SaaS Customer Retention: Best Practices and Pitfalls

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That’s one word that you need to remember if you want to build your SaaS business. This article will tackle SaaS customer retention. It will also discuss the best practices that you need to know to reduce customer churn rate also known as attrition rate. It is the rate at which consumers discontinue doing business with a firm over a particular period of time.


SaaS Customer Retention 101


Before we go through the steps to improve customer retention efforts, we have to define it first. Retention refers to the activities of businesses to reduce the number of cancellations. The goal of customer retention is to keep as many customers as possible. Retention starts with the first contact of customers with the company.

What are the benefits of an improved customer retention rate?


Benefits of Customer Retention


Companies focus on getting new customers. A business should also emphasize customer retention as it grows. That’s because retaining customers is cheaper than acquiring new ones. It’s claimed that it’s five to 25 times more expensive.

Another significant benefit of retention is efficiency.

Existing customers are aware of what a business is all about. They have already used its product. The company doesn’t have to be introduced to them. The marketing necessary to convince them to pay again is cheaper. That means a more efficient marketing effort.

You can capitalize on customer experience with your brand to convince them to stay. Studies show that by boosting customer retention by 5%, you can see a profit increase by as much as 95%.

Another benefit of customer retention is it helps with word-of-mouth referrals. The more loyal customers you have, the more chances to refer you to people they know. If they have a good experience with your company, you count on them referring to you.

Loyal customers can be your marketers, and you don’t have to pay them for their efforts. It’s a form of free advertising.

Engaged customers also provide better feedback to your products and service. That’s because they want the service and the product to be better. They are also willing to give you a chance to improve your service, which is why they are offering feedback.

Engaged customers are also willing to explore your brand. If you have other products, they will be ready to explore them. Now, that’s good for the sales of your product and for product development too. Your loyal customers will be willing to test your new products too. Loyal customers are also more forgiving. They’re not likely to ditch your brands after one error on your end.

These are some of the benefits of customer retention. It’s easy to see why large companies put a great deal of effort into it.


Improving SaaS Customer Retention


You’re now aware of the benefits of customer retention. You’re convinced that keeping customers is crucial for your business. The next step now is determining how to improve retention.

Retention isn’t a simple process. It’s as complicated as acquiring new customers with its roadblocks and pitfalls. We will go through some of the best practices for improving your customer retention strategy.

Here are some retention best practices that you can do.


Set Customer Expectations


One reason why customers cancel their SaaS subscriptions is that their expectations are not met. When customers get frustrated, they are sure to cancel their service and what’s worse is they will tell other people about their experience.

Set customer expectations right from the start. You should make them expect something than what you can provide at the moment. They will be pleasantly surprised that you can do more by doing that.


Invest in customer success


The key to ensuring customer success is anticipating and responding to the needs of your customers in a timely and effective manner. You may improve customer satisfaction and loyalty by focusing on customer success.


Give Expert Advice


Your customers expect you to be the expert in your field. You should give them some expert guidance, and when they ask you a question, you must provide accurate answers. When your customers see you as an expert, they are less likely to leave.


Be Proactive


If you know that your customers will encounter problems with your service, give them a heads-up ahead of it. Be transparent by giving them notice ahead of time. Some will be disappointed that you have issues, but some will appreciate the honesty and the advance notice.

Being proactive with problems is way better than dealing with angry customers who were not notified of issues.


Build Relationships


It is possible to build actual relationships with your customers through social media. You have to use the platforms to develop genuine connections with your customers. It might take time, but the practice can build customer loyalty if you do it right.

One of the best practices when building relationships is making them personal. There are tools now that will let you personalize your emails to customers. But sometimes, all you have to do is get to know your actual customers and know who they are.

By having a face for your brand that customers can relate to and talk to, they would see the connection with your company on a different level. They will think twice about canceling their subscription.


Effective SaaS Customer Retention Strategies


Here are a few customer retention strategies that you can try.


1. Surprises


People love surprises, and you can assume that your customers do too. Think of a surprise that you can offer your customers. Maybe you can give them a discount during the anniversary of their subscription. You can give them something for free.

You could even send them something personalized that can show how much you appreciate them. Think of something that your customers would appreciate.


2. Use Automation


Customer retention sounds like a lot of work, and it is. You need to invest time and money in nurturing your existing customer base. One way to reduce the amount of time you spend on retention is through automation.

Customers who meet specific criteria will be getting an email from you with a Customer Relationship Management (CRM) tool. The email can be a message to upgrade their subscription. The automation will save you time instead of combing through the list of your customers and checking who will meet your criteria.


3. Use a CRM


We’ve mentioned using a CRM in automation, but this tool has other benefits besides automation. A CRM will have all the data about your customers in one place. It makes it easier for you to keep track of them.

A CRM can also offer better segmentation of your customers. You can group your customers on various criteria, like when they signed up or how they signed up for your service.

More importantly, a CRM will offer better security of customer data. Companies behind CRMs make a point to secure the people’s data in their systems.


4. Focus on Customer Retention Metrics KPIs


Key Performance Indicators (KPI) are metrics used to measure customer service performance. If you want to boost your customer retention, you need to focus on customer service.

Here are some of the KPIs that you need to monitor:
Response Time indicates how fast you get in touch with potential customers indicates their interest in buying your product.

Conversion Rate is the percentage of leads that become converted into paying customers.

The Funnel Drop Rate is the percentage that leads drop from your funnel.

Customer Satisfaction is challenging to measure, but there are ways to measure it. You can send out surveys to your customers after engaging with them. You can use the score they gave you to measure Customer Satisfaction.

These are just some of the KPIs you need to look at to increase customer retention.


Use Surveys


We have already mentioned surveys for customer support. It’s not true that people don’t like surveys. When they have enough time, people are willing to participate in surveys. Surveys get an average response rate higher than 30%, which is quite good.

Hearing from actual customers about the problems of your SaaS product is invaluable information that you can use. Do not be upset when you get complaints, but you should be alarmed when you get complaints. You need to take action and correct the mistakes being pointed out by your customers.


Build a Communication Calendar


You need to communicate often with your customers. But you need to have a schedule for it. So you don’t miss out on your communications. That calendar will show what kind of email will be sent out and when.

If you have segmented your audience, you can also use your calendar to tell you which segment you need to contact.


Measure the Lifetime Value of Your Customers


Your Customer Lifetime Value (CLV) is a crucial metric for a SaaS company. It measures how much each customer will be bringing into your business throughout their relationship with you. You can calculate this by multiplying their subscription payment with the average lifetime of your customer.

Let’s say your product has a $10 monthly subscription fee, and you determined that the average lifetime of your customer is 24 months. So, the formula to get the CLV is:

10 x 24 = 240

Using that formula, your CLV is $240. Why is that metric so important? It helps you in making critical decisions for your marketing. Like, you can tell if it is worth spending $300 in acquiring a new customer. You know the answer is now since that customer will only give you $240 in total.


Educate and Train Your Customers


The kind of communication that you send out to your customers also matter. The best type of communication that you can send out to them is to educate them on using your product.

Aside from emails, you can also use newsletters to communicate with your audience. The advantage of using emails is that you can include more content there.


Live Webinars


Another excellent tool for building customer retention is the use of live webinars. There are many platforms now that you can use to run these webinars. You can offer them for free to your customers.

What should be the subject of your webinars?

You can start with how they can leverage your SaaS product. Webinars are not just good for retention. Webinars can also be used for customer acquisition. Studies suggest that up to 40% of webinar attendees became qualified leads.


Pitfalls of Customer Retention


We have discussed the best practices and some tactics that you can use for boosting your customer retention. The next step is learning about the missteps and mistakes in retaining existing customers. What are the things that you should avoid?


Emphasizing Speed Over Quality


Response time is a crucial customer service metric. You should answer customer questions and concerns ASAP. But it’s a mistake to emphasize the speed of response over quality. It’s good that you can reply to your customer within an hour after they complain, but if you don’t give them an accurate answer, that doesn’t do you any good. It would cause more problems for you in the long run.


Problematic Loyalty Programs


It has been mentioned that you should offer your customers surprises whenever you can. The most common surprises are those that reward their loyalty. But you need to create your loyalty program with your customers really in mind.


Not Winning Back Lost Customers


Even if you have a robust customer retention program, you will still lose customers. That’s okay but what’s not okay is when you don’t do anything to win them back. Remember, those lost customers already paid for your SaaS product.

You should do everything you can to convince them to come back. You can offer discounts to your lost customers and other special deals.


Not Using Advanced Tools


There are so many advanced tools that you can use to improve your customer retention. These tools range from AI to machine learning. Explore how you can use these tools to improve the overall customer service experience that you are giving.

Remember, customers, don’t just cancel on a whim.

Especially with SaaS products, they need to go through a series of bad experiences before deciding that enough is enough. You have to minimize those experiences and increase the number of positive interactions with your brand and product.

To learn more about how to improve your SaaS customer retention, visit our SaaS marketing blog. 


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Ken Moo