As customer expectations evolve in the SaaS space, your company needs to keep adding value to retain your user base. The higher-the-average churn rate for software subscriptions makes retention even more challenging than in other sectors. If you're unhappy with your customer retention rate, refresh your toolbox with these targeted strategies for software-as-a-service providers.
What Is a Customer Retention Rate?
Customer retention rate shows the percentage of customers who remain with your business over a certain time period. A high customer retention rate supports financial sustainability and growth. In SaaS, you can define retention as the number of users who continue subscribing after the initial period ends.
To calculate customer retention rate, decide on the period you want to measure. Then, subtract the number of new customers you gained during that time from the total number of customers at the end of the period. Finally, divide the answer by the number of customers you had at the beginning of the period and multiply by 100 to get your retention rate.
Let's look at an example. At the beginning of the quarter, your company had 500 customers. You gained 50 new customers and had a total of 475 customers at the end of the quarter. Your calculation would look like this:
425/500 = 0.85
You can multiply by 100 to get your retention rate of 85%.
Customer Retention vs. Customer Acquisition: Key Differences
Retention refers to maintaining brand loyalty with your current customers, while acquisition involves attracting new customers to subscribe to your service. Other differences between acquisition and retention include:
- Cost: Attracting new customers costs up to 700% more than retaining existing clients. As a result, you'll see a better return on investment from retention strategies.
- Revenue: Customer acquisition only creates revenue for the initial subscription period. Retention drives long-term revenue and increases the lifetime value of each of your customers with upselling opportunities over months and years.
- Customer base: Acquisition increases the size of your customer base. When you focus on retention, you may see less growth but you'll also notice a lower churn rate.
- Referrals: Loyal customers may refer others to your service, creating a new source of increased sales. New subscribers are less likely to spread the word, especially if they don't renew.
Using these strategies can help your SaaS brand find the right balance between acquisition and retention.
8 Customer Retention Strategies for SaaS
1. Establish Customer Expectations
Your customers should understand exactly what to expect from your software before they subscribe. Develop a detailed service-level agreement that spells out what the client will receive, including information about delivery, access, training, resources, and response times for technical assistance.
You should understand how and why your client plans to use your product before they start onboarding. Based on this information, develop strong use cases and detailed tutorials to educate new customers about how they can benefit and derive value from your product.
2. Overhaul the Onboarding Process
Invest time in training and demonstration so new customers know exactly what the software can and can't do. They should feel like they can hit the ground running with your product.
It's easy to see whether your onboarding strategy succeeds. Short-term retention tends to predict long-term loyalty. You want to see customers use your software at least once in the first week after enrollment. By weeks 2 and 3, you should notice a pattern of use that becomes an established routine by the end of the first month. If you aren't seeing a similar arc, think about taking a new approach to new customer education.
3. Look at Metrics That Matter
You can boost your retention rate by reviewing metrics that show where you stand with your customer base. Some of the most important numbers to know in the SaaS industry include:
- Customer churn rate (CCR): Shows how many people have unsubscribed in the past 30 days. High churn corresponds to low retention. If you're losing more than 10% of your user base in an average subscription period, it's time to look for "leaks" in the product experience that keep customers from coming back.
- Monthly recurring revenue (MRR) churn: The amount of MRR lost to customer churn. You can look at this metric to estimate the financial impact of churn.
- Customer lifetime value (CLV): The amount you can expect to earn when someone keeps subscribing to your software for the long term. To find CLV, divide the average monthly revenue per customer by your CCR.
- Customer acquisition cost (CAC): The total expense associated with attracting and onboarding a new client. If CLV is less than 300% of CAC, you may want to increase investment in customer retention and reduce the amount you spend on acquisition.
These metrics show where your brand can do better in terms of keeping your existing customers happy. You'll be able to take focused action to increase retention.
4. Address Decline in Usage
Slowed usage indicates that a customer may cancel their subscription to your software soon. Tracking decline in usage allows you to reach out to this group and find out why they're unsatisfied.
The amount of decline that represents a red flag varies by platform. For example, if your software solution lends itself to weekly or monthly use, it's not as concerning when someone doesn't sign in every day. By tracking usage for a month or two, you can set benchmarks to flag customers at risk for churn and take action to encourage retention.
5. Connect With Your User Through Content
Content that speaks to your user base and their needs will reduce your churn rate, an important aspect of customer retention. For example, you can reach out regularly with tips and tricks that increase the perceived value of your product and show off new ways to take advantage of its features.
Schedule a series of touchpoints with existing customers to connect and share relevant content. You can send discounts for associated products and services, provide reminders and updates about customer support, invite customers to training sessions and webinars, promote new product launches, and offer white papers and ebooks of interest.
Reaching out regularly builds a strong, loyal customer relationship. It also allows you to address questions and concerns before they become a major source of frustration. You can even automate some touchpoints to lighten the load on your marketing team and increase operational efficiency.
6. Seek Customer Feedback
Creating a feedback loop with your users provides valuable information about issues and concerns. You can improve your product based on customer suggestions, effectively building a solution that caters to their needs and preferences.
When you send a satisfaction survey or request a review, you're also making a new connection with your customer. If they take the time to reply, it shows that they feel invested in your software and want to see your brand succeed, sure signs of customer loyalty.
7. Optimize Product Pricing
Pricing can make a big difference in customer retention. In addition to the actual subscription cost, billing frequency and automatic renewal also play a role. If you offer several different pricing tiers and plans, looking at churn rate across these segments can reveal target areas for optimization.
Generally, longer subscription terms result in higher retention. If you don't already charge less for an annual subscription than you do for monthly renewal, consider adjusting your price tiers accordingly.
Raising prices can often bring in new subscribers in the software sector. However, it's important to avoid harming retention with a cost increase. When you announce new pricing, you can justify the increase by adding value in the form of new features, lowering associated churn.
8. Offer Wraparound Customer Support
Your users should be able to connect with customer support through multiple different avenues. You need to respond as quickly as possible, whether that means introducing a live chat feature or adding around-the-clock phone support.
Software users tend to like self-help resources, too. You can expand your customer support program by adding a detailed FAQ, hosting a forum where users can share tips and tricks, and using videos and interactive media to show off product features and benefits.
The Benefits of Working with Pay.com as Your Payment Service Provider
You can streamline your checkout page, removing friction that can cause new buyers to bounce before subscribing. Our developer-friendly API integrates with your existing website to fit seamlessly with your product's user experience.
We use 3D Secure 2.0 multi-factor authentication to prevent fraudulent transactions. You'll also benefit from our Level 1 PCI DSS compliance, so you can add official security badges to checkout and show customers that you protect their private payment information.
The Bottom Line
To boost customer retention, you need to understand the reasons users cancel so you can address these concerns and keep them happy. A deep dive into key metrics about user behavior can provide the information you need to enhance loyalty and reduce churn.
Upgrading your payment platform can address common causes of churn like a clunky checkout process or limited payment options. Pay.com gives your users the streamlined experience they expect, whether they're subscribing to your product for the first time or renewing for another year.