Is SaaS Customer Retention More Important Than Acquisition?

SaaS Customer Retention

Customers are the lifeblood of your SaaS business. Customer acquisition, monetization, customer lifetime value…these are the things that you’ll fall asleep thinking about. They’ll likely be the first things on your mind when you wake up, too.

Customer retention, on the other hand, tends to take a back seat to these other pressing issues. But this shouldn’t be the case. Customer retention is equally, if not more, important than customer acquisition.

Business revenue streams follow the theory of the Pareto principle. That is, 80% of future profits will come from 20% of existing customers. Combine this with the fact that the average cost of acquiring a new customer is 5 to 25 times more than retaining a current customer, and it should seem like a no-brainer for companies to put retention at the top of their to-do list.

With all the evidence pointing toward customer retention being cheaper and more effective than finding new subscribers, why do SaaS companies still put so much focus on acquisition?

Why Companies Should Focus on Customer Retention

Focus on Customer Retention

Few SaaS companies focus on customer retention as a means of scaling. Many of them focus almost exclusively on the more exciting parts of growing their company – leaving customer retention to do its own thing and hoping for the best.

Trial to paid conversions, sign-ups, and getting new customers on a demo are the bright, shiny objects of the SaaS world. Customer retention and up-sells? Not so much. It doesn’t seem as important as reeling new customers in.

This is where a mindset shift needs to happen. Customer retention starts at the very moment of onboarding. If your company can view customer retention through the lens of its acquisition strategy, it can help to drive your customer acquisition efforts. Everything is connected when it comes to your customers.

A great onboarding experience sets the foundation for a healthy customer retention rate, and this experience needs to be maintained and built on over time. Why spend all those dollars on getting a customer to sign up in the first place if you simply let them walk away?

Studies have shown that if you can raise your customer retention rates by a mere 5%, your profits can increase anywhere between 25% and 95%. In turn, this will increase your customer lifetime values (CLTV).

These benefits are too good to be ignored, but customer retention can present its own set of challenges.

Common Challenges with Customer Retention

Customer Retention Challenges

The SaaS landscape is flooded with dozens of different products catering to the same solutions. As a provider, customer retention strategies have to take into account the following most common challenges:

Competitors

With increasing competition and a low entry barrier for new companies to enter the marketplace, merely having “a product” isn’t good enough anymore. It has to be an incredible product that people genuinely want to use.

Lower switching costs

It’s great when customers switch over from a competitor and choose your product, but this can also happen in reverse with alarming regularity. The easier it is for a customer to switch away from your product, the easier it is for them to leave in favor of your competition. Freemium trials are a good example of this. While it’s a low-risk way for customers to see what you have to offer, it also makes it incredibly easy for them “sample and switch” to a competitor.

RELATED: How SaaS Adoption and Switching Costs Drive Revenue Growth

Data integration

It used to be the case that once customers spent enough time with your product they would be reluctant to leave because of all the data they would have in storage. With the arrival of companies such as Segment, this is no longer the case. Customers can now uplift and transfer their data with relative ease and little downtime.

Retention is often seen as a means to prevent these ever-present churn problems, but the reality is that when customers are churning it’s often too late to go into damage control mode. Putting retention-focused strategies in place can help to head off any issues that might start subscribers on the downhill slide towards churning out.

RELATED: 5 Ways to Reduce Customer Churn for Your SaaS Startup

Strategies to Improve Customer Retention Rates

Customer Retention Strategies

A key factor to keep in mind when you’re thinking about customer retention is how to find ways to grow with your users as your company grows.

Proactive customer support

Make it a priority to check in with your customers to see if they’re still happy with your product.

Have they stopped using it for some reason? Have they been in touch with customer support previously to ask questions? Are they making the most of the features?

Dealing with problems before the customer starts questioning the value of your product can often head off any objections. It also helps to build longer-term relationships, which in turn means more stable revenue.

Better email marketing

SaaS companies still tend to underestimate the power of their lists for customer retention, but there are many ways you can use the humble email to keep your customers engaged. They don’t need to be complicated, but they do need to be genuine and caring. Regular contact with customers helps to establish trust and can give you an insight into things that can be improved.

Customer retention emails might include:

  • Customer loyalty discounts/rewards/freebies
  • Surveys
  • Educational emails for “later customers” helping them accomplish bigger things with your product
  • Milestone emails

Here’s an example of a milestone email from Sleeknote. No sales pitch, no ulterior motive, just a genuine and human thumbs-up for being a great customer.

saas retention email

RELATED: Cold Email Marketing: SaaS Strategies for Customer Acquisition

Switching to annual plans

If your SaaS relies on monthly subscriptions, then a customer (or an entire company) can question their payment every single month. Which means that every month you could potentially lose all your customers (the ultimate worst-case scenario!).

Getting subscribers onto an annual plan means that this conversation will only happen once in the mind of your customer, and you’ll have a smooth 12-month stretch of guaranteed revenue.

This up-sell is best used once you’re confident your monthly subscribers are going to stick around. For monthly sign-ups who are happily using your product, the option to switch to annual accounts on a product they’re enjoying can be incentivized by, say, a percentage saving if they upgrade. Make it as easy as possible for them to say yes to switching to a longer plan.

RELATED: The Two Sides of Annual Upfront Payments and Multi-Year Contracts for SaaS

Renewal forecasting

Measuring customer data and predicting its impact on the likelihood of customer renewals can be time-consuming, but there are tools available that can help gather and analyze this information.

Forecasting data can help teams understand which predictions can be changed using intervention tactics, and it gives them a chance to put these plans in place. It’s also measurable, as teams can see if the retention tactics directly resulted in more renewals.

Customer support teams can also get a good feel for the sentiment of subscribers around renewal time, so it’s important that you check in on the human side of your data collection as well.

Price increases

This may seem counterintuitive when you’re trying to retain customers, but if your prices haven’t changed in five years it might be time to wiggle them up a little. Inflation costs alone will merit increasing your prices.

If your SaaS is established and growing, you’ll be providing more value than you were when you started out. Your product might have a ton of new features, better help documentation, stellar customer support, and a raft of case studies and testimonials proving that your product helps customers get results.

Make your unique value proposition and benefits clear to customers at all stages of their journey. Establish brand loyalty and don’t hesitate to nurture your subscribers, encourage them, and remind them why they signed up with you in the first place.

Final Thoughts on SaaS Customer Retention vs. Acquisition

The bottom line is that customer retention is equally as important as new customer acquisition, if not more so. Putting solid frameworks in place to support and nurture existing customers and meet objections before they happen is a crucial element in increasing your customer retention rates. Keeping your finger on the pulse of both your low-touch and high-touch customers at all times will help you move towards greater churn reduction and more sustainable revenue for your company.

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