Customer retention may not be as glamorous as new acquisition, but it's essential to the health of your SaaS business.
SaaS metrics can be a funny thing.
You look at metrics like your MRR (monthly recurring revenue) and customer acquisition and feel like you're on top of the world. But then you glance over at feature adoption, customer retention, and churn for the same month—and all of a sudden the company seems doomed.
That’s because customer retention—and it’s ugly cousin churn—is not just a reflection of past performance. These numbers are also key indicators of future business performance—of how sticky your product is, how well your company is meeting customer needs, and whether the growth indicated by acquisition is actually sustainable.
At this particular moment in time, many SaaS companies are seeing a stark uptick in churn, and as a result, they are dramatically shifting their priorities away from net new acquisition to retention and expansion strategies. Because when the going gets tough, you want your best customers to stay by your side.
Here are a few stats that will help you put that churn rate in perspective, along with strategies for improving your customer retention in both the near and long term—whether you’re trying to tackle a sudden churn problem or are simply trying to stay ahead of the game.
1. Improving retention by just 5% results in a 25 to 95% increase in profit
Moving the needle on retention is difficult. The good news? Relatively little effort goes a long way. Expect all of your hard work on improving retention to make a positive impact of just a few percentage points. But just like churn compounds, so does customer retention. A 5%increase in your retention number snowballs and keeps more and more revenue from escaping that hole in the leaky bucket.
Bad retention rates have the tendency to send product managers spiraling, causing them to make too many changes at once. If you take this approach, you’ll never understand which optimizations made a difference. That’s why it’s essential to focus and prioritize. Use analytics to pinpoint where users drop off and which features are lagging in terms of adoption ( which are the least sticky). From there, work with your team to address these problems. Here are the benchmarks you should aim for, in order of importance.
Aim to offer a self-service experience
Users need to understand your value, and fast. You could offer the best product in the world but if you don’t have the right tools in place to get users to that aha moment, they’re going to churn. Take a look at your in-app campaigns. Are you properly onboarding users? Are you offering tips and pointing them in the right direction to discover valuable features? The more intuitive your product is, the stickier it becomes. You may also want to think about creating a library of self-service product tutorials, like Carts Guru did using Appcues.
Increase feature adoption
App stickiness evolves from feature adoption. If a user only uses your app for one thing, you’re easily replaceable. But if you become the go-to for multiple tasks (think: Slack), the more ingrained you become in a user’s day-to-day life and the less likely they are to churn. Make sure to not only drive users to the most important features of your app, but also any new or complementary features that drive up stickiness.
Declutter your product roadmap
Offering a few really great features far exceeds offering a multitude of average ones. If you have features that few customers use, they're distracting from the central value of your product. Depreciate them so that your dev team can focus on the features that matter.
2. It costs 5x more to acquire new customers than it does to keep existing ones
Customer acquisition is glamorous—from hyper-targeted Instagram ads and partnerships on the marketing side to closing exciting deals in sales. But it turns out that in many ways, customer retention is far more important.
Acquiring customers is expensive—especially in the early days—and unless you have a great customer retention number, you're just throwing away those dollars on soon-to-churn customers.
Seth Godin argues that you should spend your money on transforming users into true fans, rather than marketing to strangers you know nothing about. Here's how those marketing funds can be better spent:
A well-staffed support team. Your support team shouldn't be composed of your product manager or your co-founder when they have some extra time at the end of the day. Have staff dedicated to addressing concerns, and proactively reaching out to customers
Dev resources. Development is the lifeblood of your company. If your team is barely able to handle product updates and bug fixes, how can they build new features that fit existing customers' needs? Make sure you have enough developers to fix your current product while expanding and iterating.
An analytics platform. Management expert and advisor Peter Drucker says you should outsource anything that isn't your core product. Your dev team can likely throw together a basic analytics platform, but it's better to just outsource to the experts. Use an easy-to-integrate product like Amplitude to get laser-focused insights.
Onboarding tools. User onboarding is the most important part of a user's journey. So if you get it right, you can lift your entire retention curve and see a drastic revenue increase—25% for each percentage that you improve retention.
3. 30% of SaaS revenue should come from upsells
Revenue expansion—or the revenue made by selling into your existing user base—is a critical component of any SaaS company’s business model. The good news? It’s far easier to sell to users who understand your product’s value than to net new ones. The bad news? To put it mildly—upselling is tricky. But with the right strategies in place you can see a lot of success.
Showcase the benefits of upgrades and premium features
For many Saas products, phase 1 of user retention is proving your value by getting users to the critical aha moment. Phase 2 is getting them to value your product enough that they’re willing to pay (more) for it. While there are many strategies to achieving the upsell, they all center around highlighting the benefits of paid features and subscriptions to the user. Below are a few tactics from successful subscription-based apps:
Position the upsell as a feature discovery
By letting users discover both free and premium features, you’re priming them for an upsell opportunity. Spotify allows free users to skip up to 6 songs an hour—after that, the following upsell message is triggered:
Aligning the feature upsell in context with the current user experience helps users understand how it would benefit them. Plus, Spotify’s clever tactic of positioning the upsell as a feature discovery, rather than a firm paywall, takes some of the sting out of the cash grab.
Trigger feature upgrades when users need them most
When you ask a user to upgrade can be more important than how. Similar to your other messaging, upgrade prompts should be tailored and feel relevant to the user. For instance, Zapier triggers the upsell message below while a user is actively engaged with their tool and has hit their task limit:
Bake subtle upgrade reminders into your platform
Not every upsell strategy needs to be aggressive. Sometimes subtle upsell alerts featured within your product are enough to keep your premium offerings top of mind. Take the following example from Dropbox:
The alert doesn’t disrupt the user experience since it’s on the side panel, but gets the point across with a free-trial CTA.
4. 50% of customers who pay for a SaaS solution only use that product 1x per month
Take a look at your MAUs and DAUs—how do those numbers fare? If your customers only use your product once a month, churn is looming in the distance. There are very few products that can sustain off infrequent usage. Instead, you should focus on building product features and functionality that engage with users throughout their customer journey. Notably, you should focus on turning engaged users into product champions.
Turn regular users into champions
Regular users make up your core audience—they’re knowledgeable about your product and use it frequently. They’re invested in your product, and it remains top of mind for their business needs. The idea of switching is costly to regular users as they have all but mastered your product.
So what differentiates a champion user from a regular? Delight. Champion users are passionate about your product and genuinely enjoy spending time in it. They love exploring functionality and discovering new features. Because of this, they are your biggest advocates. To turn regular users into champions, do the following:
Encourage feature adoption: Getting users to try out new (or existing) features is challenging. Using tooltips is an effective way to draw attention to these features without being disruptive.
Encourage feedback: Users want to feel heard. As regular users of your product, they offer a wealth of knowledge on how you can optimize. Give users a platform to voice their opinions. Make them feel valued and that their opinion matters.
Customers churn when they don’t see value
Improving customer retention means more than just the ability to keep your head above water. In fact, 80% of your future revenue will come from 20% of your user base today. Convince just a few more users into sticking around more, and that future revenue number goes way up.
One of the best ways to head off churn? A seamless, best-in-class onboarding experience.
1. Succinctly demonstrate your app’s value: The main goal of onboarding is to get users to their aha moment as quickly as possible. When users complete your onboarding experience they should fully understand your product’s value.
2. Keep it short and sweet: Since you’re dealing with short attention spans, you need to get to the point quickly—give users the information they need as succinctly as possible or risk users getting frustrated.
3. Make sure users are set up for success: At the end of your onboarding experience, there should be clear next steps for the user to take.Your onboarding process should end with users feeling motivated and capable of exploring your product on their own.