Do you remember ‘Temple Run’? Or even ‘Subway Surfers’?
Both are Android/iOS games that require you to collect points while running away from pursuers. Inevitably, your run ends with you crashing into a wall.
Then, in the next attempt, you get just a little farther. Then, a bit more each time you play.
SaaS customer retention is somewhat like that. You’ll never get to 100%. However, through trial and error and a well-developed strategy, you’ll succeed in making more clients stick with your product over time.
In this article, we’ll discuss why you must drive retention. Then, we’ll go over six effective ways to do just that.
Let’s break it down.
Why does customer retention in SaaS matter?
Acquiring new customers is always an exciting prospect. It brings with it the scent of fresh opportunities—increased sales, product growth, and business expansion.
Yet, in 2021, the median revenue growth rate for the top 100 SaaS companies was only 22%. These businesses were all valued at 100 million USD or more at the time, but only a handful managed to sustain a growth of 30-40%.
So, why did that happen?
One reason was that most of them spent as much (if not more) on acquiring new customers. Naturally, acquisition costs ate into their profits.
Suffice it to say—in SaaS, retaining your clients is where the money really is. And it doesn’t matter whether your business strategy relies on product-led growth or a sales-led approach. Ultimately, most of your revenue will invariably come from your loyal customers.
To add to this, if you prioritize SaaS customer retention, you’ll:
- Boost your customer lifetime value and cut back on churn
- Increase the likelihood of referrals to gain new prospects
- Collect valuable client feedback for product development and improvement
- Offset acquisition costs through repeat purchases and subscription renewals
Note that it’s not possible to eliminate churn entirely. In fact, a 5-7% churn rate is a common and acceptable occurrence for most SaaS companies. What you must focus on is implementing certain strategies and actions that help minimize that.
6 impactful ways to drive retention among SaaS customers
Now that you understand why you must prioritize customer retention in SaaS businesses, let’s look at a few effective ways to achieve that.
Below, you’ll find six helpful tips to get you started.
1. Design internal objectives to incentivize client retention
Every department in your organization measures success differently.
For instance, your sales executives like to track the dollar value. Meanwhile, your marketers focus on generating qualified leads.
That’s a sure-shot way of messing with your business growth. Not just because each department is pursuing a different goal but also because none of them drive retention.
To resolve this, you must structure internal objectives to incentivize your teams to hang on to clients. In practice, that translates to:
- For sales teams: Make salespeople responsible for a limited number of prospects (by industry vertical/location). Then, they can be offered a commission only when customers stay for a specific period. That’ll prevent them from burning through leads too quickly.
- For product teams: Ensure product leads/managers have direct access to data involving requested features, app bugs, or crash reports. That way, product development is directly influenced by customer feedback.
- For marketing teams: Track sales-qualified leads instead of marketing-qualified leads. That helps prevent high drop-offs in the funnel while focusing on lead quality instead of volume.
Simple changes like this can dramatically improve customer retention.
It’s also advisable to supplement your teams with the right software. Investing in dedicated sales tools, for one, can help. In addition, adopting a CRM system to streamline client communication and management goes a long way.
2. Streamline the onboarding process
Effective onboarding can make or break a client’s decision to stick to your product.
In fact, a 2024 report found that 60% of SaaS organizations already have or are in the process of establishing dedicated onboarding functions.
This indicates how critical it is in facilitating Saas customer retention and overall satisfaction.
Still, before we get into how onboarding helps with hanging on to prospects, it’s important to state the two primary types it can be split into, i.e., product-led vs. sales-led onboarding. To ground it in the SaaS industry, we’ll focus on product-led onboarding.
Now, you’ve essentially got four objectives here. We’ll get into the fourth one in a bit, but the first three are:
- Identifying ‘what’ customers use your product to frame the onboarding process
- Benchmarking user goals to help them discover key features to achieve their goals
- Pinpointing the ‘aha’ moment and accelerating the client’s journey to it
Let’s put these three goals in context by using Notion as an example.
When you sign up for Notion, you’re greeted with a standard onboarding page:
Based on which option you choose, you’re presented with three separate pages:
In short, Notion has identified three different customer ‘types’ (Businesses/Teams, Individuals, and Students) and the distinct use cases in each category.
Once the user selects their ‘use case’, Notion directs them to choose specific objectives. Put simply, it’s benchmarking customer goals to streamline their app experience and quickly guide them to the features that will be most helpful to them.
When brought together, these two actions minimize time-to-value and enable users to reach their ‘aha’ moment as quickly as possible.
That brings us to the fourth (and final) objective: Educating users beyond the primary onboarding stage.
Drive retention through secondary onboarding
Primary onboarding involves getting new users to quickly derive value from their initial product interaction.
Secondary onboarding revolves around educating/upskilling current users so that they get more value over time.
The easiest way to do this is through contextual app tours or guides. Two specific ways to accomplish this would be to:
Streamline feature discovery with ‘need-to-know’ sections: Remove any mention of app features unrelated to the user’s goals. Instead, you can put them in a standalone resource or help center that customers can access later.
Track in-app cues to trigger contextual experiences: Deploy automated tips and emails based on customer actions. For example, if a user designs a sales page, send them an email or in-app message that directs them to a video for more information.
Trello does this quite well. For example, new users often receive an email that lists software integrations available on the platform.
Now, as a general rule, you want to avoid cluttering your onboarding phase to include what you think is necessary. Instead, focus on what the customer needs.
It’s also a great idea to offer users unfiltered access to your customer service software during this process. That’ll help in quickly addressing any concerns or queries they may have.
3. Gather and implement feedback the right way
As a SaaS provider, your client accounts probably include professionals from all over the organizational hierarchy.
Some may be key decision-makers. Others are tech leads or middle-management executives.
These client groups go through distinct journeys and desire something specific from the product. As a result, you must collect customer feedback from all of these parties if you want to minimize churn.
To get started here, segment your customers based on internal markers. Some of these can be:
- The plan-tier clients opted for
- Number of individual users by account
- Renewal period (monthly/quarterly/annual)
Once you’ve gathered the feedback, you must ‘close the loop.’ Essentially, this means taking a corrective action based on client feedback/complaints and then communicating that to the user.
For example, say a user submits a support ticket. You address their issue and then respond to their inquiry by detailing what you’ve done to resolve their problem.
Ideally, you want to close the loop within 48 hours. Data suggests that doing so can increase customer retention by 12%.
4. Develop a customer experience program around surveys
A simple way to track and drive retention among SaaS clients is to create a customer experience program based on scored surveys.
Three of the most effective formats here are customer satisfaction (CSAT), net promoter score (NPS), and customer effort score (CES) surveys.
The best part? CSAT, NPS, and CES surveys are concise and can:
- Indicate the likelihood of referrals
- Enhance the existing user experience
- Identify issues/concerns with app features or pricing plans
- Reveal core user frustrations with the current app model
Exit interviews/forms can also help here. For one, they’ll point you to the challenges dissatisfied users experience. That’ll enable you to address those problems in the future.
It’s best, however, to avoid conducting exit surveys over emails. Instead, set rules to trigger them in-app when detecting a ‘cancellation’ action.
This serves a two-fold purpose:
- It improves completion rates (users are unlikely to respond through email since they’ve already terminated their subscription)
- It promotes authentic responses (since feedback is immediate instead of being retrospective)
More importantly, exit surveys indirectly aid customer retention in SaaS. They present you with a final opportunity to prevent cancellation in the first place. You can offer incentives such as discounted prices, free upgrades, or alternatives like temporary account hibernation.
5. Conduct A/B testing for your SaaS customer retention strategies
To successfully drive retention among SaaS clients, you must employ A/B testing in your overall approach.
But where does that fit in exactly?
The simple answer would be ‘everything’. However, if we were to get specific, you could conduct A/B testing on your:
- In-app prompts and messages: Create variants of the same tip/prompt. Then, review which one gets more engagement. More importantly, evaluate the reason behind it. Is it the message format? Or was the user’s contextual cue responsible?
- Triggered emails: Conceptualize multiple variants for your triggered emails. For example, an email notifying users about app integrations can include different APIs. One can list niche platforms, while the other prioritizes popular business applications.
- Beta features and upgrades: Deploying different versions of a feature to the live app can be risky. Instead, direct clients (from the same demographic) to multiple variants of a beta update. That can help you identify the most well-received features.
- Onboarding: This is, perhaps, the easiest one to do. Conceptualize different onboarding setups. When that’s done, test it against matching user profiles to see which is more effective in accelerating time-to-value and retaining customers.
If you’ve got an in-house complaint management system, you could conduct A/B testing there as well. For instance, you can run one scenario using AI chatbots. When a similar problem occurs again, direct the user to a self-help resource.
6. Leverage upselling based on user action
In most cases, upselling isn’t explored well enough when it comes to customer retention in SaaS businesses.
After all, how can pushing a client to pay more be an effective retention strategy?
Yet, it works seamlessly when you base it on contextual user actions.
For example, let’s assume the free plan you offer is usage-based (daily limitations, etc.). Triggering an ‘upgrade’ prompt when a user reaches their account limit can be one way to remove purchasing friction and motivate them to become a long-term customer.
If that seems too blunt for you, there are several other impactful upselling techniques you can use. Some of them include:
- Offering a time-limited trial when a user attempts to use a premium feature
- Delivering free minor account upgrades to showcase the value of higher-tier plans
- Provide conditional access to the most sought-after app features (in the user’s customer segment)
Consider Spotify as an example. It frequently pushes its premium plan to free accounts by highlighting the absence of ads.
Building a customer retention strategy in 2024 and beyond
As discussed earlier, you can’t hold on to every customer you have. At one point or another, a client will leave.
It may be because your product doesn’t suit their needs anymore. In other cases, it might be due to their business scaling down. The reason doesn’t matter. You just have to come to terms with it.
However, that doesn’t mean you can’t take preventive steps to minimize churn.
In short, incentivize your team to drive retention. Streamline the onboarding process to cater to customer needs first. Consistently gather feedback and track user experience through scored surveys.
Besides that, capitalize on upselling opportunities where you can. Finally, A/B testing will be conducted to see which strategies are paying off.
