Why is Customer Retention key in SaaS industry?

~ 3 min read | January 8

Customer Retention Key in SaaS

By all expert accounts, bringing new revenue on board isn’t just challenging, it’s really costly. David Skok, “serial entrepreneur” turned venture capitalist has written that he believes the second most-common reason start-ups fail is due to a failure to monetize existing customers. Specifically, companies don’t perform the math on whether their cost of customer acquisition exceeds lifetime value of clientele.

If retention isn’t a priority at your business, you’ll have a tough time succeeding in the SaaS industry. We’ve outlined several reasons why customer retention is key for subscription businesses:

1. Customer Acquisition is Pricey

The average cost of customer acquisition in the SaaS industry is typically 2-10 times more than average monthly spend of clients. With exceptions, Skok has found that in subscription business customer’s lifetime value is at least three times greater than cost of acquisition.

The rate at which customer acquisition costs are paid off is relatively easy to calculate in the SaaS industry. To relatively simplify things, if the cost of all marketing and sales accounted for $1,000 for every customer acquired and monthly recurring revenue was $200, it would take 5 months of service for the cost of a customer to be re-earned by the company. Preventing your customer base from churning is the only way to ensure your company’s financials remain above water.

2. Your Customers are the Key to Increased Revenue

Consumer insight research has found that the average spend of a company’s current customer is typically 33% greater than a new client. Your customers already love and utilize your product, and connecting with the segment who aren’t as pleased with your service can convert detractors into promoters.

By all accounts, making your clients feel appreciated is important, and some researchers have found that it may matter more than the quality of the product. One survey found that 68% of customers leave a company due to perceived indifference from the service providers, while only 9% will make the switch for a superior product or service. While this research is focused on retail space, this holds true in SaaS as well.

Retail Survey on why customers leave

Making your clientele feel appreciated is critical to retention in the SaaS industry. Engage with disengaged customers, and leverage your most-loyal promoters for referrals and recommendations. The value of retaining their business could exceed the payoff of 2 new customers.

3. Identify and Extinguish Possibilities of Customer Churn

Churn is typically a “trailing indicator” of disengaged or dissatisfied customers. It’s deadly to your bottom line. Des Traynor of Intercom recommends that subscription businesses proactively approach customer retention by using behavioral segmentation to identify which users are at the highest risk of churning.

Traynor writes that in the SaaS industry, it’s crucial to identify which clients have undergone an “activity churn,” and respond with an honest and personalized message to attempt to reengage the user.

Activity Churn Intercom

source: www.intercom.io

Churn can KILL your business, so it is very important to find ways to retain your customers. Here are a few ideas.

Is customer retention key in your business? Use the comments box below to share your views.

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John Solomon

Marketing Leader / Sales Enabler. Head of India Operations for @Infrascale / @sosonlinebackup.