We’re hardly dropping a bombshell here by telling you that when it comes to growing and sustaining your SaaS business, retention is key. “Of course!” you’re probably thinking. “Retention? I’m all about it!” After all, who would dispute the value of keeping the customers you’ve worked so hard to acquire?
But … (yes, there's a big but ... )
… If it’s so self-evident, and retention is really king, why don’t the numbers reflect more success when it comes to SaaS companies’ efforts to retain a healthy customer base? According to a study by For Entrepreneurs, the median annual unit churn for Saas companies was 10 percent in 2016. To contextualize that, Bessemer Venture Partners maintains that an acceptable churn rate is a mere 5-7 percent annually, depending on whether you measure customers or revenue.
And customer success expert Lincoln Murphy cites a Pacific Crest survey of private SaaS companies which concludes that roughly 30 percent of SaaS providers have an unacceptable level of churn. But Murphy contends that for most companies (i.e.; the ones who weren’t fancy enough to be included in the survey) it’s probably much worse. Murphy says: “Honestly, for those companies, it isn’t a lack of customers in the front door that is stopping their growth; it’s the constant flow of customers out the back door that is killing their business!”
So why is there such a big disconnect between the lip service and the reality? If everyone can agree that retention is crucial (and the flip side of that coin: the importance of minimizing churn) then why aren’t retention rates better than they are across-the-board? Well, it’s probably a confluence of factors. For one thing, it seems the SaaS world has developed a bit of an unhealthy fixation on acquisition above all things, as Price Intelligently discovered in a 2016 study. CEO and co-founder Patrick Campbell writes:
[While] each of these pillars [acquisition, retention, monetization] represent an amazing opportunity for growth, all data indicates that the SaaS world has become dangerously addicted to solely acquisition based growth. … we’re barely even thinking about retention or monetization even though all data shows that these are much more efficient and effective at driving growth than acquisition. ...To put it more bluntly, if you continue to brute force your growth solely through acquisition, you will be left behind.
Still not convinced? Consider these statistics from the same Price Intelligently report:
What we found is that if you improve your acquisition by 1% (by increasing your lead volume or conversion rate), you’ll see just over a 3% boost in your bottom line. This contrasts starkly with the relative improvements in monetization (increasing your ARPU by 1%) and retention (lowering your gross churn by 1%) that see boost in roughly 13% and 7% respectively.
Look, this obsession with acquisition is understandable. Acquiring a boatload of customers just plain feels good. It’s exciting! Plus, it’s a fun stat to report to the board or your investor or even your staff. But if you aren’t keeping the customers you’ve got -- and intelligently monetizing -- it’s not a sustainable way to grow. As growth and marketing expert Brian Balfour says, “If your retention is poor then nothing else matters.”
So what can you do about it? Below we've outlined some retention and monetization strategies that can help.
Use Data To Identify Triggers That Can Boost Retention
Your customers are telling you things all the time. They tell you when they’re making progress towards their goals, when they’re happy and seeing the value you provide, and, on the flip side, they tell you when they’re stuck and experiencing the forces of SLOW (struggles, lapses, obstacles, and workarounds). And they speak to you through their actions -- or inactions. The question is, are you listening?
How can you “hear” what they’re saying? Well, first off, you can gather qualitative metrics to discover their self-defined successes -- or “ah-ha” moments -- through SLOW interviews, which we discuss in detail elsewhere. Simply put, SLOW interviews dig deep to uncover your users’ motivations, frustrations, and definitions of success. Secondly, you should gather quantitative metrics by observing the behaviors that your most engaged and avid users have in common -- especially early on in their interaction with your product.
Once you understand how these ah-ha moments come together to form long-term success and engagement, you can begin to strategize exactly where to place targeted triggers that will boost and sustain motivation and engagement across your entire user base. For example, perhaps you discover that users identified the moment when they were able to import their sales contacts and see their status at-a-glance as an early and significant ah-ha moment. Some users, however, begin to lapse before this happens. That would be an important place to implement a targeted trigger to help all users reach that ah-ha milestone.
Prioritize Early Intervention
A 2015 industry report by Recurly discovered that B2B SaaS churn generally peaks in the first quarter. An important takeaway? If you want to retain users and avoid early churn, then a value packed onboarding should be an essential part of your strategy.
Making sure you deliver on the value you promised users as early as possible -- in the form of that first ah-ha moment -- will help you propel your customers past onboarding and into engagement and avid usage. This example from Twitter is a great illustration of the connection between retention and identifying and delivering on your promises early. Josh Elman, Twitter’s former lead for growth, explains:
It turned out that if you manually selected and followed at least 5-10 Twitter accounts in your first day on Twitter, you were much more likely to become a long term user, since you had chosen things that interested you. And if we helped someone you know follow you back, then even better. As we kept tweaking the features to focus on helping users achieve these things, our retention dramatically rose.
Implement Targeted Communication and Standardized Interventions
One key strategy in helping lost or lapsing customers get back on track (and retaining the ones who are already successful) is targeted communication. No, we aren’t saying you need to custom craft an email to each individual customer -- that’s not feasible, especially at scale. But if you understand your data, you can create a set of standardized interventions and communications depending on the circumstance. This involves determining:
- What actions have specific groups of at-risk users taken, or failed to take, compared to their more engaged counterparts?
- What steps do could these these floundering users take to back on the engagement track?
- How can you help motivate them to take the next steps?
Only you can determine what’s the right timing and messaging approach for your product; and again, that means gathering the right data to to help you make accurate observations.
Standardized email interventions are effective communication tools, especially if they include an appropriate call to action. Here are some things to keep in mind:
- Keep it focused. In general, one single, well-crafted call to action is going to be more effective than a confusing list of possible actions to take.
- Make sure the call to action has a clearly-articulated value payoff for the customer
- Make sure the user is able to take your prescribed action immediately (via a link in the email, for example). This is known as a “hot trigger,” and it’s far more effective than a cold one.
- Consider incorporating data visualization into your communications. This is a great way for you to demonstrate, at a glance, the value your users have already extracted, as well as the value they could attain if they answer your call to action.
And these communications don’t have to be reserved exclusively for the at- risk user groups you’ve identified. Keep your already-engaged users motivated with value-packed calls to action and communications that highlight their successes.
Targeted, Data-Driven Monetization
Monetization can be a tricky thing: You don’t want to be too aggressive and risk losing an otherwise engaged customer; at the same time, you definitely don’t want to let ripe opportunities to monetize slip through your fingers.
And just as you should target and standardize your communications to help keep users engaged and motivated, so too should you use data to help you find the monetization sweet spot. Here are some important points to consider:
- Tie monetization to early engagement behaviors. Did a given group of users blaze through onboarding and extract every last bit of value before immediately jumping into avid usage? Then target these users and show them how much more value they could be enjoying if they switched to a paid or higher-end plan. In other words: Strike while the iron is hot -- and always tie it to value.
- Don’t try to monetize struggling users. If a user is experiencing a force of SLOW, your first priority should be to ease their struggles and help them achieve success. Don’t try to upsell them with a promise of value until they’re succeeding in their current plan -- it won’t be appreciated.
- Offer upsell opportunities to specific, targeted groups of users. In other words, only offer specific upsells to those groups of users who would actually benefit from it based on their behaviors and successes. If an add on or extra service isn’t relevant then it isn’t valuable .. and if a customer upgrades and doesn’t see any value, why would they trust you the next time you offer an upgrade?
If you keep your customers engaged, help them make progress towards their goals by providing them with value and successes, it’s only logical that they’ll be more likely to want to upgrade or take advantage of additional services or add ons -- right up through renewal.
Experiment with Retention
In order to definitively understand which of your retention efforts have the biggest payoff, you’ll need to do some testing in the form of retention experiments. That means you shouldn’t try every single trigger, retention communication, or intervention you come up with all at once and hope for the best. Instead, isolate, observe, and measure the effects of your retention strategies over time with specific groups of users in order to see what works -- and what doesn’t.