SaaS Customer Retention: Reduce Churn and Drive Loyalty

Tech companies are facing rising costs and decreased funding. 

In software-as-a-service (SaaS) businesses, the “growth at all costs” mentality has dominated Silicon Valley and beyond for the past decade. Now, emphasis has suddenly shifted to whether or not start-ups have enough runway to survive a sudden dearth of investment.

While the major layoffs and other cost cuts have been the focus of headlines, internally, many leadership teams have landed on retention as the key to surviving and thriving during this uncertain economic period.

This means that growth marketers, too, need to change their mindsets and think beyond the top of the funnel on how to retain and expand users to drive revenue. This requires leveraging data and automation to drive expansion and retention strategies at scale with smaller teams and budgets and ultimately support their business growth.

Why customer retention is a missed opportunity for SaaS companies

Retaining existing customers is more economical than acquiring new ones. Way back in 2001, research by Bain found that acquiring a new customer was 5-25 times more expensive than retaining an existing one. Additionally, just a 5% increase in retention rates can increase profits by 25-95%. 

“Too many [companies] are missing their biggest opportunity to keep costs down: building loyal relationships with customers and other stakeholders,” stated Frederick Reichheld, the Bain consultant who invented the Net Promoter Score more than two decades ago – but his advice remains just as relevant now as it was in 2001.

For a long time, customer retention has been acquisition’s neglected sibling, seen as the responsibility of customer success and support teams. In fact, a study of more than 1,400 C-level executives and founders at SaaS businesses by PriceIntel found that while 70% of leaders were laser-focused on the acquisition, only 20% ranked retention as their top priority. But all this is starting to change.

Marketers have had the luxury of forgetting, thanks to an influx of venture capital, which allowed them to keep spending to fill up their funnels without worrying about the leaks. But that time has come to an end, and, as such, growth marketers must start thinking about the entire customer lifecycle. 

How retention can drive SaaS businesses during tough times

Retention isn’t the new growth – it’s the old growth. Companies with best-in-class retention (defined as those with a net retention rate over 100% or gross retention over 85%) actually grow 1.5-3x faster than their peers, according to ChartMogul

Why?

The likelihood of selling a new product or service to an existing customer is 60% to 70%, but only 5% to 20% of leads are likely to buy. Simply put, focusing on retaining – and expanding – your existing customers will catapult your growth.

Growth marketers can significantly impact retention in two ways. The first and most obvious is by factoring customer lifetime value (LTV) into their acquisition strategy – considering not just leads but quality leads that align with their ideal customer profile and are likely to stay with the business for the long haul rather than just one billing cycle.

How to make smarter acquisitions

Source: Ortto

Secondly, they need to embrace the role they can play in driving revenue from these customers – utilizing data and automation to better engage, retain, and expand – increasing customers’ LTV and lengthening their business’ runway during an uncertain economic period. 

How to drive more revenue from customers

Source: Ortto

Data and automation in SaaS customer retention marketing

Data and automation are just as important – if not more important – to a successful retention strategy as to a top-of-the-funnel marketing campaign. This starts by building a complete picture of your customer that goes beyond the demographic and firmographic data you’ve identified in your ideal customer profile (ICP).  

You must also track in-product behaviors and identify the patterns that make users “sticky” versus those that signal they’ll churn. If you don’t already have all the data you need, find a way to bring it together in one place. 

Effective retention strategies will only be as good as your data. Besides, creating a scalable, automated retention campaign is impossible if the data isn’t there.

Once you have all the data you need and identify the behaviors that signal how engaged or likely to churn your customers are, you can start building your automation. For the vast majority, it begins on day one with creating a personalized onboarding experience. 

You can create customized onboarding paths tailored to your customers’ needs and preferences by tracking user behavior and engagement levels. This shows users only your product’s specific features and benefits that are most relevant to them.

Such an approach will help you speed up their time-to-value – the time it takes them to reach that “aha” moment and realize that your product is something they can’t live without. 

But it doesn’t stop there. Growth marketers with a strong understanding of what makes their product special and the data to know how engaged their users are in the product quickly identify an abundance of opportunities for automation to aid their retention efforts. The key is to segment the target audiences based on their behaviors and create campaigns with them in mind. 

To illustrate a few examples:

  • Post-onboarding actions: For your newest customers who have just completed onboarding, nudge them toward actions that high-value customers tend to take.
  • Feature discovery: For customers who haven’t used features within your product, help them discover and engage to unlock more value.
  • Product gates: For power users who hit product gates on their current plan, trigger alerts to sales or customer success to initiate an upsell conversation. 

At the other end of the spectrum, you can also automate retention-based communications when engagement slips below a predefined level indicating someone is about to turn. For instance, you might want to send an email to spark some fear-of-missing-out (FOMO) and show customers what they’re missing out on, especially if they’re on a free trial that’s ending, and encourage them to come back and reengage with your product.

A new mantra for SaaS marketers going forward

Challenges remain on the horizon, and marketers must adjust their marketing strategies to include retention now. The acquisition will only get harder, with businesses unwilling to invest in new, unproven software. They’re also canceling subscriptions to platforms they don’t use, or even those they do use but they deem “nice-to-haves.” 

“Retention at all costs” will likely become the new mantra for marketers as their businesses declare war on churn and focus on fixing their leaky buckets. This doesn’t mean forgetting about acquisition altogether, but thinking beyond the top-of-funnel and recognizing the role that they can play in retention. 

With marketing teams also being impacted by the same cost-cutting measures that make acquisitions so difficult, they need to be smarter about where they invest their time and resources and improve efficiencies wherever they can. 

Losing customers isn’t pretty; retaining them is. Learn how retention marketing can help you prevent churn, boost retention, and drive better revenue.

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