An In-depth Guide to SaaS Customer Retention

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Customer Experience : 9 min read

An In-depth Guide to SaaS Customer Retention

If you’re selling in the SaaS space, you know the struggle of acquiring new customers.

Raising awareness for an unfamiliar product. Tapping into pain points. Running demo after demo.

The initial upfront investment required for customer acquisition in SaaS is staggering. In fact, the average SaaS startup spends 92% of their first-year contract value on that initial sale.

But in order for that investment to pay off, you need to keep your customers around for the long haul.

That's where SaaS-specific customer retention comes in.

Given the blood, sweat, and tears it takes to bring new customers on board, SaaS companies can’t afford to ignore the fine details of retention if they expect to survive (let alone grow).

In this guide, I'll break down everything you need to know about SaaS customer retention, including:

First, let’s look at the current landscape of SaaS customer retention.

Check out these SaaS customer retention and engagement stats

To say that the SaaS space is evolving would be... an understatement.

New solutions are popping up left and right, every day. As SaaS becomes more and more crowded, brand loyalty is crucial for companies looking to outlast their competitors.

Below are some key statistics that really illustrate the state of SaaS customer engagement right now and how customers engage with solutions.

1. The median SaaS churn rate sits around 5% as of 2019. (source)

According to research by Recurly, SaaS companies actually have the lowest churn rate compared to other industries:

saas churn rates

Although it seems like every SaaS company is concerned with customers bouncing to competitors, this data tells a slightly different story.

Once someone has committed to your SaaS solution, they’re inclined to stick with it. They’ve committed to you—but are you committing to them? This data speaks to the significance of onboarding and the need for SaaS companies to emphasize customer success after someone signs on the dotted line.

2. Modern companies rely on anywhere between 26 and 124 SaaS apps depending on their size. (source)

Don’t assume that there isn’t room for your solution in someone’s tech stack. Even relatively small teams rely on dozens of apps.

For SaaS brands, this signals the importance of emphasizing the value they bring to the table by solving specific problems.

However, it should be noted that paid SaaS subscriptions represent a much smaller makeup of any given company’s software stack:

free vs paid saas apps

Your customers don’t have unlimited resources. To move beyond “freemium” territory and make yourself a staple to your clients, you have to provide measurable value that’s truly worth paying for.

3. 50% of customers paying for a SaaS product only use that product once per month. (source)

Believe it or not, many SaaS solutions don’t get used much at all.

Retaining customers is an uphill battle if people are only using your service here and there—it’s much easier to build a sense of loyalty when your product becomes part of their regular routine.

Again, so much of SaaS customer retention boils down to positioning, selling on value, and providing that value.

Now, let’s look at common reasons why SaaS companies lose customers.

Why do SaaS customers cancel, anyway?

Before we dig into the specific strategies behind SaaS customer retention, let’s answer this question first.

On the surface, the typical reasons for cancellation might seem obvious.

Perhaps your product is no longer part of your client’s budget. Maybe your client’s company folded, end of discussion. These factors may ultimately be out of your control.

However, there is a common thread behind why customers cancel voluntarily.

The majority of SaaS customers cancel because they fail to see the value of your product.

This might seem like a no-brainer, but the concept of value is integral to SaaS customer retention. Lincoln Murphy of Sixteen Ventures puts it best:

“It’s very simple; customers that achieve their desired outcome tend to not churn.”

At the end of the day, whether or not SaaS customers stick around depends on whether or not your clients produce the results that you promised.

Murphy refers to this concept as the “Desired Outcome,” which is central to customer retention—and it’s central to how we work at Copper.

Our customers are looking to build relationships, collaborate better, save time, and leave spreadsheet hell behind. The more our users engage with Copper’s platform, the better we’re able to deliver that desired outcome. Copper becomes integral to their day-to-day duties and those same customers remain loyal as a result.

Pro-tip: For SaaS customers, value matters more than the price tag.

Bear in mind that SaaS cancellations aren’t always tied to cost.

For example, SaaS brand Canny actually managed to raise their subscription prices while simultaneously gaining more customers. When your users see the legitimate value of your product and you deliver on your promises, it's easier to convince them that paying a premium is worth it:

saas price increase example with positive customer reaction
In fact, Canny got messages telling them to increase prices.

Here’s another example. In 2018, Hotjar released a detailed breakdown of the top three reasons their customers churn.

None of these reasons explicitly had to do with the cost of their service, but rather perceived value.

Clients acknowledged the power of their platform and the wealth of data it provided. The majority of customers churned simply because they couldn’t see the value behind it. This analysis gave Hotjar a clear roadmap of next steps to engage and retain customers in the future.

SaaS customer retention hinges on the perceived value of the product—and it’s much more difficult because the products here tend not to be tangible objects that you can touch or feel.

If you want customers to recognize the long-term value in your service, you’re going to have to frame it clearly.

Pro-tip

Destroy churn.

Learn strategies to reduce churn and keep customers longer with this handbook.

9 SaaS customer retention strategies to try

Here’s our breakdown of nine specific customer retention strategies for SaaS companies. The benefit of these principles and tactics is that they should be fair game no matter what type of SaaS product you’re selling.

1. Center your onboarding around empowering customers

Ideally, there should be an automatic flow where you can help a new user get started quickly after they become a customer.

As we mentioned above, your client may have a huge tech stack with many apps—they might not have someone in-house who can onboard new hires onto every single app.

If you want to grow more champions and experts in your customer accounts, then you need a way of engaging with new users on the account; if you can see new users, then you can craft personalized messaging for that user and welcome them to your product.

The same logic applies to existing customers who have been inactive, too. For example, in Copper, you can see a customer's "inactive days" or "last contact date" and use these as indicators for outreach. Rather than let users’ engagement with your product stagnate, proactively providing guidance can bring them back to life.

tracking inactive users in copper crm

Ask yourself what users can do with your product now—that you can show them.

For example, Copper automatically populates your contacts’ data and information, and it’s something that we try to show our customers early on as it’s a great way to show off the potential of the platform as soon as they open up their inbox:

Pro-tip

Know thy customer 🔍

Learn how to gather and use customer data effectively with this free handbook.

2. Build customer relationships by serving as a consultant

Let’s say you have a high-touch onboarding experience with a seamless handoff to Customer Success, dedicated support resources, and an established, effective way of transferring documentation.

At this point, you’re ready for your Customer Success Manager to have a kick-off call after someone has onboarded.

This is your team’s opportunity to build a meaningful, proactive relationship between you and your customers. You can then devise a joint action plan with your customer, including context on everything from the initial sale to the onboarding experience.

By playing the role of consultant and coming up with a plan together, you build a sense of trust. Basically, you're outlining what your customer needs to do to be successful with your product—based on their needs. This conversation naturally sets up a follow-up, including opportunities to upsell and cross-sell in the future.

My team uses Copper to track the entire team’s history with any given customer—regardless of their role. This enables us to provide comprehensive and personalized advice for our customers rather than “one-size-fits-all” tips:

customer communication history in copper crm

Conversations you have early on with your customers are critical, especially in the SaaS space where customers can cancel at any time. The better you can serve as their coach or consultant, the better your relationship.

By doing so, you actually have a means of learning and meeting the needs of all the other stakeholders within a customer's account.

3. Don’t rush your renewal and upsell conversations

If your product runs on an annual renewal cycle, make a point to start renewal conversations sooner rather than later.

Being proactive is key to SaaS customer retention.

Pro-tip: Rather than procrastinate and risk customers having a prolonged negative experience with your product, checking in halfway or three-fourths of the way through their contract gives you ample time to steer them in the right direction if needed.

One way to do this is to create check-in templates and reminders to ensure that you’re consistently staying in contact with customers. Doing so ensures that your customers are constantly in the loop, especially if you’re concerned that they might be on the fence about renewing.

Beyond check-ins, you can also send emails to nudge customers to check out new resources or product features that benefit their use case. Providing specific, actionable benefits based on an individual customer’s needs is probably going to result in more engagement than a generic check-in.

In Copper, you can use merge tags to send these emails in bulk—without having to fill in custom info like names in each email—like this:

It’s a huge time-saver for us.

4. Rethink what a “lost” customer looks like

Basically, don’t assume that someone who cancels their subscription is necessarily gone for good.

As highlighted by Profitwell, there’s typically a multi-week gap between when a customer cancels their subscription and when their service actually stops:

saas subscription stats

This gap is your window of opportunity to win someone back. You can do so without sounding totally desperate or begging, by the way. For example, a win-back email that lets your customer know about a sale that happens to be going on just might get them interested again.

Here’s another example from Avocode:

avocode saas email

These types of messages give you a second chance with would-be lost customers who probably would have churned anyhow.

5. Provide your customers with resources and use-cases

SaaS companies should provide ample support to their customers, even if they aren’t asking for it outright.

Zendesk is a shining example of a SaaS company that has a variety of resources on deck to ensure its customers’ success.

For example, they have a repository of webinars available on-demand which are categorized based on different products, industries, and customer demographics:

zendesk saas resources for customers

They also provide specific customer case studies, highlighting how customers in various industries use their platform. These stories serve as motivation and inspiration for current customers to do the same.

And if you’re already creating useful resources, make a point to keep your customers in the loop about them. New blog posts, webinars, or guides are perfect reasons to reach out to your customer base via email:

saas customer email example from zendesk

6. Step up your social customer service

Being available to your customers is a huge piece of SaaS customer service.

There’s a reason why SaaS giants like Slack have made a name for themselves by being extremely responsive on social media. (At Copper, we mainly use Twitter for this.)

Considering that half of consumers regularly take to channels such as Twitter to ask questions, having a social presence is incredibly valuable to SaaS brands:

slack saas customer service example

This sort of availability and transparency goes hand in hand with the Relationship Era.

Rather than force your customers to play the waiting game, speedy service via social media is becoming more and more of an expectation from consumers. Monitor your mentions and make sure you’re listening to concerns no matter where they’re coming from.

7. Always put your pricing into context

We get it—pricing out your SaaS service can be complicated. That said, your customers deserve a head’s up if you plan on making changes to your pricing structure.

Time and time again, the importance of highlighting your product’s value rears its head. No company should raise prices “just because.”

Always provide context for your pricing changes and tie it into how doing so makes your product more valuable in the long-run.

This logic also rings true for cross-selling or upselling your customers. This pricing announcement from Todoist is an awesome example of how in-context pricing can make your service seem more valuable and actually result in long-term customers who are willing to pay more for your service:

todoist saas upselling email

8. Regularly review your usage data

A quick tip, but definitely one worth mentioning.

Consistently reviewing your usage data is a good idea, particularly for customer retention.

If possible, make a point to dig into your usage data at least monthly. Specifically, note how often customers are using your product, how they’re using it, and how those numbers compare to your customer benchmarks. This information can clue you in on what resources to provide to customers to enable their success.

Tools like UserIQ analyze product usage data and how frequently specific users are (or aren’t) engaging with specific features:

useriq saas customer usage tracker

Based on these numbers, you can spot customers who are at risk for churned and likewise who might be ready for you to upsell. UserIQ’s platform assigns individual users a customer health score to highlight both types of users at a glance:

useriq's customer health management tool

Regardless of which analytics platform you use, monitoring usage data regularly remains a top priority for SaaS brands—including ours.

9. Ask people why they leave

Finally, don’t be shy about asking customers why they decided to cancel their subscription.

After all, some churn is inevitable. Customer exit surveys can be integrated into your SaaS customer retention strategy to better understand why. Like we highlighted with Hotjar, comments and criticism from real-life customers are eye-openers for how SaaS companies can improve.

Whether through a third-party survey platform like SurveyMonkey or an exit email, asking the right questions can vastly improve the quality of your feedback.

Here are some sample exit survey questions to ask folks who might be on their way out:

  • Why did you initially sign up for [product]? Did you have previous experience with solutions in this space?
  • What were you using [product] for and how often were you using it?
  • When did you begin to suspect that [product] may not have been a good fit?
  • What did you see as the biggest benefit of [product]?
  • What would it take for you to reconsider your cancellation?

Based on this feedback, you can identify weak points in your sales, marketing, and customer success campaigns and likewise what you can do better in the future.

What are you doing to retain your SaaS customers?

Engaging customers and providing legitimate value at the same time.

That’s what customer retention is all about.

And if you’re a SaaS company that wants your customers to stick around, you need to be able to understand their specific needs while making regular touchpoints to ensure they’re seeing the full value of your service.

With the help of these strategies and tools such as Copper, you can build stronger connections with your buyers and stay engaged with them through every step of the customer lifecycle.