here are some key terms and phrases:
- Customer churn: The rate at which customers discontinue using your SaaS product or service It is usually measured as a percentage over a specific period.
- Net Revenue Retention (NRR): A SaaS metric that calculates the revenue retained from existing customers over a given period, accounting for churn, expansions, and downgrades.
- Customer Health Score: An evaluation of a customer’s overall satisfaction, engagement, and likelihood to churn It helps identify at-risk customers and guide proactive retention efforts.
- MRR retention: Monthly recurring revenue (MRR) retention measures the ability to retain existing customers’ subscription revenue on a monthly basis.
- Logo Retention Rate: The percentage of existing customers retained over a specific period, regardless of changes in their subscription plans or revenue.
- Net Promoter Score (NPS): A survey-based metric that measures customer loyalty and satisfaction It helps identify promoters (loyal customers likely to recommend, scores 9–10) and detractors (unhappy customers, scores 1–6).
- Active users: The number of customers or subscribers who actively engage with your SaaS product or service within a specific time frame.
Is Retention Better Than Acquisition?
The benefits of retention often outweigh customer acquisition.
Here are reasons why retaining accounts is better:
- It’s cost-effective. Acquiring new customers can be expensive due to marketing, advertising, and sales efforts. Retaining existing customers is generally more cost-effective and can lead to higher returns on investment.
- It’s easier to sell to people who bought from you. Existing customers are more likely to make repeat purchases and upgrade to higher-tier plans, leading to increased revenue over time. Even with product-led growth initiatives, accounts with longer tenure tend to be more comfortable with the product.
- Growth through referrals. Loyal customers not only continue using your product but also become advocates who recommend your SaaS solution to others, expanding your customer base through word-of-mouth referrals.
- Collect actionable feedback. Long-term customers provide valuable insights into their needs, pain points, and preferences, enabling you to better tailor your product and improve customer satisfaction.
- Stand out from competitors. Focusing on customer retention sets you apart from competitors who may primarily prioritize customer acquisition. By delivering exceptional experiences and building strong relationships, you can create a loyal customer base that is less likely to churn.
But with retention matters solved, by all means, open the floodgates for customer acquisition.
How SaaS Product Managers Can Increase Customer Retention
SaaS product managers play a major role in driving customer retention.
Here are several tactics that can influence customer retention.
1) Deeply understand customer needs
Continuously analyze customer feedback, behavior, and usage patterns to deeply understand your customers’ needs and pain points. Use this knowledge to prioritize product enhancements and optimizations that align with customer expectations and preferences.
2) Proactive customer communication
Maintain regular and proactive communication with your customers. Provide them with relevant updates, feature releases, and personalized recommendations based on their usage and goals. Keep them informed about upcoming changes and improvements to ensure they feel valued and engaged.
In-app product messaging is a unique privilege afforded to product marketing teams to interact with customers outside of email.
3) Manages iterative product roadmaps
Embrace an iterative approach to product development. By adjusting the software development roadmap, product leaders have total control over new features and improvements based on customer feedback and market trends.
It’s okay to pause certain engineering investments so you can ship a higher-impact product update. Show your customers that you are focused on improving their experience and addressing their evolving needs.
4) Listen to customer support teammates
Investing in customer support helps product leaders aggregate timely and passionate customer feedback. Product teams can both monitor support calls, review outstanding tickets, and host support team check-ins to gather what the data doesn’t tell you.
Observe customer interactions across multiple support channels, such as chat, email, and phone, to see where the product could mitigate such support requests.
5) Make better decisions with data
Leverage customer data and analytics to make informed decisions. Monitor key retention metrics, such as customer churn rate, net revenue retention, and user engagement, to identify trends and areas for improvement.
Use these insights to guide your strategic decisions and prioritize initiatives that drive customer retention. Report on these metrics to the SaaS business to indicate how they influence customer loyalty.
6) Personalized customer experiences
As your SaaS product serves more than one targeted audience, product managers should think through how they can personalize the customer experience. Tailor your interactions and experiences to meet individual customer needs.
Leverage automation and personalization technologies to deliver customized onboarding, templates, in-app messaging, and product recommendations.
7) Scale customer success programs
Establish a customer success program focused on delivering tangible value to increase product adoption. Assign dedicated customer success managers to proactively engage with customers, understand their goals, and provide ongoing guidance and support.
Provide them resources, such as knowledge bases, webinars, and training materials, to help customers maximize the benefits of your product.
8) Continuous education and training
Invest in customer education initiatives to empower your users. Provide comprehensive documentation, tutorials, and training sessions to ensure customers have the knowledge and skills to effectively use your product.
By helping them unlock the full potential of your solution, you increase their likelihood of long-term retention. They can be great tools to drive user expansion, too.
9) Establish product feedback loops
Seek customer feedback at various touchpoints. Conduct surveys, solicit reviews, and encourage open dialogue with your customers. Use this feedback to identify areas for improvement, address concerns, and demonstrate your commitment to their satisfaction.
Consider reaching out to those who don’t respond to surveys. Churn tends to be a silent killer in SaaS. Dig into the causes for why some accounts go dormant and others fill up your inbox.
SaaS product managers can significantly increase customer retention and foster long-term loyalty by implementing these strategies. Remember, retaining existing customers is essential for sustainable growth and should be a top priority for any SaaS business.
Did you know an embedded page builder can increase customer retention?
See how a $100M CRM company boosted retention by 16 months with Convrrt. Read it now!
Best Retention Strategies for Enhancing the Customer Experience
Curious about ways to increase customer loyalty outside of product management? Read on!
Here are effective retention strategies to enhance the customer experience and boost your customer retention rate:
10) Provide a personalized onboarding experience
Create a tailored onboarding process that addresses each new customer’s specific needs and goals. Provide personalized guidance, training materials, and onboarding checkpoints to ensure a smooth transition onto your platform.
Personalized onboarding example
Assign a dedicated onboarding specialist to each new customer, who will provide one-on-one training sessions and help them set up their account according to their unique requirements.
11) Set up proactive customer support
Offer proactive customer support to address any issues or concerns before they become significant problems. Leverage automation tools and chatbots to provide real-time assistance and ensure prompt resolutions.
Proactive support example
Implement a chatbot feature that proactively reaches out to customers after they perform specific actions within the platform, offering help and guidance.
12) Capture real-time customer feedback
Regularly gather customer feedback to understand their pain points, preferences, and suggestions for improvement. Utilize surveys, in-app feedback forms, and Net Promoter Score (NPS) surveys to gather valuable insights.
Real-time feedback example
Send quarterly surveys to customers, asking for their feedback on new features, their satisfaction with the platform, and any areas they would like to improve.
13) Communicate product updates and enhancements
Continuously improve your product based on customer feedback and market trends. Regularly release updates, new features, and performance optimizations to keep your customers engaged and excited about your platform.
Product feedback example
Host regular feedback sessions with customers to understand their most pressing needs and prioritize feature developments based on their input.
14) Reward loyalty and community participation
Incorporate gamification elements and rewards within your platform to increase user engagement and motivate customers to continue using your SaaS product.
Customer loyalty example
Implement a points or badge system that rewards customers for achieving milestones or engaging with product features, creating a sense of achievement and encouraging them to explore more.
15) Build a vibrant customer community
Foster a sense of community among your customers by creating exclusive forums, user groups, or online communities where they can connect, share experiences, and learn from each other. It takes some effort and some gentle nudges from your brand ambassadors, but it’s gold for customer retention.
Customer community example
Establish an exclusive customer-only online forum where customers can collaborate with each other, showcase best practices, and help peers. Ensure product management is involved; otherwise, it can go sideways fast!
16) Manage account renewals proactively
Implement proactive renewal management practices to minimize customer churn during the renewal process. Identify at-risk customers, reach out to understand their concerns, and offer incentives or personalized offers to encourage them to renew.
Regular account reviews can be helpful, but try not to “check the box” so to speak. Get real with the account’s mover and shakers to really be invested in their upcoming goals.
Account renewal strategy example
Assign a dedicated customer success manager to each customer and conduct regular check-ins to understand their needs, address concerns, and reinforce the value of your product. Send them a surprise gift to rekindle a conversation gone dark.
17) Make it easy for customers to accept upsells
Identify opportunities to upsell or cross-sell additional products or features to existing customers based on their usage patterns, needs, and preferences. Sometimes it could just be new users or ideally, plan upgrades to the next tier.
Product upsell example
Analyze customer usage data to identify power users who could benefit from an upgrade to a higher-tier plan and offer them a discounted rate for the first few months. And show them the love with a free month of the upgraded service before the price increases.
18) Ramp up your customer loyalty program
Implement customer loyalty programs to reward and recognize long-term customers. Offer exclusive benefits, discounts, or early access to new features as a token of appreciation. This could be done at the renewal or ideally, in concert with a customer referral program.
Account loyalty example
Create a tiered loyalty program where customers unlock higher benefits and access as they reach certain milestones or stay with your SaaS product for a specific duration.
SaaS Company Growth Starts With a Customer Retention Strategy
By implementing these effective retention strategies, you can increase your SaaS user retention rate, reduce customer churn, and foster a loyal customer base.
Prioritize the customer experience, gather customer feedback, and continuously iterate and improve your product based on their needs. Building strong relationships with your customers and providing them with personalized support and incentives will help you achieve long-term success in the competitive SaaS industry.
By focusing on retention strategies alongside your efforts to attract new customers, you can create a thriving SaaS business that consistently delivers value and meets the evolving needs of your customer base.