Home Marketing SaaS Customer Retention: The Ultimate Guide to Keeping Your Paid Subscribers

SaaS Customer Retention: The Ultimate Guide to Keeping Your Paid Subscribers

To calculate your SaaS retention rate, divide your active users with active subscriptions after a particular period by the total number of active users you had at the beginning of that period. 

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What is the ultimate key to SaaS customer retention? Is it by increasing your ad spend on customer acquisition? Having to give out ridiculous discounts? Or building the best SaaS product in the market? 

Even though having an excellent SaaS product counts, your business growth lies in your customer retention techniques. The steps you take to nurture customers who pass through your onboarding process will determine how many will stay in your sales funnel. 

Improving customer retention is rewarding as it helps to reduce churn and increase your bottom line. But most SaaS companies don’t get it right. In 2020 almost 30% of SaaS companies had increased churn rates with a general revenue loss of $10 million. That’s a lot. Similarly, the screenshot below shows Statista’s report on attrition rates in the United States as of 2020.

Statista's report on attrition rates in the United States
Statista’s report on attrition rates in the United States

Despite the discouraging stats and high churn rate, refining your SaaS retention techniques could help you reduce the number of subscribers who cancel their subs before you break even. 

This article will show you proven strategies to improve your SaaS customer retention strategies, reduce churn, and your annual recurring revenue (ARR).  

Before we show you tips to improve your customer retention rate, let’s look at what SaaS customer retention is, why you need to improve it, the average customer retention benchmark, and some key concepts around it. 

What is SaaS Customer Retention? 

SaaS customer retention is a critical metric centered on how long your customers use your product based on their satisfaction. Hence, the higher your retention rate, the higher your recurring revenue. 

Customer retention, in this sense, means making your existing customers engage with your software for a long time till it becomes part of their daily routine. As they use your product over time, their LTV (lifetime value) increases by either: 

  • Giving you the chance to -sell or upsell them on similar 
  • Attracting new users for your SaaS through word-of-mouth marketing and referrals 
  • Cutting down your customer acquisition costs 

Why is SaaS Customer Retention Strategy Important? 

Customer retention in SaaS can boost company growth by lowering churn rates, boosting recurring revenue, and increasing the lifetime value of your paying subscribers. Here are some stats that show how your subscriber base can be profitable: 

  • Recent studies have shown that it costs five times more to attract a new customer than to keep an existing one. Likewise, Saravana Kumar, founder & CEO of Kovai.co said; “Specifically, I’ve seen that in SaaS, on average, it can cost four to five times more to acquire new customers versus retaining current ones.” 
  • In addition, the chance of upselling or cross-selling to an existing customer is 60-70%, while the likelihood of selling to a new prospect is 5-20%. 

No matter your industry, SaaS customer retention is an aspect you should never neglect. 

Here’s why:  

Say you’ve spent money creating marketing materials and built a sales funnel and have got them to pay and try out your software. Will you rely on luck to somehow convince them to subscribe again? Certainly not! 

Getting customers is just one step away; keeping your gained users is the next important step. 

Studies by Bain & Company, with Earl Sasser of the Harvard Business, show that a 5% increase in retention rate can lead to a rise in profit between 25% to 95%.

You need to identify and nurture every customer subscribing to your software. Doing that will increase your high-profit margins, boost lifetime values, and cut your customer acquisition costs.    

What is a Good Net Retention Rate for SaaS?

SaaS customer retention typically varies across niches, according to a 2020 roundup of Statista’s industry retention rates. 

The average retention rates are:

  • Retail: 63%
  • Banking: 75%
  • Telecom: 78%
  • IT: 81%
  • Insurance: 83%
  • Professional services: 84%
  • Media: 84%

You can use the stats above as a benchmark to determine if your business is on the right track or if you need to step up your retention game. 

7 Essential Strategies to Help You Retain Your Paying Subscribers 

Let’s look at some strategies that can help you reduce churn in your SaaS business. 

1. Outstanding customer service

NewVoiceMedia estimated that U.S. businesses lost $75 billion because of poor customer service. This cannot be overstated. You can’t achieve worthwhile retention rates without:

  • Personalized customer service 
  • Helping user’s address pain points 
  • Offering a delightful, positive and no-hassle service 
  • Meeting and perhaps, exceeding customer expecting

2. Have a 24/7 support team

SaaS businesses should definitely offer 24/7 customer support since customers will usually be from different time zones. SaaS issues can arise at any time of day and are usually immediate. Having a support team 24/7 for troubleshooting will keep customers happy enough to keep using your software product. 

Customers are usually more willing to patronize those they feel are providing consistent customer service. You can do this by either building a live chat to collect and respond to inquiries on time or setting up a call center service. 

3. Create User Guides 

This is where having a knowledge base comes in. Anytime, a user has a question or query, they can simply go through your knowledge repository for guidance. With this, you get to provide support at scale, cut down customer support costs, improve customer satisfaction, and most importantly, increase your SaaS customer retention rate and revenue. 

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4. Always upgrade your SaaS UI/UX

Nobody wants outdated software or tools. Release new updates that align with customers’ feedback to show them you truly care about their needs. And you can do this by either asking them to suggest features via live chat or occasional surveys. This helps to avoid spending a ton of revenue on irrelevant add-ons. 

5. Create a community around your SaaS  

Having an active SaaS community can help increase the value of your SaaS business. Potential users will want to try out software brands that have a strong customer base, as this almost always creates the impression that you have an excellent product. 

SaaS marketers are switching to community-led growth. Building a thriving community of users is essential for reducing costs and increasing customer retention. CommunityLed.com reports that companies with dedicated community teams have seen a 22% increase in growth since 2020. 

6. Give them a chance to pause their subscription 

About 44% of consumers who might cancel a subscription would prefer to place it on hold instead of opting out if they had that option. Letting your users have this option to pick from, and also giving customers this option gives you a good chance to persuade them to reactivate their subs. 

Think of it like, pausing a gym membership until when next you’re free to use it. For instance, Or better yet, a good use case is when someone pauses their subscription for a research tool after an academic project until the need arises.

7. Check up on your users and help  

You can do this in two ways; either through constant interaction or by offering tips: 

  • Constant interaction: always communicate with your SaaS users. For example, you can send a message to ask about whether they enjoy your product. In case of any issue, offer to assist them sort it. Some users might not reach out to customer care by themselves. 
  • Offer tips: this is like a spice to have a knowledge base. Let’s say you have an email marketing tool. When a user wants to set up an email marketing campaign. You can offer to help them optimize their headlines to increase open rates.  

Saas Customer Retention FAQs

  • How do you retain your SaaS-paying customers? There’s no one-push button to achieve this. However, you need to be serious about regular software updates, good customer service, and 24/7 customer support. 
  • How do you calculate customer retention rate in SaaS? To calculate your SaaS retention rate, divide your active users with active subscriptions after a particular period by the total number of active users you had at the beginning of that period. 
  • What is the churn rate for SaaS 2023? The average monthly churn rate for SaaS churn rate is often cited to be around 3-8%. 
  • How to increase customer lifetime value SaaS?  Upsell better features, give the option to pause their subscription, and never ignore good customer service and regular UX/IX updates, as it keeps them excited and hooked on your product. 

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Conclusion 

There’s no perfect strategy for getting and retaining your SaaS customers, but you can’t go wrong with an active product community, 24/7 customer support, getting feedback and using those insights to regularly update your SaaS product. 

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Nengak Godwin is a content writer and copywriter. He is a contributor EntrepreneurBusinessBlog.com. You can connect with him on Twitter with this handle, @wakchinnengak

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