SaaS Customer Loyalty: Reduce Churn and Build Loyalty

Tech companies face rising costs and shrinking funding.

In software-as-a-service (SaaS) companies, the "growth at all costs" mentality has dominated Silicon Valley and beyond for the past decade. Now the focus has suddenly shifted to whether or not startups have enough runway to survive a sudden shortage of investment.

As major layoffs and other cost reductions have dominated the headlines, internally many management teams have seen retention as the key to surviving and thriving during these uncertain economic times.

This means growth marketers also need to change their mindset and think beyond the top of the funnel on how to retain and expand users to generate income. This requires leveraging data and automation to drive large scale expansion and retention strategies with smaller teams and budgets and ultimately support their business growth.

> Why Customer Retention is a Missed Opportunity for SaaS Companies

Retaining existing customers is more economical than acquiring new ones. In 2001, a study by Bain found that acquiring a new customer was 5 to 25 times more expensive than retaining an existing customer. Additionally, just a 5% increase in retention rates can increase profits by 25-95%.

"Too many [companies] are missing out on their greatest opportunity to cut costs: building loyal relationships with customers and other stakeholders," said Frederick Reichheld, consultant at Bain who invented the Net Promoter Score more than two decades ago - but his advice is still as relevant today as it was in 2001.

For a long time, customer retention has been the neglected brother of acquisition, seen as the responsibility of support and customer success teams. In fact, a PriceIntel study of more than 1,400 SaaS business executives and founders found that while 70% of leaders were acquisition-focused, only 20% considered retention their top priority. But all that is starting to change.

Marketers had the luxury of forgetting, thanks to an influx of venture capital, which allowed them to keep spending to fill their funnels without worrying about leaks. But those days are over, and as such, growth marketers need to start thinking about the entire customer lifecycle.

How Retention Can Boost SaaS Businesses During Difficult Times

Retention isn't the new growth - it's the old growth. Companies with best-in-class retention (defined as those with a net retention rate greater than 100% or gross retention greater than 85%) actually grow 1.5 to 3 times faster than their peers, according to ChartMogul .

Why?

The probability of selling a new product or service to an existing customer is 60% to 70%, but only 5% to 20% of prospects are likely to buy. Simply put, focusing on retaining and expanding your existing customers will catapult your growth.

Growth marketers can have a significant impact on retention in two ways. The first and most obvious is to consider customer lifetime value (LTV) in their acquisition strategy - considering not only leads, but also quality leads that fit their ideal customer profile and are likely to stay with the company for the long term rather than one billing. cycle.