The answer to the age-old question 'which is more profitable and cheaper, acquiring a new customer or retaining an existing one' is widely known and accepted - acquiring a new customer can be as much as five times more expensive than retaining an existing one and increasing customer retention by just 5% results in a profit increase of at least 25%.
Customer retention is even more critical for SaaS businesses whose lead to customer process is generally more complex and time-consuming than it is for B2C businesses like retail. Because the effort of acquiring new customers is massive, retaining them becomes even more vital.
What is Customer Retention in the Context of SaaS?
If you're looking to define customer retention, the definition remains the same irrespective of the business model - ensuring a paying customer remains a paying customer. What changes when it comes to SaaS businesses is the impact of retention and the strategies for retention.
Loyal customers are more likely to refer friends and family to your product, and referred leads, in turn, convert 30% better and have a 37% higher retention rate. SaaS businesses have a higher stake in customer retention since the conversion lifecycle is longer and more expensive.
We have created a list of 10 SaaS business-specific customer retention strategies you can implement in 2023 to increase customer engagement and retention.
10 Customer Retention Tactics for SaaS Businesses
1. Provide interactive in-app onboarding
User onboarding - the process of familiarizing your customers with your app or Saas product and its features is an important process that affects retention. New users have not yet used your product and whether they adopt for the long-term or drop it after one use depends on how well your onboarding process is.
Loyaltics, a marketing and analytics software, experienced a 50% increase in retention rate after implementing in-app onboarding.
The best apps have interactive and in-app onboarding processes. Giving your app or software users learning tips right inside the app, through tooltips or popups that trigger when the user tries a feature for the first time, or through interactive walkthroughs that make the user use features at least once, is a great way to ensure your new users are trying the app and understanding how it works.
In-app interactive onboarding does two important things - it teaches your users how the app works, which is essential if your product is complex to use or has a lot of features. It also encourages users to stay on the app and explore features they might have otherwise missed.
This works much better than external articles and knowledge base guides. Yes, KB articles are needed for users who need help, but you shouldn't move the onboarding process outside the app.
If coding an interactive onboarding module for your app is not a part of the development plan, you can integrate third-party solutions that allow you to deliver interactive in-app onboarding without the need for building it. Gyde, for example, is a plug-and-play user onboarding solution designed for SaaS platforms with interactive in-app onboarding functionality.
2. Gamify features within the product
Gamification is creating game-like processes and steps to a software. Gamifying the setup or onboarding process amplifies the in-app learning features and is a great way to increase engagement further.
Although not many SaaS products have a gamified onboarding process, those who do have experienced an increase in in-app engagement of 48% and an increase in the turnover rate of 36%, states a report by Tint.
Gamification can go beyond the setup process; you can gamify other features of your SaaS product to increase engagement and retention. Codecademy, an online platform for learning coding presents its users with weekly targets automatically created by the platform.
These include login targets - you get a login streak as you continue to login without missing a day, and learning targets - you have to complete X number of lessons every week to meet this target. As you hit one target - completing three lessons in a week, for example, you unlock the next target - completing five lessons in a week.
This adds an element of fun to the entire process of taking up courses on the platform. It also becomes addictive as more time and effort is invested - users tend to want to log in and maintain their streak after hitting a high number.
3. Personalize in-app user content
You will collect enough user information through the onboarding process to personalize in-app content for users. Personalization is one of the best retention strategies for customers.
Greet users with a personal greeting using their name when they log in. Give them a snapshot of their past login and interactions. Allow them to personalize the UI - user choice of colors and layouts. Allow users to choose the language of use, etc.
SaaS-based project management tool Asana allows each user to set their background style and modify the dashboard view to suit their working style. This makes the space personal for each user.
Product personalization is a great enforcer of customer retention. It gives users a sense of uniqueness - a feeling that their workspace is specific to them. This creates an emotional connection with the product, significantly increasing loyalty and retention.
4. Engage users with progress reports
This is a great way to increase product engagement and retention.
Grammarly, a cloud-based writing assistant, sends weekly performance reports to every user that includes information like the number of days/weeks you have been continuously writing for, the number of words typed, your grammar accuracy, and a comparison between you and its other users in terms of vocabulary and productivity.
They have also gamified this step - as you hit targets in your weekly report, you unlock more targets to achieve. You can see how a report like this automatically gets the user thinking about using Grammarly to improve their writing stats.
MyFitnessPal, an app that helps users count calories and workout progress, gives users progress information like calories consumed, calories saved, cardio completed, etc., within the app itself.
Sending progress reports to users reinforces your product in their minds, reminds them why it is useful and encourages them to use it.
5. Use content marketing for engagement outside the app
Along with sending progress reports, you can also send targeted content to engage and retain your product users.
Yoast, a WordPress plugin for SEO, sends its users emails about tactics to improve SEO, other WordPress tools they can use, and tutorials about their plugin.
You can see how relevant and useful this is - their users use Yoast, which means they are looking to improve SEO, they use WordPress, so they may be looking for useful plugins, and they use Yoast so they will be interested in tutorials that help them use the product better. They are creating content that they know their current users will open and engage with because they provide answers to solve their pain points.
Sending users relevant and valuable content not only gets them to go back and use your app but also creates goodwill that fosters loyalty and increases retention. The content you put out should solve your end user's problems and answer their questions.
Maintaining relevancy is essential to email marketing. If you send emails with content that is not aligned with your users, you will frustrate them and end up with unsubscribers.
You can engage users through many different channels - email, social media, in-app notifications, etc., but we focused more on email because it has the highest impact. In fact, a report by Investis Digital stated that 61% of brands prefer conversing with existing customers over email because it delivers the highest ROI in terms of engagement and sales.
6. Identify the chances of user churn early
Churn rate, customer churn, or attrition rate is a percentage that represents the rate at which your customers stop using your product. It is the rate at which you lose customers for a given period. A churn rate of 30% per year indicates that you lose 30% of customers every year.
The churn rate is the opposite of user retention, and if there was a way to identify which users are most likely to churn, you could take preventative measures to try and retain them, and there is a way to do this.
Acutely tracking user engagement metrics like the number of logins, time spent on the app, etc., will allow you to set benchmarks for individual users. You can create averages to apply as a benchmark for all users of your product. You can also integrate analytics systems that have inbuilt red flag metrics.
Once you have a method of identifying which users are likely to abandon the product, you can create user-specific retention strategies - use email to make them aware of upcoming features, get their feedback, understand what your product is lacking, and give them incentives like subscription discounts, etc.
7. Offer add-ons and subscription discounts
Offering cross-sells, up-sells or subscription discounts is an excellent way to retain customers. Cross-sells and up-sells work well (and are necessary) for platforms that have consumable products, like a course platform, for example. Once a user has completed a course, they have no use for your platform, and retaining them becomes a matter of selling another product.
REWA Academy, a course platform for mobile cell phone repair training, offered all course renewals at half off in 2020 encouraging users to continue subscribing. Elementor, a WordPress page builder plugin, offers all plan renewals at half off from year two onwards. Offering discounts on renewals is a great way to retain customers.
Whether you have a consumable product or not, offering subscription discounts and cross-sells/up-sells for a lower price is a good strategy for retaining users.
Most SaaS products work on a subscription model, charging users a yearly fee. Offering a discount on this fee or promoting special offers like a Black Friday sale will get users to continue using your app. This is especially handy for any user who found your product's pricing a pain point with the app.
8. Give customers early bird access to new features
Giving a selected group of customers early access to new product features achieves two things - it gives you beta testers for your product and valuable feature feedback, and it creates a sense of loyalty within these selected customers as they invest time and energy in using the product and influencing its shaping.
You can either select users yourself - by making a mix of power users (users who are experts at using your product because of long-term use) and users showing red flags (to try and prevent them from churning), or you can request users interested in being beta testers to enroll in the feature testing program.
These requests can be posted on the app, on your company website, sent via email, and shared on social media.
9. Build a community for your users
Elementor has a thriving Facebook community of over 122K users. Interestingly, this community largely functions on users engaging with other users with very little interference from company staff. This is a great example of building a self-nourishing community.
When Elementor has sales or product news to deliver, they now have a ready-to-engage audience of over 122K members.
Creating a community is not a challenge today - you can use social media platforms to create groups or create standalone communities through platforms like MightyNetworks. The challenge is growing a community, of getting like-minded and relevant users to join the community. The way to achieve community growth is by delivering useful and relevant content.
Once you have a good mass of community members, you will have users answering other user questions reducing your load on maintaining the community. This is important to retention - when users read answers by other users, they trust your product. This will also free up your support team to work on more critical matters.
10. Allow users to make feature requests
Allowing existing customers to make feature requests is a smart way of getting customer feedback and getting customers to feel a level of investment in the product, increasing loyalty and customer retention.
Collecting feature requests can be done through the product's website or directly through the app. You can also train customer support executives to look for clues when speaking to customers.
Customer support reps at Kajabi, a SaaS platform hosting online courses, guide users to submit a feature request when they reach out to the support team and ask for help with an action that the platform at that time does not support.
Having users submit feature requests instils in them a sense of investment - they now feel they have a stake in the product, they are contributing to its growth. This alone increases loyalty.
These feature requests can be seen as feedback - they are asking for a feature because they want to perform an action that your SaaS product currently isn't supporting. How can you remedy that situation?
Lastly, if you do install the requested feature, you create a sense of community within your users - they get the sense of being heard and taken seriously. This goes a long way in fostering customer loyalty and retention.
Customer Retention Solutions You Can Use
Customer retention for SaaS businesses is much easier today, thanks to technology and innovation. There are customer retention tools available that are specifically built for SaaS companies, and we have curated a list for you:
1. CRM - Customer Relationship Management tools, or CRMs, are great tools to streamline customer conversations and support activities, both of which increase customer retention. You can connect the marketing, sales, service, and support teams to the CRM to deliver an omnichannel experience to your customers. There are CRMs like GoSquared explicitly built for SaaS companies.
2. Loyalty Programs - You can use third-party tools like Yotpo to create customer loyalty and rewards programs for existing customers. These work especially great for SaaS businesses that do not have in-house products they can offer as rewards. These tools allow you to leverage their tie-ups with other brands and provide external rewards for user engagement with internal products.
3. Customer Support - Using a dedicated customer support platform will help you deliver quality support without worrying about the support platform itself. The alternative is creating a self-hosted support forum and support processes, which takes time and effort. Using existing customer support platforms like Zoho or FreshDesk allows you to deliver excellent customer support right from day one.
4. Interactive User Guides and Onboarding - Lastly, you can use existing tools to incorporate interactive onboarding and user guides. Here's how:
Increased Product Adoption and Retention with Gyde
We have built Gyde specifically with SaaS businesses in mind. Gyde allows you to quickly deploy interactive user guides and onboarding processes, which has increased adoption rates, engagement rates, and retention rates. Gyde also provides user interaction analytics that allows you to understand how users are using your product, which helps you fine-tune other user-related processes.
Get a free demo of Gyde today -> Try Gyde for Free.
1. Does it make sense for SaaS companies, being product companies, to incorporate third-party customer retention software? Or should they build everything in-house?
Building all functionality in-house might not be feasible in terms of time and money. Firstly, for activities being performed by your teams, like customer relationship management or email marketing, you can use third-party products like Salesforce or MailChimp without your product users being exposed to the third-party app directly.
This question only arises when you consider in-app functionality like interactive user guides, should you use an external product to deliver such in-app features to your users. The answer is still yes - your tech team should focus on the core functionality of your SaaS product while you use external plugins or APIs for additional, peripheral features.
2. What is the best way to select existing users when creating a focus group, either for feedback or beta testing?
Based on analytics, always. Good metrics are return users, engagement, and session duration. Then divide users by low, medium, and high for each metric and take a mixture of all three groups, so you get feedback from people with different levels of interest in your product.
3. Is it okay to push different modes of messaging (email, push-notifications, in-app popups, etc.) at once for a particular message or just pick one?
This is dependant on the message. If you're running a sale and feel users will benefit from it, you can push them on all mediums, and they won't mind. If you're pushing promotional messaging to users on multiple channels, they could get frustrated with the constant notifications.
Firstly, use each medium for its respective purpose - email for marketing, information, and general content, push notifications for user-specific notifications (like a new message), and in-app popups for app-specific notifications (like a new app feature).
That being said, you can mix and match depending on the message, as long as you're not bombarding your users with notifications constantly.