The Ultimate Guide To SaaS Customer Retention
Companies lose $1.6 trillion per year due to customer churn in the United States alone. It stands to reason, then, that companies can capture significant value by reducing churn. And while the path to lower churn takes serious effort, it isn’t hard to understand: companies can prevent 67% of churn by managing customer expectations and improving first-time resolution rates. Despite this massive opportunity, only 32% of SaaS companies have low (sub-5%) churn rates.
For SaaS companies, customer retention can mean the difference between success and failure. But even once you’ve made the decision to focus on retention over acquisition, questions remain:
What can stronger retention do for your company? What's a "good" SaaS retention rate? What retention strategies make the most sense for SaaS brands?
In this SaaS customer retention guide, we’ll explore all of these questions and more. By examining unique SaaS retention challenges and looking at examples from successful SaaS brands, you’ll come away with actionable strategies to boost retention, improve customer loyalty, and transform your customer experience for the better.
Why Is SaaS Customer Retention Important?
You don’t have to be in the world of business long to hear this assertion:
“It costs 5 times more to acquire a new customer than retain an existing one.”
Unlike many statistics known to popular culture, this one is actually true. The most reliable source for this maxim is a Bain & Company study of a financial services firm that increased customer retention by 5% and saw a 25% increase in profits.
But this may even understate the case for retention: a 2023 study of over 2,100 companies found that SaaS businesses with retention rates over 85% grew 1.5-3x faster than others.
Retention’s influence on profits and growth is thanks to the magic of repeat customers: they spend more over time and, because of their loyalty, they’re more willing to accept price increases. Meanwhile, operating costs decline, since serving the same loyal customers is cheaper than finding, onboarding, and replacing quick-churning customers. And retention benefits growth because existing customers refer new customers to you over time.
Customer acquisition, of course, is necessary too: you can’t grow without new customers. But acquisition is expensive. SaaS companies that spend heavily on acquisition—only to send freshly-acquired customers to a churn-inducing “leaky bucket” product experience—struggle to stay profitable.
9 SaaS Customer Retention Strategies
It’s important to have a retention plan from day one: early-stage SaaS companies often struggle with retention as they finesse their product-market fit, with year-over-year customer retention rates hovering around 55-72%. As your company matures, aim for a retention rate of 85% or higher.
Fortunately, there are plenty of strategies you can deploy to get there.
1. Attract the Right Customers
Not every customer is your customer.
This can be a sobering reality to confront, especially after carefully crafting a SaaS product that could potentially benefit many types of customers. But not every customer is created equal: in the world of eCommerce, for example, the top 1% of customers are worth 18x more than the average customer.
To grow your business in a healthy way, first figure out who your ideal customers are. Then, position your product and messaging directly to them, while also using pricing as a tool to filter your audience. If you have a B2B SaaS team with a high-touch sales process, encourage your team to vet potential customers carefully by offering an incentive structure with performance-based bonuses tied to upselling and retention.
Example: Vidmob
Vidmob, an ROI-tracking software for marketers, makes it clear from the minute you see their landing page that this isn’t a consumer-facing product, nor is it for freelancers or small businesses. Performance marketers who need to justify ROI to their bosses, however, will be instantly drawn to it.
2. Nail the Onboarding Experience
Onboarding is fraught with risk: 25% of users abandon an app after just one use.
To counter this risk, your customers need to get value fast. You don’t just need a quick win during the onboarding process—you need customers to experience an “Aha! moment” that excites them, reminding them why they bought your product in the first place.
To get to that “Aha! moment” faster, be direct: use interactive walkthroughs to ask customers what they’re hoping to accomplish, then point them toward the relevant features. A study published in Harvard Business Review found that giving customers a quick tutorial on product features can reduce churn by 6%; and Sitemate, a SaaS platform, doubled its customer engagement rate by using in-app cues to educate users.
Since customers don’t have unlimited time and patience for long onboarding processes, you’ve got to make this happen fast. A study by Visa found that 70% of customers will abandon an onboarding process if it takes more than 20 minutes.
Example: Beehiiv
Beehiiv, a newsletter platform, streamlines onboarding by directing users to a short “Beehiiv 101” overview video directly in the platform. It also features a 5-step onboarding checklist and a welcome email tutorial series to keep users engaged as they learn the different features of the platform.
3. Reduce Friction Across the Customer Journey
It’s hard to overstate how important customer experience is:
- 94% of consumers who ranked a company’s CX as “very good” are likely to buy again.
- On the flip side, 80% of users have deleted an app because they weren’t sure how to use it.
In-app analytics, heatmaps, screen recordings, customer success tools, and customer experience management software are tried-and-true ways to find points of friction that are harming your CX. Keep an eye on support ticket volume, too, and see what concerns users are raising.
You can also go old school and “be the customer” yourself, making sure you experience the full onboarding flow and customer support experience firsthand; or, recruit others to do this step for you. Once you understand the points of friction, optimize those areas, remove unnecessary steps, and adjust your CX to conform it to your customers’ feedback.
Example: Bannersnack
Bannersnack (now Creatopy) used heatmaps and session recordings to understand where users were struggling to use its banner-making SaaS product. By making a few UX changes, they were able to boost usage of one previously-hidden product feature by 12%.
4. Build a Customer-Centric Culture
If you want happy customers, start with happy employees.
96% of customers say that customer service is a key driver for their loyalty to a brand. The reverse is also true: 74% of consumers think unhappy employees negatively affect the customer experience.
The impact of a customer-centric culture can be harder to measure than factors like onboarding and UX, but it’s no less important. A deep sense of empathy for the customer across your teams means that everyone, from engineering to support, is more likely to do their work with customer satisfaction—and retention—in mind.
To build a customer-centric culture, share inspiring customer stories, hire employees that “get it,” and find ways to get team members to interact directly with your customer base. To deepen this customer-centric focus, create incentives for employees that tie to retention-focused metrics.
Example: Rize
As SaaS companies get bigger, customers tend to lose the direct access they once had to the firm’s founders and developers. Although this scaling is necessary for growth, try to maintain a “small SaaS” spirit when it comes to your customer interactions.
For example, Rize, a productivity SaaS, offers new users access to a weekly live training and direct access to the founder by email.
5. Invest In Omnichannel Support
It used to be common for companies to offer support by phone, email—and nothing else. But that’s just the start in the world of SaaS: there’s also live chat, chatbots, knowledge bases, social media, and community forums.
Live chat, as the most popular support option with customers, is critical to get right. And by making sure you’re equally responsive on every channel you offer, you’ll have a positive impact on customer satisfaction and revenue. For example, customers spend 20-40% more with brands that quickly resolve their request on social media, according to a McKinsey study.
Using customer service software will help you coordinate all this omnichannel support activity, pulling everything together into a single inbox and ensuring customers can jump between communication methods without losing context or chat history.
Keep in mind, too, that most customers prefer self-service: 81% of customers attempt to solve problems on their own before ever reaching out to your support teams. Make their job easier (and reduce the burden on your support team) with a comprehensive knowledge base.
Example: Acodei
Acodei, a SaaS product that syncs Stripe with Quickbooks, has a knowledge base with dozens of articles that makes it easy for customers to self-serve, as well as live chat and email support.
6. Identify Customers At Risk of Churning
11% of churn could be avoided if the business reached out to the customer.
But since you can’t reach out to all your customers all the time (nor would your customers want that level of communication), the trick is to identify the customers who are most likely to churn—then reach out proactively to give them a reason to stay.
Your best metric for this task is the Customer Health Score (CHS), which assesses the health of your customer relationships. CHS is a custom composite of metrics like product usage, support ticket volume, login frequency, first contact resolution rate, and Net Promoter Score.
Pick the metrics that make sense for your business and assign a weight to each metric. Then calculate the score for each customer and segment them accordingly. Reach out and engage with the customers who’ve been flagged as high-risk; or, if you have a large number of customers, let the automation features in your CRM do the job for you. Ask customers how you can help, and offer incentives to reengage them.
Remember that not all churn is intentional. Make sure to address involuntary churn too: failed payments can be a big drag on your retention numbers, causing 20-40% of churn.
Example: Buffer
Once customers have gone a while without interacting with your SaaS product, make sure they receive something like this email below I got from Buffer, the social media scheduling tool, encouraging me to come and check out new products and features.
7. Incentivize Loyalty With A Rewards Program
Your best customers love your product for the intrinsic value it offers them: 74% of customers say product quality is the main reason they’re loyal to a brand. Customer support is another big driver of loyalty.
But to take customer loyalty to the next level, you need to offer perks. 48% of consumers expect special treatment for being good customers, while 53% of consumers say discounts and loyalty points make them remain customers of a brand for longer.
In other words, loyalty is a two-way street.
Fortunately, you can design a customer loyalty program in a way that works for you. Free upgrades, early access to new features, discounts, and VIP treatment are all easy ways to get started. You’ll also want to consider designing a tiered loyalty program that gives customers more benefits the longer they’re with you.
Example: ManageWP
I’ve been a customer of ManageWP, a SaaS product serving the WordPress space, for half a decade. Every time I check my billing dashboard, I’m reminded of my 30% loyalty discount. Cleverly, ManageWP manages this on a tiered yearly basis: for each year you’ve been a customer you get a 10% loyalty discount, all the way up to a max of 30%.
8. Give Customers a Reason to Stay
When I worked as a customer success specialist, my team’s managers encouraged us to try to upgrade clients because it helped with retention. I figured it was more about the increased revenue, but it turns out they were right—upselling really does help with retention. A Vendasta study of over 100,000 businesses found that 62% of the clients who weren’t upsold within the first 90 days churned within two years.
Nudging customers toward annual plans instead of monthly plans has also been shown to decrease churn. A ProfitWell study of 941 SaaS companies found that those with monthly contracts (and no annual contracts) had a churn rate of 9%; meanwhile, companies with mostly annual contracts averaged 3-5% monthly churn.
Once customers have decided to cancel, you still have a chance to change their mind with exit offers. If you’ve ever attempted to cancel Amazon Prime, you know what I’m talking about—first, you’re presented with each of the benefits you’ll lose; then, you’re given the option to pause instead of cancel, which makes it easier to resume. Another strategy you might consider is to offer a free upgrade or a discounted annual plan.
Example: VEED
As a free user of VEED, a video creation and editing platform, I received a series of onboarding emails helping me understand the platform’s features, a personalized email from a sales representative, and a follow-up email nudging me to upgrade to the annual Pro plan in exchange for a discount.
9. Capture Feedback and Learn from It
The average response rate for companies soliciting customer feedback is only 6%.
But don’t let the low response rate dissuade you—in reality, customers love when you ask for their input. 77% of consumers have a more positive view of brands that ask for (and accept) their feedback.
And that’s a good thing, because understanding customer feedback is vital for retaining users. By capturing feedback using surveys like NPS and CSAT, companies can understand what they’re doing right—and get early warning signs when things are going wrong. Use customer feedback software to monitor feedback from diverse channels like social media, reviews, and online communities, as well as your own survey software.
Make sure to incorporate pain points, customer complaints, and suggestions for improvement into your product development process.
Example: Otter.ai
Make sure to collect customer feedback before customers churn, like Otter.ai does. To get more customers to respond to your survey, keep the email short and make it clear that it will take very little time to complete.
If you find you’re not getting as much customer input as you hoped for, don’t be afraid to break out the incentives. For example, VEED offers product credits or $20 Amazon gift cards to users who are willing to give product feedback to their UX researcher.
SaaS Unicorns Have One Thing In Common—Retention
Your SaaS company may or may not be aiming for that elusive $1B valuation “unicorn” status. But either way, know this: SaaS unicorns, as well as publicly-traded SaaS giants like Twilio and Zoom, are laser-focused on high retention numbers.
Twilio has an enviable net revenue retention rate of over 140%. Zoom boasts an industry-leading NPS score of over 70, higher than most in the SaaS industry and on par with beloved brands like Amazon and Apple. Meanwhile, the top 40 publicly-traded SaaS companies have a median net retention rate of 112%, and the top five average 144%.
To follow in the footsteps of these successful SaaS brands, make retention a strategic priority across your organization. If you don’t have C-Suite buy-in yet, emphasize retention’s impact on KPIs like Customer Lifetime Value and Net Promoter Score. Then, empower your teams with the resources, support, and incentives needed to retain customers, boost loyalty, and transform your customer experience.
To learn more about customer retention, check out our article on predicting customer churn. And make sure to subscribe to our newsletter to get our latest CX leadership tips, marketing strategies, insights, and industry trends.