Why SaaS Customer Retention is More Important Than Ever

Retention is More Successful — and Less Expensive — Than Acquisition

saas-customer-retentionThe cost to acquire new customers is exactly that: costly. Advertising, pay per click, social media marketing, and more all require budgets, and often, growing companies simply don’t have the resources to support those initiatives in their SaaS growth strategies. If they do, it simply needs to work. But, as with all advertising, we can only ever make informed, targeted decisions to those we believe will purchase, but it’s never guaranteed.

That’s why customer retention for SaaS is so critical. Your subscribers already trust you. You’ve stood with them along their buyer journey through your SaaS funnel and have emerged with a new paying customer — and they’ve emerged with a service provider they trust. They’re an audience you already have, who are more willing to buy from you than people who don’t have a clue who you are and what your SaaS product does. Here’s a perfect example of how valuable customer retention is:

saas customer retention

The probability of selling to a new prospect is 5–20%. The probability of selling to an existing customer is 60–70%. Even the lowest chance of selling to an existing customer (60%) is still 40% higher than best case of selling to a prospect (20%). That’s huge!

Let’s Dig a Little Deeper

SaaS customer retention not only provides a greater chance of success in driving more revenue from your existing subscribers, but it also enhances profitability in subtler ways. For example, upselling to existing customers reduces time to profit (source). And in this business, time is everything.

The faster you can achieve certain levels of profitability, the more appealing you are to prospective venture capital and debt financing lenders. It also makes you more appealing to organizations that might be looking to make a strategic investment, if that’s your end goal.

Regardless of your long-term strategy, time to profit is a metric and milestone every growing SaaS business should strive to reduce. And maintaining solid relationships with the customers you’ve already worked so hard to get is one way to achieve that.

Tips for Improving Customer Retention

Check Your Subscribers’ Pulse — Often

Reach out to subscribers that haven’t used your product recently. And not just week-long absences, but repeated, consistent lack of usage. This could signal that they’re looking to leave. Touching base with a product or service offer could be all they need to stay.

Keep Your Business Competitive

As we discussed in our post on SaaS conversion rates, you need to always know where your business stands. As a SaaS company, you need to be innovating, refining, and improving your product, processes, and people to stay competitive. Don’t let a competitor’s product surpass your own. Do research. Talk to your lost customers — and competitors’ lost customers. Do some digging. The information you need isn’t hard to find.

Communication is Key

We said it before, and we’ll say it again (and again): if you don’t make your subscribers feel like they matter, then you and your product won’t matter to them. Outstanding communication is a customer service staple. Stay in touch with your subscribers. Let them know what’s going on with your product and company. Keep them informed. Promote success stories and check in with customers who might need assistance with your product. Make your subscribers feel like they made the right choice in choosing you.

You Have to Retain to Sustain

SaaS customer retention is so important because it’s how you reduce churn rate. Fewer subscribers leaving your platform means a lower churn rate — and a higher growth rate in your acquisition efforts. Debt financing lenders will review your customer retention as part of an overall due diligence process after you apply. To ensure a smooth financing process, see what you can do to improve subscriber retention (if it’s an issue).

And remember, the best venture debt financing lenders want to help you. The lender you choose should come with a wealth of knowledge, experience, and insight to help guide you in your SaaS growth journey.

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