Would you believe it if we say that businesses can improve sales by spending less?
We know that is startling to some extent, but such a strategy does exist. What’s more intriguing is that businesses can increase revenue by up to 90% with this approach. You’ve probably guessed it by now; we are talking about the customer retention strategy. This is an approach that requires 5 times less budget than customer acquisition but promises greater results.
For SaaS brands, retaining customers is a matter of survival because this is where they actually make money. The number of clients or memberships directly impacts the revenue stream. According to Bain and Company, a 5% increase in customer retention can improve profits between 25% and 95%.
In this article, we’ll discuss why customer retention is crucial for SaaS businesses. Furthermore, we’ll talk about the good retention rate for SaaS and effective strategies to improve it.
SaaS customer retention is a key metric for your software business’s health. A good retention rate means you don’t have to worry about finding new clients to uphold profits. Sure, you can always offer high paying customer service jobs to get stellar reps, but customer retention goes beyond the service. It’s a great indication of customer satisfaction, product quality, and sustainability. In the end, it ends up increasing customer lifetime value and reducing acquisition costs.
The formula below can help you calculate the SaaS customer retention rate:
SaaS Customer Retention Rate (CRR) = [(E-N)/S] x 100
* E = Number of SaaS customers at the end of the marketing year
* N= Number of new SaaS customers gained within the marketing year
* S = Number of SaaS customers at the beginning of the marketing year
What is a good customer retention rate for SaaS?
The average SaaS retention rate is higher than that of B2B or B2C companies, which ranges between 24 and 31%. For SaaS businesses, a customer retention rate above 90% is considered good. According to McKinsey and company, leading SaaS businesses,i.e. pain management EHR providers, have a 20% growth and 100% retention rate.
However, there’s no concrete answer to what a good retention rate is for SaaS businesses. The number varies from industry to industry and software to software. A good retention rate for B2C SaaS may not be acceptable for a B2B SaaS business.
For example, gym software that provides management tools to fitness centers has an above 70% retention rate. Since the company has effective customer retention and acquisition strategies in place, its revenue stream is sustainable. That’s because their target audience (health clubs) is broad and spread across the globe.
7 Customer Retention Strategies That Work for SaaS Business
The process of customer retention starts with the onboarding and continues till your client hits the exit button. Therefore, businesses should have SaaS customer retention strategies for each phase of their marketing funnel. In fact, they need customer retention strategies throughout the customer journey.
In case you are new to this, we’ve rounded up some key retention strategies for SaaS businesses.
Integrate “JTBD” Framework
The first step towards improving the SaaS retention rate is understanding the needs of onboarding clients. The better a SaaS company recognizes the requirements, the easier it becomes to satisfy and retain them. You can integrate the “Jobs to Be Done” or the JTBD framework to know your customers’ pain points and expectations.
However, don’t burden your prospects with too many checklists or questions, as this will increase signup friction. The goal should be to get the necessary information essential for personalizing their experiences. You can also add a small survey form to ask about their pain points, needs, and expectations.
The JTBD framework ensures you start on the right foot by addressing their pain points. Furthermore, you can utilize this data to upsell or cross-sell features or products later.
Personalize Your Product Offerings
Offering a personalized experience is a breeze when SaaS companies follow the JTBD framework. In case you aren’t, you can collect requirements from your clients or their representatives. Modern SaaS companies have their own checklist to collect relevant information for personalization.
The purpose of personalizing the offer is to connect with the customer. SaaS brands usually offer customized experiences to make the onboarding process easy for new clients. For example, SaaS companies change the dashboard layout, colors, or language to smoothen the process.
Gamify The Trial Experience
SaaS customers are usually businesses that can quickly differentiate good software from bad software. According to HubSpot, about 99% of companies use SaaS either for analytics or as content management systems (CMS). They are expected to jump to competitors if your SaaS does not make sense to them. So, the key to success is to make them tick by improving their customer or trial journey.
The trick is to gamify the process, which not only ensures customer engagement but also helps in upselling. It’s one of the best free trial marketing strategies that converts freemium members into premium customers.
SaaS companies can send notifications to try features that new customers haven’t tried yet. They can also send an achievement message whenever the SaaS customer hits a milestone in terms of sales or client acquisition.
Move from “Wow” to “Aha”
One thing that SaaS businesses should ensure is to meet customer expectations. Most brands have a creative marketing team that sells their SaaS products like unicorns. They try to “wow” their customers with amazing websites, intuitive dashboards, and success stories.
SaaS businesses can reduce churn rates even by showing customers the full potential of their software. Sadly, not many focus on improving the customer experience or hurdles that their clients face while using the software.
B2B SaaS Marketer Ahmad writes that moving from a “Wow” moment to an “Aha” experience is easy.
“SaaS marketing is tough as brands have to cater to the specific needs of other businesses. But they don’t have to go over the limits. All they have to focus on is offering what they are promising during marketing. If you are addressing a pain point and the customers get enough, in terms of value, you are right there.”
Introduce Loyalty Program
Another good customer retention strategy that also works for SaaS businesses is a loyalty program. In fact, loyal customers buy from brands even if there are cheaper offers available in the market. You can reward existing or legacy customers for their loyalty by offering special packages or plans. For instance, SaaS startups can offer packages at lower prices for the first 50 or 100 customers.
Furthermore, you can reward loyal customers by offering a discount as appreciation. In return, you can share their success stories and customer journey to address a whole new audience.
Tailor Your SaaS to Customer Needs
Personalization of your SaaS is good, but your brands should be able to meet their growing business needs. On one hand, this provides you an opportunity to keep the customers in the loop. On the other hand, you can keep improving your SaaS product as per marketing demands. It can be the features, functions, or customer service that your SaaS requires upgrading.
Understanding customers’ needs also allows SaaS brands to upsell relevant features to existing clients.
You can also automate the calling process for upselling with automated outbound calls. You can ask your Sales and Customer Service reps to share digital business cards with customers so that customers always have updated information about your product.
Above all, you can understand the friction points and address the issues your clients have during their customer journey.
SaaS brands invest in team learning to educate their in-house workers and remote staff about common customer complaints. For that reason, multi-region SaaS companies emphasize the remote employee onboarding process and have a strict review policy.
Leverage Data from Customers Who Leave
No one is happy to see a customer leave, but sometimes it’s inevitable. Customers will leave, and this happens even to the best SaaS companies. What you should remember is that there’s always a motive that you must understand as a SaaS business. There can be a number of reasons behind this decision, such as integration issues, scalability, or lack of tech stack.
You should make the customer offboarding process simple but don’t forget to get feedback. By placing a feedback survey, SaaS companies can understand what difficulties their customers are facing. At least this will help you improve your SaaS product, ensuring others won’t leave.
Final Note
Achieving a good SaaS retention rate is the second most crucial step after customer acquisition. The former is as critical as the latter but requires effective SaaS customer retention strategies. However, you can improve the SaaS retention rate by integrating the JTBD framework, ensuring their needs are noted and requirements are met. Additionally, personalized experiences, gamification of the user journey, and a loyalty program are customer retention strategies.
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