Why Customer Retention is your #1 Priority in SaaS
As CEO of Accordium, I have learnt some essential things about our customers and how to keep them happy, satisfied and more importantly — paying!
In order for a SaaS company to be highly successful, it must apply a concept of steady customer acquisition and fruitful customer retention. If you consider that customer retention is much cheaper than acquiring new customers, your most cost-effective solution is to keep hold of those customers!
According to this Groove article, the probability of selling to a prospect is between 5–20% (by all accounts very high), whereas the probability of selling to an existing client is between 60–70%.
Your paying customers are your cash-flow, your value, your money, references, intelligence and everything that’s going well for for your business. Consider the Lord Voldemort of your business, Churn, is the exact opposite of retention, the question becomes — How do we retain customers?
I am going to share three retention strategies with you that will change your company from being an in/out churn machine to a forceful customer retention beast. These methods are simple, yet powerful and have genuine business-altering qualities.
Raise your price — Higher engagement
At Accordium we have played around with this concept. Whilst we will always charge according to value, we want to ensure customers keep a level of engagement that allows maximum benefit from the product.
According to this article from Lightspeed Venture Partners, a higher cost will leave a perception of greater value. As soon as a customer commits to a cost, that cost is reflected in the balance-books.
As soon as they have made that expenditure, the customer is far more likely to engage with the product. Customer engagement is the number one indicator of customer retention! The more your customers are engaging with your product, the less likely they are to cancel.
According to researchers at the Stanford Graduate School of Business and the California Institute of Technology, if a person is told that he or she is tasting two different wines, and one costs $5 and the other $45, the part of the brain that experiences pleasure will become more active when drinking the more expensive wine.
They proceeded with a study involving 11 male graduate students and the researchers found that an increase in the perceived price of a wine did lead to increased activity in the “pleasure part” of the brain, because of an associated increase in taste expectation.
Raise your price.
Collect reviews from your customers
Inviting customers to leave you reviews should be an integral part of your retention plan.
However, you need to make it a simple system. There is none more strenuous and customer disengaging exercise than receiving a long feedback form after every interaction with a customer service representative.
What you should focus on is to make it easy for your customers to leave a one-time review on a third party, independent platform. As mentioned above, customer engagement is the number one indicator of customer retention, thus collecting the voice of your customers give you instant access to their level of satisfaction and therefore engagement.
Perhaps even more importantly, it helps you identify potential at-risk customers instantly, allowing you to recognize the client and their issue — leaving you with a much simpler path to rescue and lower churn.
It is vital to the growth of your company that you are always detecting potential disengaged customers as any investor’s #2 question will be what is your CLV (customer lifetime value)? The #1 question being about churn.
Upsell your customers
For a lot of people, upselling has negative connotations, however, when used correctly it can actually help you strengthen you and your clients relationship while also bringing you better retention, more revenue and lower churn.
Many SaaS companies focus most of their efforts on getting new customers, when an even bigger (and easier) opportunity lies untouched directly in front of them: Making existing customers happier and selling more to them.
As alluded to in figure 1, the path to sell to an existing customer is a lot easier than selling to a prospect, making potential value reachable with fewer resources and thereby getting you closer to profitability.
However, in order to upsell it is easier if you create a win-win situation for you and your client. This can come in the shape of offering a new product or feature, or improve the service as a whole. If you can manage that, it will further enhance the depth of which your customer is engaging with you. You will accomplish three very good things from upselling to your clients:
1) Improves engagement/relationship with customer
2) Raises the value from a client perspective
3) Increases the customer lifetime value (CLV)
Sometimes customers are skeptical when it comes to paying a higher price for what can sometimes be essentially the same product. A good strategy to use in this case is to give them something for free. Of course, nothing is for free in this world and customers definitely know this — Hence, imagine their surprise when your account manager calls them up and tells them they have just received your latest feature for no cost at all!
You should aim to do this approximately 3 months prior to renewal, which ends up giving your account manager extra firepower and goodwill when it comes to charging a small premium to retain your services. If nothing else, it will add to customer engagement.
CEO @ Accordium