In the competitive landscape of SaaS marketing, acquiring new customers is always a top priority for businesses. However, it's equally important to focus on retaining existing customers. Customer retention is the practice of keeping customers coming back to your business and continuing to use your software or service.
On the one hand, it's no secret that customer acquisition is expensive and time-consuming. Retaining customers, on the other hand, can provide a higher return on investment and contribute significantly to the long-term success of your business. In this article, we'll explore the importance of customer retention in SaaS marketing and provide some effective strategies to help businesses retain their clients.
Customer Retention is More Cost-Effective Strategy Than Acquisition
Acquiring new customers requires significant marketing effort and expenses, such as advertising, content marketing, and search engine optimization. In contrast, retaining existing customers requires less marketing effort as they already know your brand and the value it provides.
Studies show that it can cost up to 5 times more to acquire a new customer than to retain an existing one. By reducing the costs associated with acquiring new customers, businesses can allocate more resources to other business areas to build long-term relationships with clients.
Brands like Dropbox created a referral program that allows their existing customers to invite their friends to join Dropbox. When a friend accepts the invitation and signs up, both the existing customer and the new customer receive additional free storage space. As a result, Dropbox managed to increase its customer retention and acquire new ones, leading to a 3900% raise in its customer base over 15 months.
Increase Revenue and Profitability
SaaS companies typically have a subscription-based business model, which means that they rely on customers renewing their subscriptions to generate revenue. Therefore, retaining customers and reducing churn rates can lead to increased revenue and profitability.
Here are a few ways customer retention can increase revenue and profitability in SaaS marketing:
Reduced Churn Rate
Retaining existing customers means reducing the churn rate. It is the percentage of customers who have stopped using your product. By retaining customers, you can reduce churn, which is a key driver of revenue and profitability in SaaS marketing.
SaaS companies can decrease churn rates by providing irresistible promos like the one below by Grammarly.
Upsell and Cross-sell Opportunities
When you retain existing customers, you can also sell them additional products and services, known as upsell and cross-sell opportunities. They help to increase revenue and profitability as customers are more likely to buy from a brand they trust.
Amazon does this by showing customers a list of products that are often purchased together with the product they are currently viewing. For example, if a customer is looking at a camera, Amazon may suggest related products such as camera bags, lenses, or memory cards.
Improved Brand Loyalty
Retaining customers helps to improve brand loyalty. When clients are satisfied with your product and customer service, they are more likely to stick with your brand, recommend it to others, and stay loyal.
One example of how customer retention can increase revenue and profitability is the case of Amazon Prime. According to a study by Consumer Intelligence Research Partners, Prime members spend an average of $1,400 per year on Amazon, compared to $600 from non-Prime members. In addition, Prime members are more likely to make frequent purchases and refer others, which has helped Amazon grow its customer base and increase profitability.
Positive Word-of-mouth Marketing
By focusing on retention, SaaS companies can create a loyal customer base that helps to grow their business through positive word-of-mouth marketing. Here's why:
Positive Experiences Lead To Positive Reviews
When customers have a positive experience with a SaaS product, they are more likely to leave positive reviews and recommend the product to others. This creates positive word-of-mouth marketing, which can attract new customers to the company.
Retained Customers Can Provide Valuable Feedback
When you retain customers, you have the opportunity to ask for feedback and use it to improve your product or service. You can collect feedback with a QR Code Generator and add them on your product labels. This feedback can help you create a better product or service that will further increase customer satisfaction and positive word-of-mouth marketing.
Retention Builds Trust
A SaaS company's focus on customer retention shows that it values its customers and is committed to providing a high-quality product and excellent customer service. This builds trust with existing customers, who are then more likely to recommend the product to others.
Referrals Lead To New Customers
When satisfied customers refer their friends, family, and colleagues, this can convert into new clients and increased revenue for the company. Referrals are often the most effective form of marketing because they come from trusted sources and are more likely to result in a purchase.
One of the reasons for Shopify's success is its focus on customer retention which has also led to positive word-of-mouth marketing. Shopify's net promoter score (NPS), which measures customer loyalty, is 6, which is considered excellent. Shopify's high NPS score and positive reviews from customers help attract new merchants to the platform and contribute to its growth.
Improve Customer Lifetime Value
Customer lifetime value (CLTV) is a measure of the total value a customer brings to a business over their entire relationship with the company. Increasing customer retention rates can improve CLTV by increasing the amount of revenue a client generates for the company over time. According to a study by Bain & Company, increasing customer retention rates by just 5% can lead to a 25% to 95% raise in profits.
Suppose a SaaS company charges $100 per month, and the average customer stays for 10 months. The CLTV for a typical customer would be $100 x 10 months = $1,000.
Now, if the company can increase its customer retention rate and average client lifetime to 12 months, the CLTV for each customer would go up to $1,200. This simple calculation shows how improving customer retention can significantly boost CLTV.
For example, Salesforce's MVP Program recognizes and rewards top-performing customers with exclusive perks, including access to events, product releases, and personalized support.
Tips for Improving Customer Retention
- Provide exceptional customer service: make sure your client feel valued and appreciated. Respond to their queries and concerns promptly and with empathy.
- Offer loyalty programs: reward your customers for their loyalty with special offers, discounts, and exclusive promotions.
- Personalize your communication: address clients by their name and send personalized emails, messages, or notes on special occasions like birthdays, anniversaries, etc. Also, implement email security measures and use an SPF record checker to keep your communication safe from malicious attacks.
- Gather feedback: ask for feedback regularly and use it to improve your products and services. You can also use it to address customers' concerns and resolve issues quickly.
- Stay in touch: keep in touch with your clients regularly, even when they are not actively engaging with your brand. This can be through newsletters, social media updates, or other forms of communication.
- Improve user experience: make sure your products and services are easy to use and understand. Streamline your checkout process and reduce any obstacles that may prevent customers from completing a purchase.
- Provide educational resources: share resources and information that can help your clients get the most out of your products and services.
- Be consistent: consistency is key when it comes to customer retention. Make sure your brand messaging, customer service, and overall experience are consistent across all channels and touchpoints.
- Show appreciation: show your clients that you appreciate their business by thanking them and offering rewards for loyalty.
- Resolve issues quickly: address any issues or complaints quickly and efficiently. Be transparent and communicate openly with your customers throughout the process.
With the competitive nature of the industry and the constant emergence of new players, keeping existing customers happy and loyal can make all the difference. Retention efforts should begin from the onboarding process and continue throughout the customer journey, with regular engagement and personalized communication.
By measuring retention metrics, identifying areas of improvement, and implementing effective retention strategies, SaaS businesses can not only reduce customer churn but also increase revenue and growth. Focusing on customer retention is not only a smart business decision but also a reflection of the company's commitment to providing exceptional customer service and building lasting relationships with its clients.
Did you enjoy this article? Give Pics.io a try — or book a demo with us, and we'll be happy to answer any of your questions.Nayana is a passionate Digital Marketer who specializes in SEO, Email Marketing, Social Media Outreach and Community Relationship Management. She is currently the SEO Tech Lead and Outreach Manager at Visme.