SaaS Retention, Explained

How your SaaS can retain subscribers

What makes Netflix and Amazon Prime special? Besides providing us with endless hours of binge-worthy shows and movies, both of these companies are experts at customer retention.

Is it better to retain or gain customers?

Retaining customers is far more valuable to SaaS companies than acquiring new ones. Here’s why:

According to Shopify, customer lifetime value (CLV) is the “the total amount of money a customer is expected to spend in your business, or on your products, during their lifetime.”

The longer a SaaS retains a customer, the higher their CLV will be. The CLV of a customer should outweigh how much it costs to acquire that customer.

For example, let's assume Company A, on average, spends $30 on marketing to acquire a new customer. Company A will need to have a CLV that exceeds $30 in order to generate revenue. If company A is charging $20 a month, they will need a customer to use their service for at least two months in order to make a profit. If the company acquires, but fails to retain, a customer, they can end up losing money.

Increasing customer retention means decreasing their churn rate. Churn is the percentage of customers that cancel their subscription. To learn more about churn, click here.

If your churn is high, that could be a sign that there’s a larger issue at play. Here’s some common issues that result in decreased customer retention and how to fix them:

Poor Customer Service

Nothing causes a customer to cancel a subscription faster than poor customer service. Whether it's a faulty chatbot, hour long wait times, or an employee with a cranky attitude, customer service issues are detrimental to a Saas service.

High churn can be a warning sign that a company’s customer service needs an upgrade.

Tip to fix customer service issues:

  • Having an easily accessible support team is a must. Many customers will get frustrated if they have to play scavenger hunt in an app or website to get their questions answered. An easily accessible"help" button is the solution.
  • Create a FAQ page. This is a win/win as it will help customers find easy solutions to their problems, while saving a business time and money.
  • Have a team that matches the demand for support. This seems intuitive, but it's an important part of customer service that is often overlooked. Having an ample support team will help your employees with their workload and decrease waiting times for your subscribers.

P.S: Not sure if you can afford to hire a customer support team? Causal’s customizable templates are perfect for revenue-based hiring.

Not having value based pricing

Investopedia defines value based pricing as “a strategy of setting prices primarily based on a consumer's perceived value of a product or service.” A common mistake Saas companies make is setting prices based on their costs, as it can cause a customer to churn.

Here's how to calculate value-based pricing, rather than cost-based pricing:

  • Identify your target customer.
  • Find the product your customer would have purchased had your product not been available. Compare this product to your own and note the different features. Place a monetary value on the difference in these features.
  • Price your product accordingly.

To explore other efficient pricing options, click here.

Causal’s scenario analysis can forecast the results of your pricing strategy, helping you generate revenue without losing customers due to comparatively high prices.

Highly competitive market

If your saas is in a highly competitive market, you may face a high churn rate as your customers have many different options.

Let's say you estimate the value of your product to be $10 a month. Your product could be phenomenal, but if a competitor is offering a similar product at $5 a month, it will be difficult to retain customers.

How to mitigate churn in a highly competitive market

A good way to fix this issue is to regularly complete market analysis. Market analysis analyzes your competition, demand, target marketing, and pricing to give you a full view of how you can compete successfully in your industry.

Causal is a great tool for market analysis. We can help you come up with a marketing plan and build forecasts for your campaigns so not a single penny is wasted.

Poor user experience

Poor user experience (UX) is often confused with bad customer service. However, these can be completely different issues with vastly differing fixes. User experience is the overall experience of a person using your service, while customer service focuses on the assistance provided to a customer.

Several things can contribute to poor UX, including:

Confusing features

The interesting features that your service offers are useless unless a consumer can easily access them. That doesn't mean your grandma needs to be able to work your app like a pro. Your service should be accessible to your target customer, whether that's a tech genius or a computer newbie.

Poor onboarding

User onboarding helps a customer understand how to successfully use your saas. A common technique to enhance the user onboarding process is called gamification, which uses gaming techniques to make the tutorial process entertaining and memorable. This can include giving rewards for completing an onboarding task or using level-up challenges.

Unattractive design

Design is an underrated part of a website or app. That doesn't mean you need to hire an artist to give you a museum-worthy service design. Usually an attractive design is one that's simple and easy to use.

Lack of brand loyalty

According to Zinrelo, 80% of profits will come from 20% of your loyal customers, meaning that brand loyalty is extremely important. If your customers are loyal to your brand, your customer's lifetime value will increase significantly.

Several things can affect brand loyalty. One is brand recognition, which is why marketing is increasingly important. Another is user experience. If a customer has a poor user experience, they are likely to tell others. 74% of users say they are loyal to the brand because of product quality, so overall, offering a good service is the best way to attract loyal customers.

Causal is here to help you retain subscribers. Analyze your marketing campaigns using Causal’s customizable templates, or use our SaaS template to track your new, renewed and churned customers. We’re here so you can make the best financial decisions for your company with all the data at your fingertips.

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