With the onset of the Covid19 crisis, almost all industries have taken a hit directly or indirectly- SaaS is no different. According to a survey by Gainsight, 77.5% believed their anticipated Net Retention Rate (with the benefit of upsell) would decrease by at least 3% and up to 20+%. Of those companies, 40% believed it would reduce by 11% or more. Focussing on retention has become more important than ever before because revenue from acquisitions will slow down due to reduced economic activity. Potential customers don’t want to increase their costs by purchasing new software during the economic downturn. This blog talks about SaaS customer retention strategies that would help SaaS companies tackle churn during the ongoing Covid19 crisis.
What exactly is Retention rate and how important is it?
Retention rate is the percentage of customers you retain in a given time period. Let’s take a hypothetical example: If you start the year with 100 customers and out of those 100 customers 20 cancelled their subscription, and at the end of the year the annual retention rate is 80%.
Let’s look at a few stats that will help you better understand why focussing on retention is important:
- Between 70 and 95% of a subscription-based company’s revenue comes from renewals and upsells.
- On average, a repeat customer spends 67% more than a new customer.
- Bringing in new customers is up to 25 times as expensive as retaining your existing customer base.
- Increasing your customer retention rate by as little as 5% can increase profits by 25% to 95%.
Now that we have looked at why retention is inevitable for any SaaS business, we need to understand that the approach to tackle churn is very different for wartime scenarios as opposed to peacetime. Here are some strategies to reduce churn during the current economic downturn (wartime scenario).
Strategies to Increase Retention
Taking special measures for high-risk customers
Segment your existing customers on the basis of how affected they are from the crisis by assigning a risk score to each customer. There are certain industries that are more affected than others. For example, customers that belong to aviation and the hospitality industry would definitely be more heavily affected than others. Therefore, businesses need to devise special strategies for customers who fall in the high-risk segment. Such strategies may include:
- a heavy discount
- pausing their subscription billing for a few months
- deferring their payments
- asking for 2 referrals in return for free service
Take action basis the pre-churn events
SaaS companies often take the necessary steps such as offering discounts etc when the customer has already cancelled the subscription. In such cases, getting customers back becomes challenging. A better strategy is to observe the pre-churn events such as low account usage, reduced product stickiness ratio, lower quick ratio and take necessary steps to reinforce and educate the customers about the benefits of the product. SaaS companies should personalize their outreach efforts since not all the features may be relevant for each customer.
High touch customer support during the times of crisis to show them you care
In times of crisis, it is always a good idea to handhold customers in their journey of deriving value from the product. If they need financial help, see if they require discounts, a downgrade, or free service. If you care for your customers during these times, there are high chances that they become loyal to your brand and may also refer your product or brand to their network. The sole objective should be to help the customer achieve their goals through your product even if it requires giving away the service for free for a few months.
Tailor your strategies on the basis of whether your Target Group treats your product as a nice to have or need to have
If your product is nice to have for your customer segment and is not a necessity, then chances of churn are higher. Companies try to cut unnecessary expenditures by focussing only on the must-haves. Therefore, as a business, you need to devise special strategies to keep those accounts going. Let’s take an example of cloud telephony services. There are some customers who buy a toll free number just for branding and to let their prospects know that the company has a nationalized presence. However, some businesses use toll free number along with an IVR system to manage the huge inflow of calls they receive which otherwise would be a hassle. For the first set of customers, a tollfree number is a nice to have but for the second set of customers, it is a must have. Therefore, during times of crisis, the first type of customers would have a higher likelihood of churn as compared to the second. So, different retention strategies should be devised for each segment of customers.
Delinquent churn a.k.a ‘dunning’ happens due to payment failures. This type of churn is an involuntary churn that can be avoided easily by SaaS businesses since the crisis is not the reason behind this type of churn. In fact, businesses should try to bring the involuntary churn to 0 not only during the economic downturn but also during normal times since it is the easiest to avoid.
Upsell to customers who benefited from the crisis
There would be certain customers who must have benefitted from the crisis. For example, the companies that have helped other companies transition to remote working efficiently such as Zoom. It is important to upsell to such customers a higher plan, more users, etc to compensate for the contraction in revenue from the downgraded customers. SaaS companies should aim for zero MRR churn. A good indicator to spot such customers is to look at their account usage statistics. Higher the usage, higher is the value they get from your product, hence, signalling an opportunity to upsell.
Don’t invest equally in all customers
There would be certain customers for example, those in the hospitality industry, who might have gone out of business during the crisis. So, there are very high chances that these customers wouldn’t renew under any circumstance. Therefore, it makes sense for you not to invest a lot in nurturing such customers. However, if these customers loved your product, they might help you in the following ways:
- get referrals for your business
- write testimonials for your product
- help you with writing their case study that would help in acquiring other customers in the same industry
Cancellation surveys to understand the reason behind churn
Most SaaS companies use a “Sorry to let you go” message when customers cancel the account. A good strategy is to send a small cancellation survey when they cancel the subscription to understand the reasons behind churn. Understanding why customers cancel helps you improve the way you help customers derive value from your product.
Now that we have discussed strategies for reducing churn during the time of crisis, let’s now throw some light on how to differentiate your strategies to reduce churn on the following fronts:
Product-led vs Sales-led growth model
Most of the companies which follow product led growth model offer customer support through FAQs, chatbot and ticketing systems. The low touch support is mostly due to the low ARPA and low complexity for such products. However, during times of crisis, depending on your product type, it may help in retaining the customers if you provide outbound support by calling them and reinforcing the benefits of your product.
On the contrary, Sales led approach is mostly common with Enterprise SaaS companies which already provide high touch support to their customers. Such companies should increase the frequency of communication with their customers beyond the usual frequency, especially the high value customers to help them derive value from your product.
B2B vs B2C SaaS
Customers of B2B SaaS companies churn when the product fails to help them achieve their goals. So, during the time of crisis, it becomes important for the customer support team to go beyond their usual communication frequency with the clients to help them understand how their product can help the customer’s business.
On the other hand, customers of B2C SaaS companies churn when they lose interest in the product or when the product’s competitors offer a better service. The switching costs for customers of B2C SaaS companies such as Amazon Prime are low and hence they would not mind switching to another alternative such as Netflix if it offers a better service.
Monthly subscription vs Annual Subscription-based SaaS
It’s well understood that acquiring customers is easier through monthly subscriptions than annual subscriptions since the barriers to entry are low for monthly subscriptions. If the customers are not satisfied with the product, they may discontinue the service from the next month. However, the same is not true for annual subscriptions. Once a customer signs up for an annual subscription, he has to stay for atleast 12 months. Higher time helps the business better serve the customers and thus the customer gets higher value from the product. Annual subscriptions also contribute towards higher lifetime value.
Tools that can help increase retention
- Dunning Management Software: Dunning constitutes a high proportion of churn for a lot of SaaS companies. Therefore, a dunning management software becomes essential for them. ChurnBuster is one of the tools that helps SaaS companies tackle passive churn. It helps in recovery of the failed payments and thus helps in reducing churn. This tool also improves the user experience of the customers by taking care of their recurring payments.
- Referral Program Software: Today buying decisions of people are driven by their peers. So, referrals become an important part of customer acquisition strategy for any business. Tools like Advocately and Ambassador help in review automation and streamlining reviews from customers, affiliates and influencers. These tools are a must have for any SaaS business.
- Survey tool: You can simply use tools like Typeform or Google Forms for getting feedback from your customers. There are special tools as well for measuring customer satisfaction such as Customer Thermometer and Garnio. These tools can be used to create CSAT surveys and offboarding surveys. These tools are must if you genuinely want to gather feedback from your customers.
- Subscription metrics tracker: Understanding the subscription metrics is very important if you want to serve your customers better and increase retention. FirstOfficer is a subscription analytics software that helps you understand your customer cohorts and metrics such as customer lifetime value, cohort profitability etc.
- Subscription Billing and Revenue Management Software: Revenue forecasting and pricing are very essential components of every SaaS business. Chargify is a software designed for B2B SaaS companies that helps them with millions of pricing and subscription combinations, events billing for charging the customers on the basis of what features they customers use the most, subscriptions analytics etc.
The strategies discussed in this blog would not only help you maintain a steady stream of revenue through the existing customers but would also help in new customer acquisition through happy customers who would become your champions. We hope this blog helped you steer your customer retention strategy in the right direction during the ongoing crisis. If you need any help with your retention strategy, feel free to reach out to us. We’d be happy to help.