Did you know that increasing customer retention rates by just 5% can increase profits by 25% to 95%? In the competitive world of SaaS, retaining customers is not just a strategy—it’s a necessity.
As we delve into this article, we’ll explore 13 strategic tactics that SaaS companies can employ to enhance their retention rates. These tactics are rooted in the AARRR Framework, a proven model for growth.
By the end of this read, you’ll have a comprehensive understanding of how to effectively boost retention and ensure the longevity of your customer relationships. We’ll touch upon primary strategies like user segmentation and personalized experiences, ensuring you’re equipped with actionable insights.
Whether you’re a startup or an established player, these tactics are pivotal in shaping a sustainable SaaS business model.
#1 Add/Invest in product-led growth
- Can you offer a self-service onboarding?
- Decrease the time-to-value (aha-moment)
- Measure product usage and offer product-enabled sales activities
- Optimize conversion from active users to paying customers (e.g. opt-in, checkout, pricing, etc.)
- Retention Strategy
- How do you decrease churn (Customer Success, Training, Customer touchpoints, etc)
- How do increase revenue over time (upsell/cross-selling strategy, Pricing)
- What viral features can you add to your product to create a growth flywheel?
#2 Be closer to your customers
Have at least 1 call per week with customers and potential customers.
With every call, you will learn (about pains, feature requests, marketing messaging, etc.).
You can also build a customer advocacy program to turn your most influential customers into brand ambassadors.
👉 Here is a great guide about customer advocacy program.
If you just starting out with your business (or expanding to new markets) build a launching partner program. It’s basically a group of early customers and they provide you with insights, and regular reviews of the roadmap & help you to grow your brand in the industry, make intros and referrals, etc.
In exchange, you can offer them special conditions.
#3 Build lock-in features for stickiness
Can you build features that increase the lock-in of your product and make it hard(er) for your customers to churn/switch to the competition?
- APIs: By offering robust APIs, you allow users to integrate your product with other tools and systems they use.
- Multiple User Accounts: If a company has many employees using your product, the collective knowledge and familiarity with your system create a barrier to switching. Training a whole team on a new system is time-consuming and costly.
- Historical Data: When users have accumulated significant historical data in your system, it becomes a valuable resource.
- Customizations & Integrations: If users have tailored your product to their specific needs or integrated it with other tools, these customizations create additional barriers to switching.
- Network Effects: As more people within an organization or industry use your product, its value increases, making it harder for individuals or teams to switch without losing out on the network’s benefits.
#4 Charge for Priority customer support
Offer premium product support to your high-value customers.
Prioritizing support for these customers ensures their satisfaction and promotes positive word-of-mouth.
👉 Consider implementing dedicated support channels or faster response times for these customers.
👉Regularly review feedback from these customers to further enhance their experience and address any recurring issues.
#5 Conduct Exit Interviews
A growth loop is a self-reinforcing cycle where every user action leads to an output, which in turn generates more inputs for the next cycle, driving continuous growth.
- Three Main Components:
- Input: The initial trigger or action, such as a user signing up.
- Action: The main activity or behavior you want the user to take, like referring others.
- Output: The result of the action, which becomes the input for the next cycle, e.g., new user sign-ups from referrals.
✅ Acquisition growth loops, especially those based on referral programs, can be a cost-effective strategy for attracting potential users.
#6 Email Sequence – Churn
Survey your churn customers. Once they cancel, ask them why.
Send automated emails with a quick survey.
Use dropdown fields with churn reasons + open text field for further info about why they cancel (once a month, analyze the churn reasons).
Based on the churn reason, personalize your follow-up:
- too expensive —> one-off discount
- too complex —> Customer Success call / Free Training
- missing feature —> share product roadmap
Even offer to jump on a call with them. For important customers, call them. During a call, you should ask:
- Why did you initially start using [Product]?
- Why have you stopped using [Product]?
- Is there something that could have been done differently?
- How are you going to replace [Product]?
#7 Experiment on your own: 7-days free trials increase sales and retention
📈 Scientific research: 7 days free trials (vs 30 days), led to:
- → 5.6% more conversions
- → 6.4% better retention (over 2 years)
- → 7.9% higher revenue
- → Trials work best if people use them intensively.
- → Shorter trials create an urgency effect.
- → So people use them more.
- → And are more likely to learn about the product and buy.
Data: Thomas Mckinlay, who shares mind-blowing marketing recommendations based on scientific research
#8 Identify Red Flags for Customer Churn
Identify customers likely to churn by analyzing their behavior and engagement patterns.
Successful customers often exhibit specific actions within your app that keep them engaged. Monitor these actions as indicators of customer satisfaction.
Key metrics to consider:
- 📊 Number of sessions in the app during the initial weeks or month.
- 📊 Essential actions completed within the app during the early stages.
- 📊 Frequency of logins over a specific period.
- 👉 Use product analytics tools like Mixpanel and Heap to track and compare user activity.
- 👉 Engage power users by giving them early access to new features. This not only garners valuable feedback but also fosters a sense of involvement and loyalty.
- 👉 Use in-app surveys, emails, or community forums to invite power users for beta testing and gather their insights.
#9 Implement an Expansion/Upselling strategy
The key role of customer success is to drive expansion revenue (and reduce churn).
Create a strategy around how you can increase the revenue with your existing customers. This includes:
- Upselling strategy
- Cross-selling strategy
- Pricing Strategy
This also includes product optimizations: How to streamline the process and make expansion (especially upgrading) frictionless (no additional checkouts or payment steps).
#10 Increase your ARPA
ARPA is the average revenue per account.
10 ways to increase your ARPA:
- Price increases
- Nudge to higher pricing plans
- Scalable pricing model (with the right value metric)
- Restructure your pricing packages
- Expansion revenue with an upselling strategy
- Invest in activation (in combination with scalable pricing)
- Expansion revenue by cross-selling complimentary products/services
- Reduce churn by implementing churn alerts
- Always remind of value (e.g. on every invoice) to reduce churn
- Establish Account Manager / Customer Success (for mid-market)
P.S. Know the difference between ARPA and ARPU (average revenue per user).
#11 Survey customers
Frequently surveying your customers is key. You will always learn more.
🔗 Use https://pmfsurvey.com/ from PMF Survey to get started.
Here are some possible questions (depending on what you’re trying to learn about your customers).
- How did you discover [X product/company]?
- How would you feel if you could no longer use X?
- What would you use as an alternative if X weren’t available?
- What’s the primary benefit you’ve experienced from X?
- Have you recommended X to anyone?
- What type of person do you think would benefit from X?
- How could we improve X to better meet customer needs?
Important customer Segments to get better insights:
- Most active
- loyal users
- high NPS score
- high/low MRR
- inactive users (signed up but never used it)
- new customers
- churned customers
#12 Try offering Annual Payments
Encourage long-term commitment by offering discounted annual payment plans.
For instance, if a monthly subscription is $20, offer an annual plan at a rate equivalent to $15 per month, totaling $180 for the year.
💰 Annual plans can enhance customer retention and ensure a steady cash flow.
#13 Understand why yours users stop using your SaaS
Prioritize understanding why users stop using your SaaS product or cancel their subscriptions Key strategies to consider:
- ✅Provide timely and personalized support responses.
- ✅ Offer proactive support by anticipating common user issues.
- ✅ Use feedback loops to understand user pain points and address them.
- ✅ Train your support team to empathize with users and offer solutions tailored to their needs.
- ✅ Consider implementing a dedicated customer success team to guide users through onboarding and regular usage.
- ✅ Regularly review and analyze support tickets to identify trends and areas for product improvement.
Top reasons for customer churn:
- Frequency of Usage — what is the frequency of product usage?
- Breadth of Usage — are customers using your full breadth of solutions?
- NPS Results — how happy are your customers?
- Changes to Key Staff — what happens when a product evangelist leaves the company?
- Tool Limits — are customers hitting their usage limits?
- Engagement — are there long delays in product engagement?
In summary, retention is the backbone of a successful SaaS business. The strategies discussed, from understanding user behavior to offering personalized experiences, are crucial in ensuring that your customers remain loyal and engaged.